May 20 2005

How to become a venture capitalist

I get asked this question a lot and while the real answer is “I have absolutely no idea,” I thought I’d make something up here so I at least have a place to send people who ask me this question (as well as  anyone else who happens to stumble upon this blog searching for ‘getting a job at a venture capital firm’). This post is for aspiring analysts, associates and principals and has little to do withgetting a job as a partner (which I hope to figure out one day too . . .)

Step one: Assume you will not be able to land a job as a venture capitalist. This is the realistic outcome of trying to get a job as a VC. I imagine the market is a little bit better in places like Palo Alto, but here in Denver I can count on one hand the number of VC jobs that have opened up since I joined Mobius in 2001. Only a couple (I’m thinking about 2 at the moment, but there may be a few others) actually went to people who weren’t already in the industry. Even in larger VC markets (specifically the Bay Area and Boston) there are many more people who are actively looking to get into the VC world than there are positions open.

Step two: Understand the math. It’s critical to understand how VC’s make money and therefore the fundamental request you are making when asking for ajob as a VC. Venture capitalists make money in two ways – from management fees (a percentage of funds under management) and from carry (a percentage of the return on investment). The partners of the fund use the management fee to pay the expenses of running the business (office space, technical infrastructure, travel, support, etc.) and then pay themselves with what’s left over. As a non-partner you are fundamentally a cost center. The partners are quite literally taking money out of their own pockets and giving it to you. Rationally, they will only do this for one of two reasons – either you are significantly impacting their lives in a positive way that makes the trade-off worthwhile for them (you cost less than the marginal life benefit they get from having you around) and/or you will help create more carry (i.e., they can manage more deals with you around and therefore deploy more capital; you have a skill set that will positively affects the portfolio, etc.). If you fail to do these things you are just eating up management fees. There is a grey area here for Principals (called VP’s or SVP’s at some shops, junior partners at others) who are managing their own deals as well as supporting partners’ deals.

Step three: Get close to VC’s. The road to becoming a VC follows many different paths, but fundamentally your first step in landing a VC gig is likely to be figuring out who the VCs are in your area and trying to get close to them. If you’re still in college, consider a job in an investment bank or other financial services firm (even VC analyst jobs are hard to come by straight out of college – VCs tend to hire people with at least some financial training at those levels) to get the best possible training for an entry level job in VC. If you are in business school, look for internships that will allow you to meet venture capitalists (either at a VC directly or for a portfolio company of a VC). If you don’t fit any of those categories, take a job at a company backed by venture money and try to get exposure to the venture capitalists on the company’s board. In short do what you can to get to know VCs in your area so that when a position opens up you can be both top of mind and a known commodity. Take a longer term view of your approach and remember that many VCs got there not by following a traditional path (banking –> b-school –> VC) but have years of operating experience, were entrepreneurs themselves, or were somehow else involved in the business of building and growing companies.

Step four. Be smart about networking. I’m writing a separate post on the subject of smart networking, but suffice it to say here that you should put some thought in how you use your network to meet VCs. Figure out who you know who also knows VCs that you’d like to meet and play the network game as best you can. It can take a long long time to get meetings set up – be patient about it (Brad probably doesn’t remember this, but when I was first introduced to him in what was a very ‘hot’ introduction from someone who he trusted a lot and who had worked very closely with me, it took three months to actually get in to see him <g>).

Step five: Don’t get discouraged. If you remember back to step one, you weren’t going to be successful getting a job in VC in the first place, so all the progress you are making is gravy, right?!?

Also published on Medium.