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How To Become a Venture Capitalist

One of the regular questions we get is “how do I become a venture capitalist.”  As there isn’t a well defined industry standard job description for “venture capitalist”, we thought it’d be useful to reach into the deep, dark, musty blog archives and reprint a post on How to become a venture capitalist – with minor edits (and Seth’s permission) – that Seth Levine wrote in May 20, 2005.

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 with getting a job as a partner.

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. Here in the Denver market 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 two 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 a job 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 wrote 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.)

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?!?

January 26th, 2007 by     Categories: Great Posts    
  • http://golfsolutions.com John

    Brad, wouldn’t you say it is easier to start your own fund than it is to find a job in an existing VC firm? Meaning, that experienced (and wealthy) professionals in an industry (i.e. the media industry) are more apt to start a fund targeting media to get into the VC world than a person off the street is to join a fund specializing in the media industry?
    If this is true, then the best way to get into the VC world is to start your own fund.
    If it is not true, then maybe the other “best” way would be to be a person that made a VC wealthy (i.e. be a CEO of a firm that a VC invested in and made a lot of money from their investment)?
    Or is it still better for aspiring VCs to try to go the entry way as an analyst, associate, and then principal?

  • http://www.feld.com Brad Feld

    Starting your own fund is certainly an entry strategy. However, it’s not a particularly helpful one for someone that isn’t an “experienced and wealthy professional.” That’s effectively how I got into VC – I co-founded Mobius (1997) after having several years of successful angel investing on my own (1994 – 1997) after selling my first company a few years before that (1993).
    While some successful CEO’s end up at VC firms, the same construct to the above applied. In addition – VCs love to back successful CEO’s again and great CEO’s are hard to find so it’s not necessarily a clear path.
    Fundamentally – and Seth’s post states this pretty well – there isn’t an obvious path. There’s a lot of randomness associated with it and if you are open to that, you are probably going to be in a happier place then if you say “I want to be a VC therefore I’m going to go through the following steps starting with business school.”

  • rick

    I’d offer two strategies, more succinctly:
    1. go to stanford or harvard b school (I mean, really, what percentage of these guys are coming out of anywhere else?)
    1.5 intern, etc., while there.
    2. get gig as i banker or in corp dev/M&A at big tech firm. or both.
    3. get close & network
    4. get job as vc analyst
    or (stanford and harvard less required here, depending on size of exit):
    1. Start company
    2. raise vc
    3. successfully exit with big money returned to investors
    4. repeat
    5. join vc as partner (or start a fund yourself)

  • http://lsvp.wordpress.com/2006/12/06/how-i-got-my-job-in-venture/ jeremy liew

    FWIW, I posted on how I got my job at Lightspeed Venture Partners earlier this year. If you’re interested, click on my name in this comment

  • http://sethlevine.typepad.com seth

    John:
    Good question. We kicked thi around some on email. Chris Wand and I had the following response:
    I think the distinction to be made here is that starting your own fund (by leveraging your own wealth) may address the monetary aspect but not necessarily the knowledge or experience aspect of how to “be” a VC. For that, you want to start in an environment with other experienced VCs so you can learn about the business and form your own opinions of how to be an effective VC.
    Venture is still very much an apprentice business (at least in my view) – to really be a good venture capitalist requires a broad set of skills that one is unlikely to pick up in other jobs (certainly one typically enters venture with a subset of those skills, but in my experience there’s no substitute to spending a lot of time with an experienced and successful partner to learn the ropes). While there are some people who effectively leverage their own money into angel investments and sometimes into a “fund” these people have missed a few of the important steps along the way that come from time with more experienced VCs.

  • Adam Jackson

    I just stumbled upon this blog and the “How to become a VC question” hit close to home as I get asked it often, especially since I am relatively young for the profession. My advice, and what worked for me, is to offer to work 1 year for no pay (removes your as a cost center) and during that year entrench yourself within the firm so that you become a net benefit. There are obvious disadvantages to this approach but it worked well for me.

  • http://ituloy--angsulong.blogspot.com Janette Toral

    Thank you for sharing this information. I have worked with VCs providing info gathering service on some of the companies that they looked at. A VC’s work is indeed complicated and accountable to a lot of concerns, perhaps that is why small companies who are just starting are not able to relate pretty well on the concerns that VCs have. I think this is a must read for entrepreneurs so they’ll have a better appreciation on what VCs go through and their deliverables.

  • http://fuel2economy.blogspot.com Yuva

    working for Private Equity Firm and/or M&A division would help.. (no??)
    this might interest some – Flywheel interns man both sides of VC table:
    http://www.bizjournals.com/albuquerque/stories/2006/07/17/story8.html?from_rss=1
    /Yuva

  • http://www.vc-jobs.com Richard

    You could try http://www.vc-jobs.com, this is the number 1 job and information resource for the venture capital industry

  • Kingly

    I found an article recently posted with top European VC Michael Jackson who has some top tips on how to make it. He was voted number 3 in European Technology Investors so he knows what he is talking about – http://www.businessbecause.com/news/mba-alumni/startups-vc-europe-81208 

  • Bob

    Assuming one is seeking a job working for a venture
    capitalist, the answer seems spot on.

    Of course if one had money to invest and the same question
    were asked: How To Become a Venture Capitalist, a different reply would be more
    appropriate, which goes without saying. It seems that it is as difficult to get
    a job working for a VC as it is for entrepreneurs to hook up with a VC, as a
    number of the articles would indicate that I found at:

    http://bill-gates-venture-capital-venture-capitalist.com/#billgatesventurecapitalandventurecaptalistarticles

    If one wanted to be a talent scout for a modelling agency,
    would one be better of trying to get a job doing that, or freelance and bring
    talent to talent agency, get a good reputation doing that first, then use one’s
    track record to get in via the back door so to speak. Would not a person
    seeking out a job as a VC be able to find worthwhile to invest in projects,
    bring them to VCs and if the VC funds them, get some type of freelance profit
    from finding worthwhile projects? I am guessing for every project that a  VC would invest in, there are many they would
    not, so if a freelance VC talent scout developed a good reputation for being a
    superb spotter of excellent projects to invest in, could they not use that
    credential as something a venture capital firm would value?

    Securing a job as an employee of a venture capital firm is
    no easy mission, so it would seem that the freelance method is one used in
    other industries where jobs are few and far between or where competition is
    stiff, such as in journalism or professional photography, not that the job
    market is quite as tough as trying to secure a job in those industries as in
    the venture capital industry.