What Venture Capitalists Do
People who work in venture capital help startups get the financial resources they need by encouraging investors to contribute to a to a fund. In some ways, it’s similar to what someone private equity deals with, though PE usually only involves established companies.
People occasionally liken the position to being an angel investor as well, though angel investors are individuals who use their own capital to help startups take hold. Although a venture capitalist may be required to contribute some of his own capital to a fund, perhaps in the realm of 1% of the total amount raised, most of the work surrounds getting other investors on board and deciding which startups are likely to provide favorable returns.
Who would enjoy a career in Venture Capital?
People who understand what it takes to have a successful startup and have excellent analytical skills do best. Because another component of the position involves attracting investors, those working in venture capital must be adept communicators and salesmen as well. It’s a good career for self-starters who are motivated by their own successes and can prove to be a financially-comfortable career for those who perform well.
Who mightn't like the career?
The field took a major hit some years ago as countless startups folded. Solid investment opportunities were difficult to come by and potential investors held on tightly to the capital they had left. Although this has largely faded and venture capital is doing well today, economic changes could result in the same environment at any time.
Because of the potential turbulence, it may not be a good career for someone who is unprepared to weather these storms. Networking with high net worth individuals and startup founders/ execs is also a major component, so those uncomfortable in social situations, as well as those who lack confidence, would likely be happier in a career with more behind-the-scenes work.
It’s entirely possible to begin a career in venture capital without a background in finance. In fact, some firms intentionally seek out individuals who are experts in an industry they serve. For example, if a firm specializes in raising capital for tech startups, it may look for software engineers and developers who can help assess the strength of startups as well as have the tech background necessary to explain to potential investors why they need to get in on the deal. A firm that specializes in pharmaceuticals may hire doctors, nurse practitioners, and biochemists. However, those choosing a career in venture capital from the onset typically have degrees in finance or business.
Getting into venture capital as a second career is usually reliant on locating a firm that specializes in one’s field of expertise, and then networking with principals and partners at the firm. As a first career out of school, it’s advantageous to accept a position as an intern. Sometimes, firms will also open up short-term/ summer analyst and associate positions for undergrads. These are all excellent opportunities to get a foot in the door.
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Moving into Venture Capital from another career
Most of the time, there are no specific licensing requirements or degrees needed, which means almost anyone can, in theory, become a venture capitalist. A large number move into VC from finance, a startup (such as a Product or Operations role in technology VC), or an investment background.
Role: Not every firm offers an analyst position, but those that do usually use it as an entry-level spot for those just finishing school or recent graduates. The analyst supports the work of those higher up, usually by conducting research on companies that have asked for funding, putting together lists of prospective investors, and managing data related to both.
Role: People who come into venture capital with masters degrees or work experience relating to finance or consulting generally begin as an associate. The work is much like that of an analyst, though an associate may also be tasked with identifying trends and analyzing business models. It’s common for a person to be considered a “junior associate” for the first couple of years on staff and then be transitioned into a “senior associate” role for a couple more.
Role: Once a venture capitalist reaches the role of principal, he is responsible for ensuring the work of analysts and associates is accurate, as well as for finding new investment opportunities. In some firms, Associates can partner with Principals on sourcing deals. A principal will often negotiate the terms of funding if a firm doesn’t have mandatory template as well.
On top of this, principals routinely sit on the board of companies that have been funded. Although their ability to force changes when the company is struggling is limited, the principal often makes suggestions and helps link the company with resources or networking opportunities that may help ensure its success.
Role: Getting in as a partner is more challenging, as principals must demonstrate their business prowess and buy their way into the firm. Partners get a larger cut when deals are made and do a lot of networking to build up their portfolios.
Those in lower positions are not likely to travel at all, as their jobs mostly entail analysis and securing leads for the upper echelon. On the other hand, the amount a partner travels is generally up to him. If he has contacts in another country, he may opt to fly anywhere in the world to help close a potential investor. Principals will often travel within their own countries, or perhaps even internationally, to learn more about a startup and to ensure it’s operating well.
Entry Level: According to PayScale, base pay for associates is an average of USD$62,718 in America, £31,153 in the UK, CAD$49,261 in Canada, and AU $85,000 in Australia.
Mid-Career: USD$93,883, £85,000, CAD$62,500, AU$110,000.
Experienced: USD$177,000, £135,000, CAD$100,000, (partner pay rates in Australia are not readily available).
As individuals rise up the partnership ladder, the amount of pay grows exponentially due to management fees for funds, bonuses collected from closing new deals, and the overall size of the portfolios they manage.
While those lower on the ladder may bring home a few thousand extra annually, junior partners can clear one-half or $1 million per year, and some top performing senior partners have brought in more than $2 million.
Why Venture Capitalists move on
While most people imagine a career in venture capital as being a life of leisure, the money doesn’t really start rolling in until the later years as a principal or as a partner. Putting in the extensive hours without getting a payout can leave some disillusioned early on in their careers. Some VCs may also want to work inside a portfolio company as an “operator”, instead of purely investing and managing the companies in the VC firm.
More seasoned pros may find that the career doesn’t offer enough of a creative outlet or the market may dry up. Managing portfolios, particularly those that reach well into the millions or billions, can also be stressful. Those who got into venture capital as a second career can usually return to their initial career, but there are other opportunities as well.