For many, a venture capital role is one of the most lucrative and exciting out there.
Your job is to find startup companies with high growth potential, invest in them, and help them succeed. In return, you get an equity stake in the company and might get enormously wealthy ?.
Venture capitalists – or VCs – work as pre-IPO private investors. This means that VCs invest before in early stage companies before they go public.
While venture capital is all about helping others get their start, have you ever wondered how a venture capitalist gets his or her start?
In this post, that’s what I’ll distill. I’ll go into step-by-step detail giving you all you need to know about breaking into venture capital.
Why Venture Capital?
Let’s cover some of the top reasons why a career in venture capital might be exciting to you:
- Shape the companies of the future – With the recent tech and startup boom, VCs are literally helping shape the future leaders of the global economy.
- Exposure to technology trends – Venture capitalists sit at the exciting intersection of technology, startups, and finance. If you love following technology trends, you’ll love venture capital jobs, since they reward those who are on the most cutting edge.
- Empower the underdog and support founders – All founders are “underdogs” by definition. That’s because in the early stages of any company, the odds are stacked against all companies. As a result, as a venture capitalist it can be extremely rewarding to help support and empower entrepreneurs overcome the odds.
- Financial remuneration – There are large rewards for any venture capitalist that bets on winning companies. Because of the 2 and 20 fee structure, if you have a generational winner, you can take home hundreds of millions (or more) for your firm and yourself.
- Slow rewards and feedback cycles – many VCs complain that it can take a decade before they know whether their investment in a company is going to work; this can make it difficult to assess your ability in the job and also to reap the financial rewards of being good
- Difficult to advance within firms – it can be quite difficult to advance with established venture capital firms due to high competition for roles and promotions
- Competitive industry – like lots of areas of finance (e.g. private equity, growth equity, and investment banking), there is lots of competition in VC, so it can be difficult for firms to win deals and drive strong returns, especially when a couple deals tend to drive the lion’s share of rewards for the industry overall each year.
- All about sales – related to above, if you miss the top deals of the year, it can be quite challenging to make strong returns; therefore, you spend lots of time as a VC trying to build your brand and ultimately “win” spots in good deals
Venture Capital Skills and Requirements
While there are many ways to standout, one key part of getting into venture capital is making sure you have the necessary skills.
Key skills and characteristics include:
- Investment experience – while not a hard requirement (especially if you’re interviewing for entry-level VC roles) it can be quite helpful to have some form of investment experience under your belt (e.g. angel investing, private equity, growth equity, etc.)
- Deal sourcing – In VC, a big part of being great is having a competitive edge in seeing all the top deals. This is why many VCs have doubled down on building a personal brand (e.g. through Twitter), because it’s one way to ensure you see lots of inbound deals
- Financial modeling – Most seed investing roles require no modeling at all; however if you apply for funds that invest at Series A or later, you’ll likely need to know how to build financial models
- Natural curiosity – A venture capitalist needs to have a natural drive to learn. Venture capital firms are constantly looking for the latest technological advancements to invest in. The venture capitalist needs to be willing to learn and harbor a natural curiosity for the future of tech.
- Strong communication – Communication is necessary on all fronts in the field of VC. You need to communicate effectively with your clients and network extensively with industry professionals. The only way you’re going to find new investment opportunities is through the power of networking.
- Hustle & service to entrepreneurs – Given how competitive top deals are to win, VCs often resort to extreme lengths in order to win an “allocation” in competitive deals; this could mean working long or unpredictable hours, providing free support to entrepreneurs before you invest, etc.
Venture Capital Career Path
When applying for a venture capital role, it’s important not to have a one-size-fits-all view of VC roles.
Within a firm, there are also several different job roles. They include:
- Senior Associate
- Principal or VP
- Partner or Junior Partner
- Senior Partner or General Partner
To deeper on these roles and which one might be best to apply for, check out my article on venture capital career paths.
Becoming A Venture Capitalist: 3 Primary Pathways
While are there more broad steps you can take to kickstart your venture capital career (see the next section), there are three chief entry points.
To successfully establish your career, you’ll likely need to enter through one of them.
While many VCs earn their MBA, many others join venture capital firms before getting an MBA. Most pre-MBA hires have worked in prestigious management consulting, investment banking, or operational roles within successful startups or tech companies (e.g. sales, business development, or product management).
It’s not uncommon that the early employees of a startup might develop relationships with the company’s VC. With a strong referral from the CEO, this can be a great path into pre-MBA VC roles.
Traditionally, VC roles were only given to folks with an MBA. Even though this has changed dramatically — many paths exist now — getting an MBA at a top school is still a great entry point into VC.
Folks who land roles in this way typically have investment banking, private equity, management consulting, or startup/tech company experience before attending business school.
Senior Executive or Partner
The third main entry point requires you be a successful founder of a startup. Alternatively, you worked in a high-up position in a start-up company. Any function can be acceptable (e.g. engineer, product, finance, sales, etc.), but ideally this experience provided you with direct experience with VC firms and provided you with some contacts.
With this experience, you might be asked to join the VC fund at a more senior level (e.g. partner, executive in residence, or operating partner).
In recent years, there’s now a fourth entry point into VC. This is my absolute favorite because it’s the most scrappy and meritocratic. If you wan to get into VC, instead of waiting for someone to “anoint” you a venture capitalist, you can simply start doing it as an angel investor!
You can get started yourself, and then PROVE that you know how to do the job by earning a great track record. Because of new crowd platforms that brought down the barriers to angel investing (e.g. WeFunder, and Republic), you can make investments in many startups of $100 or less. This is a gamechanger, because to be an angel beforehand, you used to have to invest upwards of $10k per deal.
Angel Investors vs Venture Capitalists
Angel investors and venture capitalists are both important players in the world of startup investing, but they have distinct differences. Angel investors are individuals who invest their own money in startups, while venture capitalists are professional investors who use other people’s money.
Angel investors typically invest smaller amounts (around $10,000 to $500,000), work alone, and primarily offer financial support. Venture capitalists make larger investments (typically $1 million to $10 million), work as part of a firm, and may provide additional assistance. Angel investors focus on early-stage companies, while venture capitalists support companies at various stages. Due diligence, investment timelines, funding sources, risk tolerance, and involvement in the companies also differ between the two.
For the complete breakdown, check my comprehensive article of angel investors vs venture capitalists.
How to Get Into Venture Capital – A Step-by-Step Guide
VC companies tend to operate a tight ship, with limited positions available. In 2020, Deloitte found that most VC firms have a median number of six employees.
So, how do you get into venture capital with so few positions available? That’s what we’ll talk about now.
The undisputed “best” way to get into VC
There’s one INCREDIBLE example of how to get into VC that everyone can learn from.
It’s podcaster, and now VC, Harry Stebbings.
If you don’t know him, he started a podcast as an 18-year old in the UK called The Twenty Minute VC. He was only a university student at the time, and had zero connections in the industry.
However, he stuck with it, and eventually landed incredible guests through hard work and persistence.
Eventually, the podcast became a top show. Today, it’s nearly a right of passage for top VCs to be on as a guest.
So, what happened to Harry?
Well, he still does the show. However, MANY investors were so impressed that an 18-year old had the grit and tenacity to build such a great show and following, that they offered him VC jobs.
He’d done something incredibly hard and his work was public — there for everyone to see. VCs were banging down his door to join their fund! He received tons of offers from top funds, and eventually chose to found his own fund, now called 20VC Fund.
Here are the lessons:
Don’t wait for an investor to give you permission, just start DOING THE JOB (or doing hard things that will prove you can do the job)
This advice will mean different things for different people. Everyone has a different set of assets and experiences. But the big takeaway is DO THE WORK.
Ways to take action
Below is a list of ways you can take action, do the work, and standout from the pack.
As I said above, everyone’s situation is different. Therefore, not all of these suggestions will be actionable or make sense for you!
- Start investing on your own – public stocks or (even better) actual startups! Use crowdfunding platforms like WeFunder and Republic to build a portfolio ($100 or less per investment)
- Double down on industry expertise – if you’re an engineer who works on devtools, you could be valuable to funds who are looking to invest in devtools! Advise them, find companies in the space, etc.
- Build a competitive advantage (e.g. an audience, a community) – this is what Harry Stebbings did (as I explained above). Build a following or grow an audience! These will directly help you on the job too!
- Get great work experience – work at a great company, or work in investment banking, private equity, growth equity, or management consulting
- Build a reputation from working in great startups – If your CEO loves you, he or she may get exposure to the company’s investors
- Get into a top business school – any top 10 business school will do! Then get internships while there
- Found a successful company – easier said than done! But if you can do this, you’ll definitely get into venture
- Prepare a market thesis – everyone can and SHOULD do this, no matter what your background; find an industry or a market that you think will produce interesting companies, and put together a presentation on it (and then send it to VCs!). If you need help on how to do this, check out my course for a step-by-step walkthrough
- Network by sending investment prospects – the best and most differentiated way to standout in networking is by sending (good) prospects. No one does it! But you should.
- Share your investment thinking online – If you’re investing in startups and/or finding prospects for networking, create a memo explaining why you like certain industries or why you made certain deals. Publish it online. Over time, you’ll create a body of work (like Harry Stebbings did) that is undeniable
- Don’t ask for an internship, just start doing one (unofficial) – I love this one. Find investors you want to network with and instead of asking for an internship, ask if you can send them 3-4 great prospects once a month … spoiler alert, they WON’T SAY NO! Maybe they’ll get on a call for feedback, or maybe they won’t. In any case, this is effectively what an internship would be. AND, they will DEFINITELY be impressed.
- Start helping startups & portfolio companies – Instead of asking VCs if you can get involved with their companies, just go direct to the companies. Cold email the CEO and ask how you can help! For instance, if you’re a product lead at Google, maybe you can help them sort out product strategy, etc. If the CEO of a portfolio company thinks you’re awesome and writes a warm intro referral for you, it’s an incredible way to impress a VC.
Become an Early Stage Venture Capital Investor
Venture Capital Recruiting Process
Once you’ve networked and secured interviews (or simply applied for open roles), next you need to tackle the recruiting process.
Some venture capital firms enlist headhunters (or external recruiters) to assist in their hiring process. If that’s the case, you’ll need to meet with them in order to make it into the interview process.
However, since so many firms are quite small, it’s not uncommon that firms will run the hiring process themselves. Usually hiring occurs throughout the year, as needs arise.
In this case, venture capital interviews would typically involve multiple rounds — from initial outreach to final round interviews. Typically in the beginning stages, it’ll be less formal and will focus on getting to know you and your experiences. However, as you progress to later rounds, firms will ask more technical questions about investments and markets, as well as give you a venture capital case study (discussed below).
Venture Capital Resume
As discussed above, your qualifications and experiences is a key criteria to get into a top venture capital firm. This could include:
- Top business school
- Top undergraduate school
- Top performer at exciting startup
- Top performer at well-known tech company
- Top performer at investment bank
- Prior investing experience (e.g. growth equity or technology private equity)
However, as I’ve discussed above, there are many ways to SHOW that you can do the job without those experiences. These include:
- Sending good investment ideas or market theses. My course guides you on how to do this
- Helping portfolio companies!
Read our detailed guide on how to write a venture capital resume (with example).
Venture Capital Interview Questions
Of course, in addition to having the right experiences for the job, you’ll also need to have excellent interviews in order to secure an offer in venture capital.
Typically, in interviews, you’ll see three different kind of questions:
- Fit questions – Why VC? Why this firm? Why should we pick you? Resume walkthrough.
- Behavior questions – Tell me about a time you sold something? Tell me about a time you showed leadership? etc
- Investing questions – What startups or markets do you like? What are the pros and cons of X business model? What are the key areas you’d want to diligence in X business?
Venture Capital Case Study
When interviewing at most venture firms, you’ll be asked to complete a venture capital case study.
Every firm is a little different, but the standard version of this is that they will give you a set of materials on a company — usually a real company’s pitch deck — and they’ll ask you to develop an investment memo or to simply write the pros and cons of the investment.
In this exercise, you’ll be showing how you think, as well as your lens for evaluating businesses for investment.
One great investment framework that I love for growth equity can also be applied in case studies for venture: the 3Ms.
- Business Model
Get these right, and you’ll almost always have a winner on your hands.
Venture Capital Financial Modeling
Venture capital financial modeling is an important skill for investors. This practice involves creating financial models that project the future performance of a business, including expenses, revenue, and growth. By doing so, investors can assess the viability of their investment and estimate potential returns.
The significance of financial modeling varies depending on the stage of investment. For early-stage startups, it helps provide insights into the company’s operations and spending patterns. In later stages, such as Series A funding, it becomes more critical as there is more historical data to analyze and project from.
Key components of these models include revenue projections, which indicate the company’s income potential, and growth strategies that outline how the company plans to expand. Plus, expense analysis is needed for understanding how costs impact profitability. Valuation methods, such as earnings multiples and discounted cash flow, help determine a startup’s worth and guide investment decisions.
While creating financial models can be complex and data-intensive, adhering to best practices can improve their accuracy and usability. Attention to detail, financial literacy, realistic assumptions, and transparency about capital usage are some of the core principles that contribute to successful venture capital financial modeling.
Explore further by checking out my detailed guide on the foundations of venture capital financial modeling.
Do you need a license to become a Venture Capitalist?
There is no form of license required to become a venture capitalist.
How long does it take to become a Venture Capitalist?
Everyone’s path to venture is quite different. As discussed above, some enter the industry with zero or a couple years of experience, while others have full careers and have started a company before joining a venture capital role.