As technology and startups have taken high prominence in our society, the venture capitalist job has become more mainstream and desired.
But it’s always been a competitive and rewarding job.
It’s one of the most lucrative career paths out there, and it’s exciting – you get to help technology companies invent the future! No wonder why so many students and young professionals seek to join the ranks.
In this guide, I’ll describe what it’s like on the inside, what career paths look like, and what you can do to get an opportunity in the industry.
What is the Career Path for Venture Capital?
It is very challenging and competitive to get a role in venture capital. However, if you are successful in landing one, the career path can be thrilling and dynamic.
First, the career path will take you from being an analyst or associate (the most junior roles where you are scouring the market for the next big thing), to a principal role (a mid-level role where you take more of the reins and start making investment decisions).
Finally, as you gain experience and prove your ability to spot and nurture promising startups, you may ascend to the ranks of partner or managing director (the most senior levels), where you lead the charge in identifying and investing in the next generation of game-changing companies.
As you get more senior, the career becomes more financially rewarding because you start to get attractive ownership and economics in the fund.
With each step, the stakes get higher and the potential rewards greater, making a career in venture capital one of the most exciting and rewarding paths out there.
So, let’s get into more specifics.
What do Venture Capitalists do?
Venture capitalists are constantly seeking out new companies to meet with (and ultimately, to invest in).
They are investors who provide capital to startup companies with high growth potential. They typically invest in early-stage companies that are developing a product or service, with the expectation of a high ROI.
There is also an expectation that many companies they invest in will fail. However, the returns from the winners will be so great that it will (hopefully) more than make up for this.
Venture capitalists perform various tasks to identify, evaluate, and invest in startups. These tasks include:
- Conducting market research to identify trends, opportunities, and potential investments
- Sourcing and reviewing investment opportunities, such as by attending pitch events, networking with entrepreneurs, and reviewing business plans
- Conducting due diligence on potential investments, including reviewing financial projections, assessing the management team, and evaluating the product or service
- Negotiating and structuring investments, such as through convertible notes or equity,
- Providing guidance and mentorship to portfolio companies, helping them to grow and scale their businesses
- Monitoring the performance of portfolio companies and making decisions about when to exit the investment
Skills and Requirements for Venture Capital Careers
While the visionary entrepreneurs and company-builders are the ones in the trenches creating the most value, venture capitalists do play an important role in finding, funding, and nurturing the next big thing.
They are the ones who are constantly on the lookout for the next startup that could change an industry. As such, successful venture capitalist must possess a unique set of skills and requirements:
- The ability to learn quickly is extremely important because as a venture capitalist you are often learning about new industries and companies and getting up to speed quickly!
- Networking skills and relationship building are also vital parts of the venture capitalist’s toolkit. Building and maintaining relationships with entrepreneurs, business leaders and other key players in the industry is crucial
- Negotiating skills are a must-have, especially as you get more senior, venture capitalists need to navigate complex legal and regulatory requirements
- Strategic or product thinking is also essential for venture capitalists. They need to be able to think strategically about investments and identify opportunities for growth and expansion.
- An understanding of corporate finance is crucial, especially if you are investing in later stages of venture capital, where there is real spreadsheets and financial analysis. This means understanding financial statements, financial modeling, term sheets, etc.
- Finally, an entrepreneurial mindset is a must-have for any venture capitalist. They need to understand the challenges and opportunities that entrepreneurs face and be able to think creatively and take risks
There are many many other skills that can be helpful, but above is great starting point!
In terms of prior experience, it used to be the case that you had to have investment banking or private equity experience (and possibly an MBA) to break into venture capital. However, now many firms are open to many different kinds of backgrounds:
- Undergrads (analyst roles)
- Founder / entrepreneur
- Startup employee
- Tech company employee
Especially if you are applying with a non-traditional background, the most important thing is to get investment experience (even if you have to bootstrap it in your spare time – I have suggestions for how to do that) and nail your interviews!
Venture Capital Analyst
A venture capital analyst is mainly responsible for finding and sourcing new companies.
This means lots of cold calling and emailing to setup meetings. While that might sound tough, it can actually be a great experience, because you get the skill of how to interact with CEOs and sell your firm.
Venture Capital Associate
A venture capital associate is among the busiest people in a VC firm. Apart from supervising his junior analyst., they spend most of their day in MEETINGS.
At this point in your venture capital career, you might be entrusted to perform the “frontline” vetting for the firm. So after an analyst finds a promising company, the associate might take a meeting with them to vet whether they’d be a fit for investment.
In addition to frontline vetting, these roles still involve lots of sourcing, company finding, and cold calling too.
Furthermore, associates will take point on doing financial analysis and diligence that is needed for deals under consideration. They may also be entrusted to “hold the pen” on the investment committee memo.
Venture Capital Senior Associate
The venture capital senior associate role is quite similar to the associate role, except that senior associates are given more responsibility.
As they earn more trust, these senior associates may start to represent the firm at external events, they might be expected to take more ownership over managing junior employees, and they will be expected to start having (smart) opinions on investment decisions.
Venture Capital Vice President
Similar to growth equity, venture capital vice presidents are typically the “quarterbacks” of any deal.
This means they typically will “own” the diligence process, including management and coordination of junior employees. They will usually lead presentations at investment committee, offering their opinions and recommendations for the team.
Vice presidents also get more involved with negotiations over deals, participating with board meetings/portfolio companies, working with partners directly, and managing LPs.
Venture Capital Principal
Many firms define Principal and Vice President as the same job role. Usually firms will only have one role or the other, depending on the term and title the firm prefers.
Venture Capital Partner
Venture Capital Partners are the owners of the funds, and the ultimate decision makers.
Partners can either approve of investments themselves, or they can vote with their fellow partners (depending on the firm’s preferred decision making framework).
Many Partners take ownership over a specific sector (e.g. Fintech) or an investment theme (e.g. Self-Driving). They are responsible for leading investment decisions, portfolio company engagement, fundraising, and other management decisions within the fund.
Since they are partners, they are owners (“General Partners”) in the fund. This means they stand to make lots of money if the firm’s investments do well.
Is Venture Capital a Rewarding Career?
If you have a passion for investing in innovative businesses and an eye for potential, a career in venture capital can be extremely rewarding.
It’s very gratifying to help and support early stage companies. At the earliest stages, you can really impact a company’s trajectory! If you provide help to your portfolio companies (not all VCs actually do), your impact can feel very tangible!
It’s also true that the career path can be financially very rewarding.
VC firms earn management fees (e.g. 2%) on their funds raised and carry (e.g. 20%) on the profits they deliver their limited partners. If the firm has a large fund or has awesome returns, it’s very likely the partners (and perhaps employees) of the fund will be paid very well.
One challenge, though, is it typically takes VC funds nearly 10 years to deploy and return capital (since the path of building a company takes so long). Therefore, the big upside (carry) can take a long time to materialize.
Pros and Cons of Venture Capital Careers
High earning potential: A career in venture capital can be quite lucrative if you have successful deals and stick around long enough to get partner economics
Enable cutting-edge technology: As a venture capitalist, you’ll be privy to the latest and greatest technology and innovation, giving you a front-row seat to the future.
Networking opportunities: In the venture capital world, you’ll have access to a diverse range of entrepreneurs, other investors, and industry experts, opening doors to valuable networking opportunities.
Empower entrepreneurs: Imagine being part of a team that helps bring new, innovative products and services to the market. It’s a rewarding and fulfilling experience.
High stress and long hours: The venture capital world is high-pressure and demanding, with extended hours and tight deadlines. Especially during active deals, you may not need to drop personal engagements in order to meet the timeframe required.
Long feedback loops: One of the hardest things about being a venture capitalist is that there extremely infrequent feedback signals on whether you are actually any good at your job. A typical deal takes 10 years to provide liquidity/returns. Yes, there are intermediate signals (e.g. markups, etc.), but still it’ll take 10 years from your first deal to get the ultimate report card on whether you’re doing well!
Relative economics: Relative to other fields in finance (e.g. private equity and growth equity), the average compensation may not be as high, especially since venture capital funds tend to be smaller and are structured differently. This means AUM and fees to the fund are lower. Also, the inconsistency and long-term nature of returns in venture can make it more challenging than other types of investing.
Limited diversity in the field: Though some firms seem to be making strides, the venture capital industry is still criticized for its lack of diversity
How to Start a Career in Venture Capital?
Getting a job in venture capital is very challenging; however, with the right knowledge and preparation, you can launch your career in venture capital and help entrepreneurs turn their visions into reality.
If you’d like to learn more about how to do this, check out my full course on how to ace your late-stage VC interviews.