So You Want To Be A VC?

Summer is a good time for career reflection.  Am I in a job that’s personally satisfying as well as financially rewarding?  Is my career on a productive, long-term trajectory? Many executives conclude over the summer (often during long walks on the beach with their spouses) that it’s time for a change.  Some are interested in exploring what it takes to be a VC.  Unfortunately, I often find that many of those who aspire to be VCs have a hard time grappling with the stark reality of the industry – only 3000 deals occur each year (almost eerily precisely 3000 from 2002-2005), with an average of 1-2 deals per active partner per year imply there are only 1500-3000 active partners making VC investments spread out over 450 firms (the number of member firms in the National Venture Capital Association).  Thus, it remains still very much a cottage industry and therefore not an easy career path for most to pursue.

But for those who remain determined to pursue a career in VC, I can share a few thoughts that I’ve observed from my years on both sides of the table.

Generally speaking, there are two on-ramps to the VC world.  One is what I’ll call “The Apprentice” model:  go to a top college, get a few years of working experience, go to a top business school, spend a few more years in a start-up (typically in product marketing/management) and then join a firm in your late 20s/early 30s as an associate or principal and hope to be accepted as a junior partner into the partnership after 4-8 years.  During that time, you will probably shadow a few of the partners, join one or two boards and try to learn the trade from the experienced, senior partners around you.

The challenge with VCs who follow this path is that the lack of deep operating experience can potentially be viewed negatively by entrepreneurs.  Some entrepreneurs ultimately conclude these types of VCs “don’t get it” because they’ve never walked in their shoes.  On the other hand, these “Apprentice” VCs are often more successful investors because they are incredibly broad in their range of expertise and analytical in their approaches to selecting new investments.

The second on-ramp is what I’ll call the “ex-CEO/Winner” model:  work your way up the start-up ladder, become a VC-backed CEO, navigate a successful exit or two and then join one of the VC firms that backed you and with whom you’ve had a chance to build a relationship (and make money for) over 5-10 years.  This on-ramp sometimes begins with a “Venture Partner” title before becoming a full General Partner (i.e., the training wheels come off and you have your own checkbook, subject to partnership approval).

The challenge with VCs who follow this path is that they can be accused of viewing their VC careers as a lifestyle choice – “the back nine” – and never really go through the hard work, long hours and long years to learn the trade.  After all, this is a business where you fund lifecycles are measured in decades.  Although these types of VCs may have deep knowledge in the particular domain where they had operating experience, they may not have the breadth or analytical horsepower to productively invest in the fully broad range of opportunities most general partners require to be successful.  On the other hand, these “ex-CEO/Winner” VCs have great networks of former employees and business partners and an ability to bond with the next generation of young entrepreneurs for whom they can serve as valuable mentors.

Which path is the more successful one?  I have no idea – but I do know that numerous aspiring VCs who can’t credibly follow one of these two paths have slim odds to entering the industry; in a world where the odds are slim at any rate.  And I suspect many LPs are looking for partnerships that blend the best of both sides into a single, holistic unit.

Comments

[Daniel Nerezov]

Jeff, another great post!

It's telling that you haven't said anything about people putting together their own nascent funds as the third alternative.

Btw, in case you'd like to reflect about this blog - please note that I think it's extraordinary and uncommonly insightful.

[Scott Kay]

Jeff - Have been reading your blog now for about two months. This article confirms much of what I have observed in my interactions with VC-firm related folks I know.
Two quick stories...Re on-ramp one: I was in line at Delta shuttle, and VC General Partner type says to VC Apprentice, "We're going to position you to be one of the junior board members." The apprentice could not have been much older than 24, and I am just wondering what the "senior" guys think of having "junior" sitting on the board with them. (Good lineage helps with this.) You need to have the right personal chemistry of course, but providing oversight and direction for your invested capital must be paramount...Maybe a thought for a future post. The other story is about ramp # two, and the laugh (and amazement) I get when I see the bio for boardmember "Bob" and it says he was CEO of BioT, GeoG, NetB and ACom, none of which I have even remotely heard of. Point is, the number of REAL CEO-winners is very slim, the rest of us have to keep working for a living.
Keep up the good work.

[Jack]

I wanted to know what "Venture Partner" means. Someone told me it means you do not get a salary or part of the management fee or carry on all the deals, but only on deals you bring in (but still no salary). is this true? I cant imagine some of the big names there are as venture partners being "Actively" involved in doing deals when they are compensated only once the company exits - i.e. 5 year horizon.

[Ash]

Jeff,
Great blog. I've found more useful info on VCs on your blog than most papers i've read on the subject matter. I was wondering, which category do you fall into? Also, which category of VCs should entrepreneurs lean towards? Seemingly, the ex-CEO/Winner would be more advantageous if they were in the same line as you.

[Meir Amarin]

In two words: great post!

[Joe the Dog Lover]

This is good stuff.