So You Want to be a VC?

I had a meeting this week with a friend of a friend who was interested in getting into the Venture Capital Business.  I have a few of these meetings every year, usually around the time that grad school students are thinking about jobs.  Usually, the person wants to jump into the question of how one goes about finding a VC job.  Instead, I like to spend a bit of time giving more color into the venture capital career path and give a sober view of some of the non-obvious but less attractive facets of the job.  I tend to say the same thing each time, and it occurred to me that I’ve never shared these thoughts on my blog.  So here it goes.

So, you want to be a VC?

VC is a relatively glamorous job from the outside.  There are a lot of positive reasons to do it, and I obviously love it or I would not be doing what I do.  But it isn’t for everyone. In fact, there are a lot of reasons to think twice about whether this is the right path for you. Here they are.

1. VC is more negative than you think. Here’s why.  You’ve heard it said that VC’s will invest in 1/100 investment opportunities they look at. The odds are actually probably worse than that.  As a result, you end up saying “no” a lot.  Some investors don’t say no – they just ignore, or hope that entrepreneurs get the hint and just stop asking.  That’s not great either, and it’s still pretty negative. Also, when you are evaluating companies, you are essentially hearing entrepreneurs pour their heart out and share their dreams to solve problems they are dedicating their life to.  But we have to think about the risks.  Why won’t this work?  Is this idea really “big enough”? Do I believe this team can achieve this ambitious goal?  Pretty critical and negative (although the best investors I find try to constructively help entrepreneurs solve these problems rather than just point out flaws). Finally, when you work with portfolio companies, you end up helping out more when things are going wrong.  Companies that are on a great trajectory typically take less time than the companies that are in trouble and are facing really tough, often negative decisions.

2. Being a VC ends up being a somewhat lonely experience. This obviously differs from firm to firm.  But step into a VC’s office on a non-partner meeting day.  Do you see a team of VC’s huddled around a table trying to solve a problem together?  Usually not.  Often, the offices are empty.  The partners are travelling, or meeting companies, or fundraising, or something else.  The overhead of a VC firm is pretty limited, so in many ways, each investor acts as an independent unit, scouring for deals, trying to help portfolio companies, and reporting back to their team once a week in a very long partner meeting.  Now, clearly, this differs by partnership.  Some firms are more a band of solo investors.  Others have greater camaraderie.  But it’s not that same as being in the trenches with your team building product day-in day-out.  Now, it’s true that venture is a very social job – even if you aren’t with your team, you are meeting with people all day long.  But personally, I find it quite different compared to spending lots of time working together with team mates towards a common goal.

3. VC is a risky career path. It’s a lot of fun for a couple years.  But after two years, even if you were an operator before, your skills become stale and you are realistically not going to be as good at your former craft as you were before joining venture.  Your hire-ability is still pretty high at that point, but in years 4-6, you start running out of options.  It’s also on those years that you face the pressure of establishing yourself as a partner in the firm and hope to get meaningful economics in the fund.  As as I’ve blogged about before, the deck is kind of stacked against you.  Here’s why: a typical VC will do about 2 investments per year.  A principal or junior partner might be on a slightly slower pace.  So in years 4-6, you are realistically responsible for ~3 investments.  This is also the time when your partners (or other firms) are making the decision to make you a meaningful partner in the fund. So, in a way, your prospects as an investor are largely linked to these 3 investments.  Those odds aren’t great, in a world where most startup companies fail and only about 20%-10% drive a meaningful return to the fund. Do you really want to be evaluated on those 3 shots on goal, when a) it may be way too early to tell if any of them are winners but losers are usually identified more quickly, b) broad market fluctuations have a huge impact on the success of these companies, and c) most VC’s will agree that there is a huge amount of luck involved in this business?  Tough odds.

4. VC is about being an investor.  I find that I tend to have these conversations more often with former operators or folks with a professional service background. VC seems attractive because you get to work with entrepreneurs, see companies across a broad set of sub-sectors, and can help multiple companies facing a variety of important decisions.  All of this is true.  But what’s underlying all of this is that as a VC, you are an investor of other people’s money.  Your fiduciary responsibility is to generate a great return for your limited partners. I find that there is a different way that investors tend to think about things.  It’s hard for me to put my finger on it exactly, and it’s not true for everyone in the VC business.  But I often tell people to think of that friend of theirs who somehow, always find a way to win when he goes to Vegas or plays poker.  There’s something about that person’s psyche that is well tuned to evaluating risk, managing emotions, and generating a return on capital. And I think you need a bit of whatever that special mojo is to be a good investor.  Now, many of the best VC’s out there have been terrific entrepreneurs and many work very hard with entrepreneurs to help their businesses succeed.  But those folks are also great investors, and sometimes, your responsibility as an investor will come into conflict with your desire to be supportive to entrepreneurs.

If this post feels like a debbie downer, it is kind of meant to be.  This is one side of the story, which I think is quite real but non-intuitive.  There are many reasons why I love what I do, and I feel very lucky to be able to do it.  It’s been even better since starting NextView, because some of the drawbacks I mentioned above are addressed by being a founder of one’s own firm.  VC isn’t really a career path as it is a lifestyle.  It’s pretty all engrossing, so if you are going to jump in, make sure it’s right.  It can be a great path, but it isn’t for everyone.


33 Comments on “So You Want to be a VC?”

  1. great post, rob. your fourth point is my favorite; not only have i found it true, it’s been one of the bigger surprises.

    i also think point two – the solo factor – is something that is super important to think about early in one’s career; it’s not good or bad, but it’s def true.

    thanks for writing.

  2. I have a lot of meetings with people who want to become VCs, so you touch on a lot of great points. The third point can not be over-stated, having workied with VCs for 10 years now, I can say from experience that very few make it a career. Almost every Associate/Principal that I’ve interacted with has gone back to an operating role at a startup, founded a startup, or works for a corporate, typically doing M&A work. A tiny percentage have made it a career and become GPs.

    My advice to people who want to become VCs is that working at startup will develop a broader skill set and if you become a successful entrepreneur, you have a decent shot at becoming a VC.

    • robchogo says:

      That’s good advice. I think the VC’s that do grind it out end up being excellent because of the benefit of more pattern recognition. But it’s few and far between.

  3. reem y says:

    Thanks for the post, Rob. For an entrepreneur, with all the pressures everyone knows, it is really interesting to see the pressures on the VC at the other side of the table.

  4. John Gannon says:

    The other tough thing about the job is that there isn’t much of a playbook, so people who are expecting the structure they’d expect to see at a more established company (or even an established startup!) might be in for a rude awakening. Sure, you get some mentoring from the more senior staff at a firm, but generally you need to make your own way, develop investment theses on your own, and then try to execute them by sourcing deals and then getting those deals through the partnership. Some people really love that kind of environment, but others really struggle with it, and so it’s definitely worth considering as you soul search about a potential career in venture capital.

  5. Rob,

    Really great post. I went through this “I want a job in VC” after business school phase and in the process realized a lot of the stuff you outline above. It hasn’t deterred me from thinking about building a career in VC over the long term, but I now have a much deeper respect for the job that VCs do and how things can be even more difficult as a young VC. Thanks for sharing!

  6. Great post – I also meet many who want to go into venture. I basically try to talk them out of it (I’m also known for trying to talk people out of being entrepreneurs too 😉 ) and if they pass that test, then maybe they really should give it a try.

    Once desire/intent is real, after they realize what is under the glamour, then getting into venture is frickin’ hard as heck. Trying to work your way up through the ranks is tough and there aren’t that many jobs to go around. Some of the more effective ways are:

    1) First angel invest and then raise money. In true startup fashion, you put up your own resources to make the bet that you’re on to something (your own skill as investor). Others notice you and then invest in you to invest their money.

    2) Get wealthy people to know and trust you. Investing is very much a trust based business. Who do you trust with your money? If you have connections and relationships with wealthy individuals and build their trust with respect to investing their money responsibly and with integrity, you could begin your venture career that way.

    3) Start as an operator. The four big places I see this work are: CEO of a company, Corp Dev person, entrepreneur with big exit, and engineer at a “celebrity” firm like Google or FB. These positions can give you credibility to raise your own fund or get hired by an existing firm. More likely, the $ outcome results in you being able to start the path with step 1 above.

    • robchogo says:

      One of our advisors has a great saying when folks ask him how to get into the VC business. He says “just convince some people to invest money into your fund and you are in business!

  7. […] Go of NextView Ventures perfectly captures this in a post today over at his blog discussing what it’s really like to be a VC – one of the few […]

  8. ohill says:

    Rob, you missed the point that you must love and be good at fundraising if you want to make VC a career. That’s true even IF you have a good track record as an investor. Fundraising is often a long, hard process, and it’s not getting any easier for the asset class. I’d argue all the stuff you pointed out is only ~60% of the job – the other ~40% is planning, preparing materials for, and actively fundraising.

    • robchogo says:

      Good point. As Dan Scholnick mentioned on twitter, sales is a much bigger part of Venture than one would think. Part of that is sales in terms of selling to entrepreneurs and internally in your firm. But a big chunk is selling to attract LP dollars. Not sure if it’s a full 40%, but’s it’s definitely substantial.

      • I second that.

        You mention that operational skills begin to decline 2 years into the job. If this is true, then it follows that VC GPs can only add limited operational value.

        Arguably, the most critical skills for a VC become sales & marketing:
        Sales — i.e. sourcing deals — to find strong entrepreneurs and startups and to build trusted relationships.

        Marketing to build a brand to help convince entrepreneurs to partner with your fund.

      • robchogo says:

        I can’t reply directly to you aki for some reason (WordPress fail). But I want to address one of your comments. I think that a VC’s direct operating value-add does decline over time. But it does get replaced with something else. First, I think that having been an operator or founder helps you empathize better with an entrepreneur’s journey, and what goes on outside of board meetings. But what a VC also gains over time is a cross section of longitudinal data that they can bring to bear when a company faces a strategic inflection point. I’d consider this “operational” experience as well, but it’s unique to investors who see many companies and a set of comapnies over time. It’s dangerous to draw too much from “pattern recognition” especially when the case you are dealing with does not fit the “pattern”. But I think it definitely does help bring a perspective that a founder may not have, even if they’ve started one or two companies before.

      • Rob,

        Thanks for addressing my comment. I couldn’t reply to your reply (WordPress fail +1) so I hope you receive mine.

        I agree that the term ‘operational experience’ is vague. One example of an ‘operational’ skill at a startup is hiring, motivating and retaining talented people. This skill will likely weaken as you move to the ‘lone wolf’ VC life.

        On the other hand, pattern matching adds operational value and is extremely useful. Your argument for pattern matching reminds me of how we used frameworks in my consulting days: they don’t unilaterally solve an issue but generally help provide a starting point with which to think about it.

        At the end of the day, perhaps the most important driver behind being a great VC/startup operator/anything is genuine passion for the job.


  9. Great post Rob. I’ve been a VC for a little over a year now. I see the points you mention. It is negative for sure. As seed investors, like yourselves, we have more kicks at the can per partner than the average (I’ve made 9 investments, 5 of which are deals I lead).

    The biggest challenge for me is getting enough consecutive time blocked off to truly be helpful to a given portfolio company. I find my time is too fragmented. Working on that.

    Like everything in life, there are trade offs and the VC role has its pros and cons. But I am happy to be doing it.

    One final note: I would say I made that transition to being investor first, advisor/ enabler 2nd about 6 months ago. It has brought about a real change in mindset. I hope people still have a positive experience with me, but returns come first.

    • robchogo says:

      I think there are ways to be an investor first and still engage respectfully with entrepreneurs. Actually, given that venture is a multi-turn investing game, it ends up paying off.

  10. This is a kind of article every entrepreneur should read. There are so many who think VCs are just hanging around, playing with demos and saying ‘no’ for those who can’t show up an attractive, funny new toy. Entrepreneurs like me, who had the opportunity to sit on the VC side for a year or two are really lucky.

    One thing I would be curious of: In the US, do VCs act as mentors often? Or more likely to see an angel investor doing it?

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  12. Excellent post. While these points may hold true for most VC jobs, I would like to point out that as VC models are evolving, so are the investment teams. There are increasing numbers of seed funds, including accelerator/incubator programs that fall under “venture capital”, yet do not operate like traditional firms because they spend a great deal of time building portfolio-facing services and programs and, as a result, feel very much like an operating company at times. While all 4 of your points ring true even at 500, I’d still say our work (particularly running the accelerator program) is a good example of a firm that is a good blend of investment + operations. And on a related tangent, as more of these programs emerge, as does the demand for operational/”worked in the trenches” expertise (especially in design and distribution), hopefully this opens more doors to people who want to get involved in the VC/startup world.

  13. OnePlanetCEO says:

    Loved this post! Nice to see someone talking about reality instead of hyping the upside potential.

  14. I’m super late to the party, but I really enjoyed this post. Point #3 was something I had never thought of.

  15. As always, Rob, insightful and educational . Especially the focus on investing; and the debate about the tradeoff between operational and “longitudinal” expertise.

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