What is this industry?
Venture capital (“VC” for short), is a type of investing where capital is provided to startups that are believed to have high growth potential. By buying equity in a startup, VCs hope that down the line they will make a return when the startup “exits,” either through an acquisition or Initial Public Offering. A number of entities can act as “venture capitalists,” including individuals (“angel investors”), wealthy families (“family offices”), private equity firms, investment banks, large corporations, accelerators/incubators, or most commonly, venture capital firms. Venture capital is “performance-based investing,” in that startups will fundraise multiple times after meeting certain performance benchmarks, meaning that VCs often invest in the same company multiple times (in multiple investment “rounds”).
VCs can be differentiated by three main factors – stage/size of company they invest in, sector focus, and motivation.
- Stage: VCs can focus on very young companies (early / “seed stage”), “series A & B”, and/or growth stage companies (series B, C+). Some invest across a range of company size/stages.
- Sector: VCs can be sector-agnostic, or invest only in a specific sector, such as consumer tech, fintech, biotech, AI, energy, etc.
- Type/motivation (strategic vs financial vs social):
Strategically motivated VCs are typically corporate VCs (e.g., Google Ventures). They are commonly either part of the corporate development function within a large company, or a separate subsidiary of that company. While financial success of the startup matters, they will only invest in companies that are strategically relevant to their company – for example, they might want to develop a partnership with the company to improve innovation, acquire the company down the line, or gain insights about where the industry is headed through investing in the startup and participating in its board meetings.
Financially motivated VCs are typically private VC firms or accelerators/incubators. They typically have a more rapid pace of investment, and larger portfolios (having good chances of success as a fund requires a certain critical mass of investments). In addition, many raise their own funds by pulling together a set of LPs (Limited Partners) to finance investments, which is not something corporate VCs do.
Socially motivated VCs could be government incubators/accelerators (e.g., MassCEC), or “social venture” organizations (e.g., Village Capital). Often they invest with government or philanthropic funds.
What is a “day in the life”?
- As an Analyst or Associate, a lot of your time will likely be spent “deal sourcing” – scouting around for startups for the VC group to invest in. This could involve finding startups through desktop research and reaching out to founders yourself, managing inbound leads, or attending conferences and other events to meet with startups.
- In identifying startups that could be good investments, you will typically need to study the industry that the startup plays in in order to develop a “thesis” around what business models are best positioned to succeed in that given market.
- You will also likely spend time on “diligence,” the process of evaluating whether a lead meets the firm’s criteria for investment. This could involve everything from evaluating the attractiveness of the market the startup plays in (e.g., market sizing), developing or reviewing the startup’s financial forecast, engaging with lawyers to evaluate the startup’s IP positioning, evaluating the startup’s product roadmap, and/or its positioning relative to competitors.
- You will also likely work on negotiating the terms of each investment (e.g., information or board/board observer rights, financial terms, etc.)
- More senior VCs will also spend time attending board meetings of the portfolio companies. Depending on the firm, Analysis/Associates may get a chance to advise portfolio companies directly.
How to ace your interview
- Make sure to look at the portfolio of companies that the VC group has invested in and have some views on which of the companies you think are interesting
- Come to the interview with some ideas of startups that you can pitch as potentially interesting investments and why
Resources for learning about this industry
- TechCrunch – good site for knowing what’s happening in the startup space, who’s raised rounds recently
- New York Times DealBook
- Venture Capital Reporter
- This webpage lists recommendations on Top VC websites and blogs
Typical challenges in this industry – and how to deal with them
Venture capital can be a taxing industry, so like many others, burnout is a typical challenge. A VC might have hundreds of meetings with new startups in a year, as well as board meetings for existing investments, and the diligence process can be quite involved.
Typical industry entry process
There is no “typical path” into VC. Often, former entrepreneurs will become venture capitalists. People typically get into venture capital later in their careers, but it’s also possible to enter as an analyst or associate. The skills one gains in private equity, investment banking, consulting, or working at a startup all are valuable to a VC firm and could position someone well for an Analyst/Associate position.
Typical career trajectory
Analysis/Associates can work their way up to becoming a partner at the VC firm, or starting their own VC firm.
Companies to know in the industry
- Well-known VC firms – Sequoia Capital, Andreessen Horowitz, Kleiner Perkins
- Accelerators / Incubators – Plug & Play
- Social investing – New Profit, Village Capital