Industry Spotlight: Venture Capital
What is venture capital?
Venture capital is financing that investors provide to startup companies and small businesses that are believed to have long-term growth potential. Venture capital generally comes from well-off investors, investment banks, and any other financial institutions. Though it can be risky for the investors who put up the funds, the potential for above-average returns is an attractive payoff which drives them to invest!
In a venture capital deal, large ownership chunks of a portfolio company (ie. company that a VC invests in) are created and sold to a few investors through independent limited partnerships by venture capital firms. Venture capital tends to focus on emerging companies seeking substantial funds for the first time rather than larger, more established companies.
Types of careers
A venture capitalist is a person who invests in a business venture, providing capital for start-up or expansion. Here are the roles and responsibilities of the people on an investment team at a venture firm:
Analyst: The key role of the analyst is to network, take part in industry and VC events, keep an eye on latest industry trends, and cold-call potential target companies to learn more about their business and obtain a meeting with the founders. This is a very entrepreneurial role, and analysts in VCs are often very well connected and aware of the latest happenings in the industry.
Associate: Focused on due diligence, business plan analysis, executing transactions, analyzing interesting industry subsectors, and helping out portfolio companies. It is the more analytical and deal-making role within the VC fund.
Principal: Principals are in charge of making portfolio companies run smoothly and will be on the board of a few portfolio companies. In addition, their role is to network and identify interesting opportunities for the fund to negotiate terms of acquisitions, and also to exit portfolio companies successfully.
Partner: Partners tend to be less involved in the daily deal-making and are more focused on high-level tasks such as identifying key sectors to invest in, giving the green light for investments and exits, sitting on the board of some portfolio companies, networking at a high level, representing the overall firm, as well as raising money for the firm (every five to seven years) and communicating performance to investors.
So why work in a VC firm?
Understand the fundamentals for building successful businesses & witness how startups are born from ideation to raising capital to becoming profitable
Build a professional network of inspirational founders
Develop skills as a futurist gaining the ability to see trends and consumer behaviors evolve before they become mainstream.
Access the best startup job opportunities if the time comes when you decide to move on from venture capital
The benefit of working in VC is that you will have already performed some level of due diligence (ie. investigation of a potential investment/product to confirm all facts) on the promising startups in your industry of focus, and have a behind the scenes view of companies that have all the makings of a unicorn.
Now you need to know a few things!
How does a VC firm operate?
Venture capitalist investments in businesses are typically long-term (the average is from five to eight years). This is normally how long it takes for a young business to mature to the point where its equity shares have value and the company goes public or is bought out. VC firms expect returns on investment of 25% or greater given the risk profile of the companies they invest in.
Venture capital firms obtain investment capital by pooling money from pension funds, insurance companies, and wealthy investors. The firm makes the decisions about which businesses to invest in and receives management fees and a percentage of the profits as compensation.
VC firms range in size from small (capital pools of a few million dollars, typically investing in only a few new businesses each year) to huge (billions of dollars in assets and invested in hundreds of companies).
Day in the life of a venture capitalist
Meetings, meetings, and more meetings.
Early morning meeting: firm-wide discussion of a potential portfolio investment. The due diligence team will present the pros and cons of investing in the company. An "around the table" vote may be scheduled for the next day as to whether or not to add the company to the portfolio.
Afternoon meeting: may be held with a current portfolio company. These visits are maintained on a regular basis to ensure start-ups are using the investments effectively. The venture capitalist is responsible for taking evaluative notes during and after the meeting and circulating the conclusions among the rest of the firm. She will spend much of the afternoon writing up that report and reviewing other market news.
Early dinner meeting: with a group of budding entrepreneurs who are seeking funding for their venture. After that dinner meeting, when the venture capitalist finally heads home for the night, he or she may take along the due diligence report on the company to review that will be voted on the morning meeting.
When you initially join a venture capital firm, you'll likely start out in a position where most of your time will be spent sourcing deals and analyzing potential investment opportunities rather than directly writing any checks. The initial goal for promotion is then to become the person writing the checks, who is in the position to take credit for savvy investment decisions. It is a good track record of investing that will lead to further career progression on the road to senior partner.
The type of person who goes into venture capital usually has an entrepreneurial mindset, so it is not uncommon for a venture capitalist to flip over to the other side of the table and try their hand at being a startup founder. Other common transitions include moves from early-stage investment firms to late-stage investment firms (and vice versa), and moving into private equity.
When is recruiting?
Entry point varies from firm to firm. With most industries, it's safe to assume that you can find current openings by going to the company website and clicking on the "Careers" section. This is definitely an industry built on networking skills and who you know really matters when it comes to finding an open position. It's definitely time to line up those informational interviews and look through all of those alumni listings for anyone who could be of any help.
If you are still not having any luck, there is always the option to look into one of the openings at one of a firm's portfolio companies in order to better familiarize yourself with the startup environment.
What do the interviews look like?
Venture capital (VC) careers are competitive, with many more interested candidates than open positions. Many of the questions you can expect during a VC job interview are general in nature, but others are unique to the venture capital industry. Important things to note: NO case questions like in consulting interviews and NO finance technicals.
How do I prepare for a VC interview?
LinkedIn - Check to see who you may know anyone in the VC firm as well as your interviewer’s previous work experience. Always good to name drop in order to gain some credibility.
Googling for interviews by those individuals so that you can learn about their backgrounds. What were the things they were heavily invested in from a few years ago. Were those investments successful? Can bring those up in conversation!
Checking CapitalIQ - IQ has some really awesome information on funds. Not just what they invested in, but also who their limited partners are and what other firms they co-invest with the most. Finding this out can be critical. Can help guide you in your conversation.
Read Dan Primack's daily Term Sheet newsletter before every interview.
Prep for the top 9 common interview questions!
Leading (corporate) VC firms today
Novartis Venture Fund
Johnson & Johnson Innovation
Samsung Venture Investment
Please note that this is just an introduction to VCs. Also note that you should only consider a venture capital job after you have had some years of successful, relevant, hands-on experience for the firm you are hoping to work for. If you think this is something you’re interested in, we highly recommend you reach out to WIB members who have worked in VCs. And begin your search on our Alumnae Database! There’s a huge gender gap in VCs, especially at the senior management levels, but we hope that with these tips, you’ll fix these statistics in no time!