Hello all, I am just under a year out of UG from a semi-target school (think Duke/Dartmouth/Northwestern) and have operating experience at various software companies, and, long story short, am hell-bent on breaking into Venture Capital pre-MBA. As I network with alumni, family friends, and professional connections, and develop opinions of my own on tech sectors I find interesting, I believe another great use of my time would is self-learning relevant financial skills.
Now, I know that in seed-stage and angel investing, there is little to no modeling/financial analysis at the junior level. Analyst & associates at these $25-75m seed funds and incubators are nearly 100% based around networking with founders and sourcing a high volume or startups at their earliest stage. I also know that at the growth stage venture (series C or later, sometimes called "growth PE" like Summit/TA/IVP), you see a lot of ex-bankers and need a strong understanding of DCF, 3 statement analysis, and valuation methods.
But what about regular good-old-fashioned "Early Stage Venture Firms"? This is the sweet spot I am interested in. The "series A, series B" $500M-1B firms that make investments of $5m-$50M in companies that have SOME traction, but not enough data to build 5-year cash flow forecasts. What are the key financial skills necessary to thrive at this level?
Thanks in advanced for responses!
It's very rare for a Series A or B company to have had enough traction to require any real financial diligence, and even modeling for Series C and D investments is relatively simple and focused almost entirely above the operating income line.
Series A and B firms will focus, like in seed-stage investing, on your ability to network with founders and your understanding of the qualitative things that can increase a startup's chances of success (big TAM, killer team, value proposition, etc.).
Let's set aside startups with heavy technical risk, where engineering skill is required to decide whether the team can actually build their proposed quantum/nano/cyber mumble.
The most critical factors in most early stage are signs that customers find the solution desirable, and that it has positive unit economics: the gross profit earned from each new customer is significantly more than the cost of getting them onboard.
I'd leave all your finance textbooks on the shelf and get familiar with Lean Startup methodology. https://hbr.org/2013/05/why-the-lean-start-up-changes-everything
Thanks for sharing this article! I will start reading "The Lean Startup" as soon as I finish "Venture Deals"
The best introduction is Steve Blank’s “Four Steps to the Epiphany.” Here’s a free pdf of the intro, courtesy of our friends at Stanford.
https://web.stanford.edu/group/e145/cgi-bin/winter/drupal/upload/handou…
Think the comment by @7xEBITDA" is spot on. You would rarely be doing any serious financial modeling at any VC. Also, over my time in VC, I am not sure if it is the best place for finance professionals to start their career. There is a very small chance of moving up beyond Associate level if you join as an Analyst.
I have been very lucky to have joined as an Analyst and moved on to a Director role and there were extenuating circumstances that helped. Most people usually leave for portfolio companies in a year or two.
So long story short, I wonder if you are better off having more operational roles at start-ups and then breaking into VC post-MBA would be a better option. Just my 2 cents.
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