Is VC dead?

I met with a tier 1 VC partner who told me that the golden era of VC is over and that he wouldn't recommend anyone from IB to join the industry today. He made these points below, are they true?

  1. The juniors joining today won't build any useful skills beyond networking

  2. Chances of investing in a unicorn are lower than ever 

  3. Most funds are screwed with their 2021 portcos, VC returns are awful beyond the tier 1 funds

  4. unless you exited your own VC backed startup, there's no path to partner in VC

  5. There are no exit opps out of VC beyond startups

If VC is truly dead, what's the best path now?


 

Based on the highest ranked content on WSO and insights from various threads, let's address the points made by the tier 1 VC partner:

  1. Skill Building Beyond Networking: While networking is a crucial skill in VC, it's not the only skill that juniors can or will develop. Successful VCs also need to have a deep understanding of market trends, the ability to perform due diligence, and the skills to support portfolio companies. The role involves much more than just networking; it's about identifying potential, driving value, and understanding the intricacies of different markets and technologies.

  2. Chances of Investing in a Unicorn: It's true that the market has become more competitive, and the sheer number of startups has increased, making the search for a unicorn more challenging. However, this doesn't mean opportunities don't exist. It's about finding companies with strong fundamentals, unique value propositions, and scalable models. The landscape is evolving, and with it, the criteria and opportunities for identifying potential unicorns.

  3. VC Returns and Portfolio Performance: The performance of VC funds can vary widely, and while some 2021 portfolios may face challenges, it's a part of the cyclical nature of investments. Tier 1 funds often have the resources, networks, and expertise to navigate downturns more effectively, but there are also many examples of lower-tier funds that have made successful bets. The industry is not monolithic, and outcomes can depend on many factors, including sector focus, geographic presence, and investment strategy.

  4. Path to Partner in VC: While having a successful exit from a VC-backed startup can be a significant advantage, it's not the only path to becoming a partner in a VC firm. Many partners have backgrounds in finance, consulting, or industry-specific roles. Success in VC often comes down to one's ability to source deals, add value to portfolio companies, and generate returns for the fund. Building a track record within the industry can also pave the way to partnership.

  5. Exit Opportunities Out of VC: While startups are a common destination for those leaving VC, they're not the only option. Many VCs transition into roles in larger investment firms, corporate venture arms, consulting, or even start their own funds. The skills developed in VC, such as market analysis, investment evaluation, and strategic planning, are highly transferable and valued across various industries.

If considering the best path forward, it's essential to evaluate personal interests, strengths, and the aspects of work that are most fulfilling. For those passionate about innovation, startups, and technology, VC still offers a unique opportunity to engage with the forefront of new business models and technologies. For others, exploring adjacent fields like private equity, growth equity, or corporate strategy might align better with their career goals and risk tolerance.

Remember, the landscape of venture capital, like all industries, is subject to change, and what may seem like a downturn today could be the precursor to the next wave of innovation and growth.

Sources: https://www.wallstreetoasis.com/forum/venture-capital/early-stage-vc-101-5-questions-you-better-be-able-to-answer?customgpt=1, Why NOT to do Venture Capital, Current VC associate taking questions, VC comp at top funds, Is VC out of undergrad a good idea?

I'm an AI bot trained on the most helpful WSO content across 17+ years.
 

  1. The juniors joining today won't build any useful skills beyond networking

    - Only at "sourcing" shops. Many (if not most) VC firms have Juniors doing execution and diligence. 
  2. Chances of investing in a unicorn are lower than ever 

    - But they will come back. And idiots will cycle venture-backed companies like hot potatoes once again. 
  3. Most funds are screwed with their 2021 portcos, VC returns are awful beyond the tier 1 funds

    - Much like a fine vineyard, some vintages will turn to vinegar and others will age into beautiful wines. Tier-1 funds actually made a lot more "vinegar" because they had to deploy capital while Tier-2/3 shops let the grapes sit on the vine. Smaller managers tend to actually have better returns in VC. Look at a16z's moderation as they have grown in fund size.
  4. unless you exited your own VC backed startup, there's no path to partner in VC

    Not at all the case at all. I interact with partners on a daily basis that have not worked outside of finance.
  5. There are no exit opps out of VC beyond startups

    - Plenty of people transition to PE, GE, & HF from the junior level. Speaking from experience, the process is a little more difficult.

I think the best path regardless 

 

Rumblings of the death of VC is greatly exaggerated. Obviously the market took a hit post 2021 and those vintages are pretty foul, but we're again on the up-swing, and there's an exciting new platform shift (AI) driving innovation across all industries. I'd also differentiate between "tier 1s" that are playing the AUM game, many of which are momentum investors, and the long tail of boutique and specialist VCs that still care about carry and show better overall returns.

To share my thoughts on your questions:

  1. If you're at a smaller early stage fund, you're more hands on with your ventures, if you're in growth, it's more fire and forget. In either case, as a junior you do get a lot of exposure to diligence, have the opportunity to work your way up to contributing to boards, and I'd not underestimate networking as a critical core skill for this industry. It goes without saying that no two funds are the same.

  2. Unicorns are old news, we're in the decacorn era now, though it's true that returns are less lucrative today than they were in the 90s in part due to the incredible competition between VCs.

  3. I've talked to many LPs, and while they also have a bad taste in their mouth from the 2021-adjacent vintages, they also expect the 2022/2023 vintages to be some of the best performing of all time. Some tourist money is gone from the market, but core LPs are still investing in VC. Remember, VCs tend to be uncorrelated to the market, and high rate GICs aren't forever. LPs still want VC exposure, and to drive a good return, they need to include high performing emerging managers. It's a tough fundraising market, but lots of room to maneuver.

  4. The going wisdom is that there is no such thing as career progression in VC, and historically VC would be more of your last job not your first. That said, in the last few years we've seen recruitment of younger talent with less experience, and many firms are adding more focus on fostering talent as the first generation of SaaS VC talent is starting to burn out.

  5. The exit opps out of VC is to launch your own business or fund, join a startup, do something else in the innovation ecosystem, or retire. You typically exit to VC, not out of it. I won't sugarcoat it, it's a very niche industry and the skill-set, while generalizeable, can be challenging to sell into traditional roles.

Hootie
 
Most Helpful

Agree with above. VC has and always will be a cyclical industry. There are great boom periods followed by busts. Everyone said the VC industry was dead in 2001, 2009, and now. Do you believe that tech innovation is done? If not, there will always be a place for venture capital firms to back early stage startups, take risks, and reap the rewards.

But I do think there was a period of time in the ZIRP era, especially in 2020-21, where it felt too easy to be a VC. Every company seemed to be raising quickly and high prices. Every VC looked like a genius because it felt like almost every company would become a unicorn in 2 years. VC is supposed to be hard, and it's good that it's getting back to its roots as a difficult asset class to master.

 

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