Q&A: Analyst --> Associate at a VC / Growth Equity Firm

ilc22:

Hey everyone, I've been a long time lurker and I feel like now is a good time to give back.

Later stage VC / Growth equity is a great segment of the buy-side where you can learn about companies, business models and markets, and along the way, source a deal.

First of all, happy holidays and I hope you are enjoying your end to 2017!

I would like to know about your story. Where do you come from? What did you do to get there? Do you have any aspirations to go further?

Deleted double post

See the above post on getting in.

I really am enjoying the work and am learning a ton. I don't have a traditional consulting or banking background so there was a steep learning curve when I got here and I am still developing. What's great about the software industry is that (a) its the fastest growing market and (b) every single industry uses software one way or another. Through point B you end up learning about different markets.

I think the most important things to become good at sourcing are:

Be willing to grind: it is a numbers game. There is a ton luck and timing involved. For every interesting company you find, there are 10 really lame ones and ones that aren't a good fit for your firm. Doing 500-1000 calls a year (varies for firms) isn't for everyone. You need to be willing to endure the grind in order to find the right opportunity for your firm. Having a lot of "n" is very important for sourcing. You need to build the phone skills, understand how to ask good questions and develop commercial instincts.

Be intellectually curious: It's hard to source without any structure. Without structure it's hard to find companies, break into them, have good conversations and leave lasting impressions on the CEOs/executives. By being intellectually curious, you will think about certain markets and sub-markets where you want to spend time. Once you've identified the area you are going to dive into you focus there and build knowledge about that market. This allows you to know all the industry players, industry experts, find conferences to source, etc. It's pretty cool to jump on the phone with the CEO and actually have a nugget of competitive/market intel that he/she hasn't hear before. That's how you gain the right to the next conversation/meeting.

Be creative and proactive: I mentioned this above, but you need to have strong commercial instincts and be proactive. If you find an interesting company and the CEO say's she's not interested, don't necessarily take no for an answer. Come up with a compelling response as to why the CEO wants to jump on the phone and see if she bites. If necessary, bring up the company to a VP, Principal, Partner and be prepared with reasons why the company is interesting and have game plan. Not every company will concede but you'll be surprised to see how many are willing to chat after they see a differentiated, non-stock email/responses to rejections.

The last point is critical: you provide a ton of leverage to your bosses if you come in with a well thought out game plan on what to do next. I think this is universal and is applicable to all types of jobs and projects, not just for VC/PE and sourcing.

At the end of the day, I find my sourcing skills to be differentiated in the market. Not many people can say they've had thousands of conversations with software companies. Like modeling and consulting, I developed this part of the trade and was able to move up the ranks just as a banker or consultant does.

Also if you don't mind, how is the compensation and work-life compared to your friends in banking?

I'm going to be vague on some of these for anonymity's sake:

1) My firm is comparable to many of the VC / growth equity firms you see out there. AUM is between 500-2bn. I'd say GA and Bessemer are on the higher end and my firm. If you had to bucket my firm, upper-mid market is a good way to describe it. The firm has invested and continues to invest in companies that all the VC / growth equity firms want to invest depending on their asset class.

2) I did join out of undergrad. When I first got here, the program was fairly unstructured. I think this varies among firms. They usually all will have some type of formal 1-2 week training with various "retreat" like training programs sprinkled throughout the year. With all that said, it's not comparable to a 6 week IB bootcamp that you see with all the analysts programs out there. There is a ton to learn on the job and on your own. What I really enjoy is how entrepreneurial the role is. You really get to, with some direction of course, build your own path and learn what you want to learn and source the companies you want to source. My firm has done a great job in enabling development by offering access to amazing resources and driving mentor ship across all levels from analyst to Partner. From a sourcing perspective, there is no better way to train than to jump on the phone and talk to companies!

3) It was an internal promotion. At my firm I saw the responsibilities shift from nearly 100% sourcing and gradually balance out between sourcing and execution. If you source a deal opportunity where people want to spend time, often times you'll get to do some deal work. That doesn't necessarily mean financial analysis and modeling. Market is a big part of the diligence process, especially in VC/Growth Equity; it's usually easier to get your feet wet here vs. diving right into the quantitative aspects of the job. With all that said, sourcing is still a critical part of the job as an associate. You can argue it becomes even more important to find high quality deal opportunities as you build tenure at the firm.

4) In most cases across the board associates come from the banking/consulting path vs. analyst to associate path. With that said, I've seen more firms willing to promote analysts internally or from other similar firms. Again, the sourcing skill set is fairly differentiated and is attractive to VC/Growth equity firms.

I think for the analyst position you can make the move from many roles if you know a firm is hiring.

I think public equities HF/AM --> Associate is rare, but I've seen it happen before. If I had to peg odds, they'd be low

I won't answer where I am from.

At my firm there definitely is cold calling, but probably not as much as you would think. Cold calling is used for when companies don't respond or have gone silent on you after already have engaged with you. Cold calling is never going to be me by first choice when reaching out to folks, which is different from other sales (inside/outside) jobs.

Thanks!

1) There are many, many different people, blogs, etc. you can follow - Enterprise Irregulars / David Skok (Matrix Partners) - really good stuff. Covers content for specifically software founders and is aimed at helping companies scale, primarily those in their early stages (0-20m ARR) - SaaStr: another SaaS start up aimed blog. Great podcasts too - newsletters: Finimize, Pitchbook, Fortune Term Sheet, Axios Pro Rata - Any top tier VC firm like Sequoia, Bessemer, Battery, Andreesen will have a twitter page. Many of the Partners at these firms will also have twitter page. As you go up in the asset class, that is less likely. - and much, much more

2. My experience is limited as I am just an associate. It takes many, many years to be good at evaluating founders/CEOs. From my experiences and from observing some of my Partners, you want founders who have a clear structured vision of the company. You want humble founders who are self-aware enough to understand what they're really good at and what they aren't good at, which means they know where there are gaps in their executive team. If you have a start up team with a highly talented VP Sales, CMO, CHRO, etc. that is usually a reflection of the CEO's ability to build a team. This obviously varies across companies of different stages, so keep that in mind. In general, not all the time, strong first time founders are usually product oriented and have strong domain in their market; they are weaker in operational and tactical execution. I'd like to make a distinction between Serial entrepreneurs and professional CEOs. Successful serial entrepreneurs are those who have had success in a certain domain and have continued to do well within their guardrails. These types of folks are the ones that get the hi-profile VC funding (Reid Hoffman, Paypal --> LinkedIN, Peter Thiel, Paypal --> Palantir, etc.) Professional CEOs are folks who are strong operators and are hired alongside a product focused founder (who is now the CTO, CPO, President, etc.). Again, you see a lot of late stage growth companies with these types of CEOs because they know how to manage a company that is doing 50-100m ARR, which is WAY different than a company doing 20-30m in ARR. At the end of the, being able to judge folks takes time and experience; I am certainly early days there. I will say though, the insufferable ones are much easier to figure out.

3) I kind of answer this in point 2, but I'll reiterate that it's generally hard for founders/CEOs to scale up and down. If you are a product focused founder, it's more likely that you'll have difficulty in managing a company with 500 people and doing $50-100m in ARR. If you are a F500 CEO, chances are you're not used to managing a 15 person company that's pre-revenue. If there is a common trait, it's wisdom (failures and mistakes) and experience. Again, I am very limited in experience here.

4) I would focus on being structured in how I find and generate opportunities. I've found success in picking a couple of markets and going really deep into them. This means understanding the different sub-segments of a market, laying out the competitive landscape and it's incumbents and disruptors, figuring out the key subject matter experts in the industry, figuring out the different types of customers, etc. Once you find a type of market, then you go all in: conduct market research (talk to customers/partners of companies, review surveys, read Gartner/Forrester), talk to industry experts, attend conferences, and ultimately talk to companies. The more and more conversations you have and become more "in the know", the easier it'll be to understand what types of companies are interesting and have strong, engaging conversations with those companies since you are knowledgeable about their market.

5) Desired output in VC: find high quality deal opportunities! While doing that, provide as much leverage as possible to the Partner. For example, when working on a deal you should think about laying out to Partner: - The game plan for winning over the founder - The diligence plan: what are the key questions we need to answer in order to feel comfortable about doing this deal and how do we execute on finding answers? - Are there people who we can talk to in this industry or in our network that'll give us a a valuable perspective on the deal and market opportunity?

By laying out a thoughtful game plan, you'll build a ton of credibility with the Partner. The key is to give the Partner something to react to. So instead of asking the Partner: "do we want to do this deal?" You should say "I still don't know enough about this deal, but I think we need to think about XYZ in order to come up with the right answer. Here's how I think we can go figure all that out." That statement gives a Partner a chance to REACT and chime in with thoughts. By the way, it is completely fine if the Partner disagrees - just another learning moment for you

I really don't know. I've really enjoyed my time so far and have a lot more to learn. I'd love to be where I am at now, but if not, I can see myself working at a company (maybe portfolio company) or at another VC/growth equity firm.