I'm a general partner at an early stage VC firm. Without disclosing too much detail, I've been in the industry for 10 years. Rose up the ranks from associate, though moved firms a few times. I've spent time at both a Tier 1 established VC and a new up and coming fund. Based in the Bay Area my whole career, though have made investments globally. Happy to answer any Qs about the industry: recruiting, on the job, getting promoted, etc.
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How do you see VC as an investment vehicle relative to growth / PE / HF over the next decade.
All these asset classes are highly cyclical, so VC and growth won't be as relatively attractive as it was for the past decade. That being said, I think early stage venture will continue to outperform. Valuations at pre-seed/seed/A didn't get as out of whack as those at growth, and the environment continues to be somewhat robust there. The upside potential is incredibly high given the power law nature of returns. And there's still a lot of innovation remaining in software/Internet, with AI and AR being potential catalysts for further secular acceleration.
That being said, I think the VC industry is much more competitive than it used to be, becoming on par with PE and HF. Doug Leone from Sequoia had a great quote about venture turning from a high margin cottage industry to a low margin, mainstream business. It's a lot harder to stand out in venture.
Based on what you've seen, what are the biggest factors that determine whether a startup succeeds? What are common pitfalls?
Honestly, it's a lot of luck. You have to build something that resonates with customers (not easy to do ahead of time), that beats the competition, and can continue to be funded while scaling and growing. The most common pitfalls I see are 1) too much emphasis placed on adoption of a free product that has no hope of making money, 2) over reliance on ineffective paid acquisition, which gives the illusion of a company that has product/market fit, when in fact they're just spending $2 to earn $1, 3) hiring the wrong kinds of people. A lot of first time founders make the mistake of hiring hot shot execs from big companies with fancy credentials. The issue with those people is they're not used to doing the work - they're typically managing large teams that do the work for them.
Do you think VC is a good career path out of undergrad or would you recommend getting startup/finance experience?
Do you have any resources you recommend for those trying to become better investors?
I think it depends on whether you want to be a career VC. If you know for a fact VC is your calling, I would try to do it ASAP. I know many people who have had amazing VC careers coming out of college (Insight & Bessemer in particular have really great analyst programs with strong alumni). Startup experience can help a bit in developing better relational ties with founders, but honestly it's better to go into VC earlier if you can. The downside of course is you lose a lot of optionality, especially as time goes on. After you've been in VC for a while, you're not easily hirable for much else because you don't develop hard skills or functional skills. You can kind of do biz ops or BD, maybe strategic finance, but not much else.
May I ask why "it's better to go into VC earlier if you can"?
With venture becoming increasingly competitive, how do you think firms can differentiate themselves to get on the cap tables of attractive startups?
You have to be contrarian in some way & have a differentiated process. You either have to invest in deals that no one else wants, deals before anyone else sees them, or win allocation through a better relationship with the founder. Most new firms nowadays have some niche specialty that stands out: a sector or geo focus, or some specific network edge (ex Lachy Groom with ex-Stripe founders or Wave capital with ex-Airbnb), on top of a stage focus. I hardly ever seen any new generalist firms nowadays.
What do you think is the best approach in getting a VC's attention during recruiting? Since there's generally a less formal process / timeline, how does it look from your seat and what do seniors look for during the interview process?
Depends on what type of recruiting process the firm does, and where you are in the process. If you're talking about getting in the process in the first place, some firms use recruiters that place people out of banking, consulting, or PM programs, so you have to get on their radar first. Others are more ad hoc, in which case you need to network a lot. Ask for coffee interviews, offer to help do research, source deals, anything that would help build a relationship with the firm and stand out. Another tactic I've seen work, although can take a long time, is to work at a portfolio company of the VC and have the founder vouch for you to their investors.
How often do you see employees or common shareholders winning during exits?
Obviously employees at the Figma’s of the world can earn significant paydays but what does it typically look like for a middle of the road exit
Honestly, it doesn't make rational sense to be an early employee at a startup. You're working just as hard as the founders, take on almost similar risk, and yet have a tiny sliver of the equity, with less job security (founders are hardly ever fired unless something goes seriously wrong). The paydays can be great if you're at a generational company like Facebook, Uber, etc. but that's like winning the lottery. For smaller exits, even ones that look large on paper (hundreds of millions), a typical non-founder employee might have <0.25% equity, which isn't a lot, especially if you consider how long it takes to get an exit (often 10+ years).
Thanks for doing this! Really interesting answers above, some questions below as someone currently trying (but struggling) to break in:
1) The number one thing I look for in a junior hire is hunger/proactivity to source. VC is an industry where you have to thrive in an unstructured environment, and be a self starter. It's not all like banking where you do what you're told and otherwise try to hide. Some people just have an itch to source deals. My test is, if I were to leave this person alone for a month, after I come back, will they have found a bunch of great startups to invest in? An associate's primary job is to find the next Facebook, before anyone else. I look for signs that they can be aggressive, resourceful, and scrappy enough to do that.
2) At seed stage, it's much more of a founder & market bet, since the companies are so early you can't really assess their metrics. Many seed companies are pre-launch anyway, so there literally are no metrics. You can do things like customer interviews and competitive landscape analysis to gauge product/market fit and positioning, but it's really all about the founder's ability to execute. At growth stage, it's much more of a numbers game. You have a lot to work with: historical financials, cohort data, in depth customer feedback, etc. So you can typically model much of it out.
3) I've seen folks from PE transition well to growth. It's hard to transition to early stage since it's such a different style of investing (more intuitive, people driven vs. financials driven), but growth is not too far of a reach.
4) Yes, I'm glad people aren't doing as much of that nonsense anymore. There was a funny anecdote going around that the vast majority of the Midas List (a ranking of the top 100 VCs by returns each year) weren't active on Twitter. It's a complete waste of time. The truth is, a lot of VCs are vain, and get a dopamine rush from feeling famous. But it doesn't translate to good deal flow, and if anything sucks time away from the core job of meeting companies, doing research, and working with their portfolio. Fortunately I was at firms that did not emphasize personal brand building at all, and I'm grateful for that. I think it's utter nonsense.
Top underrated and overrated VC firms?
Next venture capital firms to join the top 10 ranking in the US?
Great question. Overrated is easier than underrated. Id' say generally firms that sized up in the past decade but aren't considered truly top tier by founders (aka not Sequoia, Benchmark, A16Z, and maybe 3-5 others) are going to really struggle. They won't have access/allocation in the best late stage deals, of which there will be very few. Then again, all it takes is 1 great deal or partner to revitalize a firm for another set of funds. Redpoint was on its deathbed but then got Snowflake, same with Accel and Facebook, Kleiner and Figma. So many of these legacy firms do have staying power. On the underrated side, there are a ton of new emerging managers that I think are really well positioned for the future, either because they're early in some new trend, or they just have the raw hunger that I don't see the big firms have anymore. Not all will make it of course, but I wouldn't be surprised if among the top 10 best returners of the next decade, the majority are emerging managers. The single best VC fund of all time was Lowercase I (Chris Sacca), which returned 250x net on I believe a $10M or so fund.
What firms are considered top tier by founders if not Sequoia, A16Z, etc.?
and what is a good way to research the best firms besides word of mouth and WSO
Curious on your comment regarding Redpoint -- is your comment that they were on their deathbed because they had no exits on record between end-2018 to 2020?
Also, they were in the Series B of DraftKings, which IPO'd before Snowflake, I think that was a pretty big win for them as well, in the range of ~50x. Their Series E investment in DraftKings was ~10x in 3.5 yrs
I guess that wasn't nearly enough to excite their LP's again and retain GP's?
How do you view the VC secondaries opportunity set in the current market environment?
Do you mean VC funds or individual companies? There are secondaries happening in both - LPs that desperately need liquidity that are selling their LP stakes at discounts to other LPs, and VCs that are selling stakes in late stage startups. I think both can provide very attractive opportunities if you're in the right names. But tread carefully - a lot of funds and companies are still marked at 2021 highs and will have to be marked down considerably. A lot of companies will fail in the next couple years as they run out of cash. Being a liquidity provider in a market that craves it can always be lucrative, but you have to pick the right assets.
Is it straightforward to transition from late stage growth (TA, GA, EQT Growth, etc.) towards late stage VC (serie B, C at Accel, Sequoia, etc.) ?
If yes, how would you recommend positioning itself towards recruiting?
Yes I think this is a relatively easy and common transition. Many of the later stage firms use recruiters, so I'd first network with them and get your profile on their radar for growth opportunities. You can also leverage your network. Get to know these other funds as peers first, then you should be able to have a leg up in hearing about opportunities that come up.
Thanks for doing this! How do see the future of data teams in VC? I recently joined a top VC in EMEA to build their data function, and given the amount of chat about AI & Data-Driven VC, I'm very curious how you see the importance and gravitas of these types of functions in VC. Outside of a few funds (that also market very heavily like EQT) and Moonfire, I don't really see that many funds actually be data-driven or even pay their data people like proper front office staff. If you were a data person with elite pedigree (mid/senior at FAANG/Snowflake etc), would you want to be head of data at a strong fund?
Very few firms apply data driven strategies well. The vast majority don't. It's really hard in VC because the data sets are so noisy, incomplete, and there's a lot of randomness with startups. There are a few firms like Signalfire and crossover firms like Coatue that have invested heavily in it and claim to have an edge from it. I'm not sure though. I still like VC is a network driven business. The best founders are discovered even before they build a product, so not sure what data you could apply.
And you're right that data scientists inside of VC firms are considered second class citizens. This applies to any platform role. I candidly don't recommend joining a VC firm for a platform role. You're always going to be underpaid, underappreciated, and have no job security. You'd have a much better career being a data scientist in a real company.
How does that work? Don't you usually need a product/proof of concept before VCs are willing to invest?
I know a managing partner from Coatue, they have an impressive team, some of the sharpest guys in the market. I asked my contact about how they use data science in their business, and he said outside the obvious of maintaining a database of interesting companies, they use data talent in two ways: (1) mapping talent networks, to introduce good quality talent to their companies, and to help them identify companies that have good talent, and (2) they sometimes drop some data science talent early into a business they back to help them setup an intent-driven analytics practice that helps them get ahead of the curve on their go-to-market without committing to hiring a ton of expensive data science talent upfront (the curse of all data scientists is they eventually just end up working on attribution).
Excellent post, thank you!
Assessing the founders is something we recurrently discuss within the team. Particularly their hustle, drive and resilience, incl. values and character (less so ability, capabilities ). In the late market phase it was almost impossible from a time and access perspective (and competition on deals) to get a proper view. Past success seems oftentimes to yield biased or spurious conclusions.
What approaches do you use/follow to have a good gut feeling the founders are a safe a sound pair of hands (execution and beyond) and what has been your experience?
You can tell a lot about a founder based on their past experiences. I try to reference them heavily with former colleagues, former investors if they have them, etc. Also, if the company has been around for a while, I often ask for past board decks & investor updates, to see if they delivered on what they said they would. The number one I look for is demosntrated speed of execution - do they ship things fast? A big red flag is if I see that things are always behind/delayed - product launches, new hires, partnerships, etc. That's the biggest thing.
Thank you. Very helpful.
References are a good indicator, especially when there is no obvious bias.
Board minutes and docs a very good source.
Hopefully these sources include the personal traits you want them to have (resilience, resourcefulness, etc.) Or avoid in critical times.
Thank you again for making this post! I am curious - coming from an IB background for a year and joining a Seed - Series B shop (somtimes we do Series C). Was wondering if you think it is possible to transition to Growth investing after doing a stint in this stage of investing. If so, how would you approach the transition.
If your shop is more multi-stage, I would recommend trying to work on more later stage deals (Series B+), which will be more relevant for growth firms.
Thanks so much for doing this. I've just started at a t1 european fund a year ago, and have some brief questions.
- What separates the great investors from the average ones?
- What are the top things that new VC's can do to ensure they have a successful career?
- What books have been most impactful in shaping your thinking over the years?
Thank you so much! :)
Good questions. IMO:
1) Good VCs tend to be really hungry, and never let up. They love the hunt of searching for great companies, learning about new spaces, and hustling to get into deals. There are a lot of similarities with sales. Average ones get bored of the grind, or get complacent. Great ones are always hustling.
2) First and foremost, I'd try to build as broad a network as possible, and put effort into maintaining it. Some of the best people to know are peers at other VCs. Grab coffee, quick Zoom calls, get lunches/brunches/dinners, meet up regularly. I've found other people in the ecosystem, particularly other VCs and founders, have been my best sources of deal flow. Also, take time to try to find a few mentors, people who are more senior in the industry at other firms that can guide you. Take time to build relatoinships with them - send them Christmas cards, birthday gifts, etc. They can accelerate your career in huge ways down the road.
3) Lots of great books out there. A few of ones I like that have been great at uncovering what VC is all about: eBoys (about Benchmark), The Power Law (about the history of VC), The Business of Venture Capital. There are also great exposes of specific startup stories that showcase the dynamic between VCs and powerful founders: Super Pumped (about Uber), Hatching Twitter, Facebook: The Inside Story.
This is extremely helpful - thank you! Really appreciate you giving back to the community with this knowledge you are sharing. It's an opaque industry, and trying to navigate it can be complex :)
Do you have any tips for how to maintain relationships within your network? What do you use for a CRM?
What are habits you've kept over the years that have enabled your success? And what do you see as keys to be promoted at a VC firm?
Honestly, the feedback cycles are so long, I'm still not 100% sure I'm great at VC. I have one decent exit so far under my belt and a handful of unicorns that should hopefully go public, but it's taken a very long time. I try to stay disciplined on the sourcing process. My north star is to always be hunting for new deals, and my calendar is oriented towards that: dedicating time to do new industry research, talk to upstream VCs, angels, and data sources. My edge has been to be relentless at finding hidden gems, in unsexy sectors before they become mainstream.
Promotions in VC can be highly unstructured, and depends highly on the firm. They're not based on returns/exits since you probably won't have any in the time period between associate->VP->principal->partner. Generally, they're based on some combination of sourcing (how many deals have you sourced for the firm, weighted by larger checks, meaning you get more credit for sourcing larger deals than tiny seed checks), value add (do founders reference you well), and politics (do people at the firm like you). Sometimes they're based on having an internal sponsor bat for you, meaning a senior partner takes you under his/her wing and bats for you to the other partners.
From what you wrote above, what types of industries have you seen in the past that have gone from unsexy to mainstream and were there any indicators that pointed to that transition happening?
Meet many Canadians in the Bay Area? Any advice for breaking in out of undergrad for a freshman?
Actually there are a good number of Canadians in SF venture. Personally know a bunch from Ivey.
Out of undergrad, it's going to be tough since I don't believe VCs with undergrad analyst program recruit from Canadian schools - I may be wrong though. A better bet would be to first transition to a feeder job in SF like tech banking or PM at a big tech co, then go into VC as an associate. You could also do venture in Canada if you just want to break into venture.
Good to hear. Yeah I'm fairly certain I'm going to do banking/consulting then get into VC from there. Given the scarcity of VC analyst seats in SF I think its probably a losing battle trying to land as a Canadian. I've thought about doing VC in Canada, but I do want to end up in the US in the end, is lateraling realistic or would I be pigeonholed geographically?
Coming from tech PE and switching to VC after MBA. My issue is network and sourcing. What can I do in my final year of school to show that I have not only good diligence & portfolio & fund odds and ends skills, but can drive dealflow as well? I am starting from scratch here, haven't gotten much great advice. Wonder what concrete things I should be doing to get speed there.
Not OP, but I've struggled with this as well, and have had success with a few avenues.
I'd spend some good time getting deep into a few niches, that your fund has an interest but has a expertise gap in. From there, start developing (or better yet, leverage materials from other funds) market maps, with an eye towards 1) how your fund has deployed against key subsectors of the market, 2) which subsectors have been over/underfunded, and 3) where you think future value capture happens. I've done this for a few verticals, and have become the go-to-guy whenever the partners want to look at a deal in those spaces.
I'd also reach out to people at other funds that have similar backgrounds and interests to you -- not necessarily with the intent of "sharing deal flow" or whatever, but just as friends. Make a point to catch up every 4-8 weeks. You will get much better deal flow by engaging with people you genuinely connect with, rather than by arranging transactional 'deal flow catchups' with others.
Also, make an effort to be active in the community. Obviously depends on which stage you're focusing on, but volunteering to help founders goes a long way. At least at the Series A / B stages, there's still a surprising gap between what founders think VCs want, and what VCs are actually looking for. To the extent that you can help close that gap without giving away too much of the secret sauce, founders will really appreciate that, and can be a good source of intros to other founders.
In my experience, conferences and events hosted by accelerators and the like aren't the greatest at finding differentiated deal flow. At the end of the day, I think being relatable, consistent, and genuinely helpful are always going to be key. Congrats on the offer!
Can you source deals on campus? I know a bunch of MBAs who acted as campus scouts for VCs, basically found all the students on campus who were starting companies and then connected them to local VCs.
Thank you for offering to do this! I'm a first-year Senior Associate at a non-SF/NY based VC firm, which I joined two years ago. I've had a great time and have been able to gain a breadth of experiences ranging from investing (5+ Series A / B deals, with a few larger Seeds), portfolio (consulting-esque projects with founders on growth strategy, metrics, and fundraising), and sourcing work.
The firm has been doing well; the partners have incredible backgrounds in building & operating companies, which they've leveraged to create a platform that's grown faster (>$500M AUM in <5 years) and performed better than almost anything else here.
The feeling seems to be mutual -- I was the first pre-MBA Associate at the firm and originally supposed to stay on for two years, but due to my performance (and honestly, the partners probably didn't feel like finding a new Associate), I was offered the opportunity to stay for at least a third year, along with a promotion.
In light of how bad the market has been (and my own enjoyment at this firm), I've taken that offer. However, the future beyond that is still uncertain, and I'm starting to think about my next move. I've got a good reputation / relationship with many of our portfolio companies (and could take a Chief of Staff-type role), but would prefer to stay in investing at the Series A / B or growth stages (though I understand that finding the right role in this climate will be tough). Am open to other options as well.
I would really appreciate your thoughts on navigating the future from here. I've still got over 12 months left at this fund, but as a natural over-planner and over-worrier, I'd love to start forming some solid plans.
What did you do prior to this role?
2 years of consulting.
Hi - bumping this. Would really appreciate any input you have.
If you're doing well at your current firm and they like you, can you push to get promoted? Or is there no viable partner track path there? If not, and you want to stay in venture, I would be aggressive about openly recruiting and leveraging your partners for references. In the same way that good banking MDs bat for their top analysts who want to recruit, they should be willing to do the same for you.
Out of curiosity do you think VC is a good predictor of equity market hype. Noticed a trend where AI was the hot thing to invest in back in 2018/2019 for start ups, but now that's all dried up and all of the hype is in big tech going full force in AI. 4 year gap but just something interesting I noticed.
Hmm that's a hard question to answer. I'm not an expert on public equities, but generally I've seen a strong correlation btw VC markets as a whole and US equities (NASDAQ in particular), with a few quarters of lag, meaning VC tends to follow public markets. In terms of specific sectors, I'm not sure I would say every VC sector that gets hyped also gets hyped on the public side. AI actually wasn't a very hot sector to invest in until *very* recently, like 2022. It exploded because of GPT3->ChatGPT and other LLMs that all launched around that time.
Early stage VCs are naturally at early stages of a hype-cycle, and later stage VCs are touching the more mature technologies in a space. From an industry perspective there are technology waves, and while a gen 2 wave is hitting with series E companies, a gen 3 wave is starting in series Seed/A, this might take 4-7 years, which is coincidentally the typical lifetime of a VC investment. To your question about AI specifically, there was a big wave of hype around AI a few years back, and that matured into a number of computer vision companies, many in health and life sciences space, as well as manufacturing and automation. It's also become pretty standard in many martech and sales tech companies that look at large volumes of repeatable high-signal customer data. The recent hype is thanks to the boom of large language models popularized by the notoriety of Chat GPT, this is a separate wave that's just starting to percolate through the market. The one notable thing with this AI boom is that a lot of the larger companies are moving faster to adopt this tech into their product much earlier than you'd usually see, so we may see less of a wave of AI companies, and more of a wave of AI tech adoption across all tech companies.
Thank you again for doing this! I have 2 questions mainly:
1) What type of modeling work do you typically run for Seed - Series B deals? Obvi not running LBOs, but are you building in depth models & DCF's / spreading comps in the same way for a public company? How in the weeds do you typically go with the analysis / financials?
2) When you get on the phone with founders or partners from other VCs, what types of questions are you asking? Are you mainly trying to solve for what deals they are interested in the market?
Thank you so much again!
1) There was another thread on this forum where I went into Q in a bit more detail. Tl;dr - modeling is not very intense in VC. Generally you do some lightweight income statement forecasting, cohort analysis, spreading comps for multiples, and doing pro forma cap tables, liquidation waterfalls. More so at growth stage than early stage. I've never done a DCF in VC in 10 years.
2) With founders, you're both trying to find out more about their business (KPIs, how they think about competition, roadmap, etc) and impart some insights based on market research you've conducted. For other VCs, it depends on the context. Sometimes it's super casual, just shooting the shit as peers. Other times, it can be more pipeline oriented, meaning you're trading notes on companies you've met. The aim is to expand your deal pipeline with companies you may not have heard of, and get other people's perspectives on the same deals to sanity check.
Do you like living in the Bay Area? Have you ever thought about moving?
I'm pretty set here with local family. I thought about moving to NYC a few times, but never took the plunge. I think NY is the only other place I would consider moving to and still being able to build a VC career. It's much harder in other cities, even LA, Austin, Miami etc. They just don't have as vibrant startup and VC ecosystems as SF. NY is close though.
I'm a fan of the broader Bay Area, but not a fan of SF proper. The city itself is in pretty rough shape - lots of vacant office space, homeless everywhere, increasing crime. There are a lot of startups, especially in AI, and lots of events, but it doesn't feel like a vibrant city the way NYC for example does. The suburb areas are great though, albeit very expensive.
Any top VC funds you'd recommend checking out as an associate if one had an interest in gaming? I know A16z just started a gaming fund and Gryffin is in the space but wondering if there's any underrated firms that have caught your eye
Stay far away from Griffin. They are known to be an incredibly toxic place, with low pay and overworked juniors with little chance of promotion.
A16Z are sharp guys but spending way too much $ on pre-launch content, and will find it hard to return the fund (not their fault, trying to return a near $700m gaming fund is... really F*n tough)
Best fund in the space is Makers Fund, and the best early fund is play ventures. Then you have generalists in the space like Index/GC/etc that perform well, as well. Lightspeed is very active but also does the A16Z playbook of massive pre launch rounds in content startups.
A16Z is the only established firm I know of that has a pure gaming fund, so that's probably a solid bet. There are other new gaming focused funds that have popped up including Griffin as you mentioned, Patron is another one. I don't know them super well. I think it really depends on how dedicated you are to gaming. If you know you only want to do gaming investing, they could be good platforms, otherwise, you'd be pigeonholing yourself. FWIW a good number of generalist funds do gaming investments too.
Thanks for doing this. GP at a lesser known, emerging-ish (Fund II-IV) and wanted to get your thoughts
1) How do you lateral at our level? I am going to ride out another fund at my current place for another ~3 years but looking to move as soon as the market is better. What would you be doing now to set up opportunities in the future?
Re: Track Record - all of my investments have gone 4-8x but no breakouts (yet). Maybe it's a bit of imposter syndrome, but I don't have a storied operating career either nor is our fund brand name, so I don't get a lot of recruiter reach outs (maybe this is a function of not being in the Bay Area too, idk). I turned down top MBA programs to be a GP which seems like the right call but I feel a bit shoehorned into my current fund.
Any thoughts/advice?
2) It feels like the industry will consolidate over the next few years. It used to be anything top quartile (say ~2.5x cash on cash returns) were enough to continue raising funds, but now I'm unsure. What are your thoughts on the future of smaller early stage funds vs. multi-stage platforms? I'm not sure how a lot of these larger funds will fare return wise, but it seems like they can raise never-ending amounts of money from LPs.
1) Curious why you're looking to leave if you're a full GP and have a seemingly great track record. If I'm reading it right, your overall MOIC is 4-8x TVPI? That's really good, especially in this market. Lateraling as a GP is tough, as that's not typically a role that's directly recruited for. Best bet would be to get to know peers at firms you admire, build relationships, and see if a role naturally occurs. I've found GPs tend to be poached by other firms they know well - for example co-invested together and served on boards together. But not sure why you'd want to start over at a new firm. Seems like you have a great track record at your current one.
2) I think funds will get smaller overall. Megafunds will shrink. We're already seeing it - Tiger barely raised $2B so far for their fund, when their last one was $12B. Insight only raised 20% of their target, TCV less than half. I think many of the middle tier and emerging manager firms will die - unless they have institutional LPs (which the vast majority dont) or exceptional performance (doubtful in this environment), they won't be able to raise another fund. I do think since performance is deteriorating across the board, the hurdle is lower now. A 2.5x net going forward looks great, whereas in 2021 even a 4x net looked meh.
Just shot you a DM, thanks so much for this incredible thread!
Thanks a lot for this. On those multi-stage, primarily late-stage funds (e.g., TCV) that are struggling to fundraise now, do you (and others in the industry) not believe this is temporary due to the current fundraising market and they'll be fine in 12+ months when appetite returns? Or do people believe fund size have indeed peaked...
Thank you for doing this !
I have a few questions regarding career choices in VC:
1) How valuable are skills you learn in late stage-growth equity (GA, TA, etc.) for a career in VC long-term? I am tempted to start in late-stage growth to learn some more hard skills regarding modelling, financials, etc., and then move later on towards VC (Serie B & C).
Do yo think this is a good approach and would you try to start immediately in VC after a 2-year IB analyst stint? It seems very hard to break into a T1 fund straight out of IB though..
2) Which upcoming VC & early-growth funds you would recommend looking into?
3) Which tech sectors with tailwinds from VC investments is worth researching? Anything related to fintech?
1) If you want to be a lifelong growth stage VC, you should start there and stay there. But it's not an easy transition going from growth to early. It's a different type of mentality and skillset. I also would not emphasize financial analysis. That's not at all important for the job. Anyone can do that. There are many VCs who literally have no financial acumen. I've seriously met senior partners who didn't know what EBITDA was. As you get more senior, you will do 0 financial analysis. It's not what gets you promoted and builds success. Sourcing, pickiing (investment judgement), and winning (convincing the founder to pick your firm) are the skills that you need. Think about what type of environment will build up your sourcing and investment judgement abilities.
2) This is a hard question to answer. I'd say generally you can tell by looking at their portfolio page, and seeing if there are a at least a few recent examples of unicorns or big exits. It's really hard to gauge the staying power of a brand new fund. One thing I would try to find out is the quality of their LP base. If they are institutional (endowments, pension funds, foundations, etc), they are much more likely to continue raising funds. If they are non-institutional (individuals, family offices, corporates), I would be more wary.
3) The biggest one right now is AI. It is getting super hot, but we are still in the early stages and it is a pretty revolutionary platform shift.
Thanks for your time and kindness!
Got several questions about VC and maybe other Finance jobs.
Considering your views that VC is turning into a more mainstream industry, and PE, HF, IBD all becoming less profitable than before?
1. Banking is a great feeder into all kinds of buyside jobs, so if you want optionality, I would do that. If you absolutely know you want to do VC, I would try to get an analyst job, ideally at one of the better known analyst programs (Insight, Bessemer, Summit, Accel, etc).
2. VC is a unique combination of investing & company building that I really like. I like the deal aspect of it - chasing companies, making deals happen. I also like working with founders & advising them day to day. Plus you get exposure to innovation, which you don't get in other buyside roles. I wouldn't say the money is "much lower" than anything. If you're one of the best at VC, you'll be a billionaire.
Thanks for your help! Still got 2 questions and hope these won't bother you.
How do you get a venture partner role coming in from a startup? I’m ex-FAANG, HBS, leadership role at a Series A startup. I love being an operator (not necessarily a founder), but see VC as a potential second career someday, so I’m curious what that path looks like.
That's a solid background. I've seen many operators dip their toes through angel investing or scouting for a top VC firm. You can also try syndicating deals on Angellist. That way, you can build an investing track record, deal flow network, and see if you like it, what your relative value add strengths are. As time goes on, when you're ready to move on from your full time role, it'll be a lot easier if you have this experience and track record.
What are the options for as a failed founder? Previously had an 8-figure exit, am a YC founder, and most recent venture raised seed funding led by a Tier 1 VC but failed due to market reasons.
It kind of depends on how high profile you are & how well known your startup was. If you were a YC founder, maybe there's a chance you could become a group partner there and leverage that to something else? It seems like they've been pretty generous providing landing pads for their alumni.
Principal at a venture firm -
1) I really struggle to understand how to think about valuations as there are so many different philosophies in venture. Do you have an overarching framework when it comes to thinking through valuation? It's hard in venture given asymmetric nature of the asset class.
2) What % of term sheet is a good % to 'lose'? I am now losing probably 60% of my term sheets (so I know I am in competitive rounds), which is a good sign but I wonder if I should then be focusing on less hyped sectors in that case...
1. It's hard. Valuations are more based on how much deal heat and FOMO there is around the deal than on fundamentals. One framework I try to use is to think about how big of an exit the company can achieve if everything goes right, and a target return multiple in a home run case, and then work backwards to think whether the entry price can give you that. For example, if you think a company has a huge TAM and can become $5M over time, it might be worth stretching to $100M for the Series A. Conversely, if you think the upside is pretty capped at $1-2B, you shouldn't pay more than $30-40M. Stage matters too - there's much more room to stretch at early stage given how much return you can still have, whereas at growth you don't have as much wiggle room.
2. Hmm I didn't really measure this at my prior funds. Is this 40% of deals you're winning to lead, or winning allocation? In general, if you're in competitive deals, meaning going up against Tier 1 funds, winning 40% is solid, if not really good. If you're simply trying to get allocation and only getting that 40% of the time, that's not as good. One thing I would think about as well is, do you have negative selection? Meaning are the deals you're winning somehow worse quality / not as competitive as the others
What has your comp progression looked like and what is net worth now. Outcomes may vary across firms and people sure - but this being an anon forum can help people get a sense for a real world example.
On a related note, how long / how many years in your career do people see meaningful carry checks. Longer realize times may mean you are paper rich into 40s?
Even as anon, don't feel comfortable sharing those details on a public forum. That's a very personal Q to ask. Generally, I'd say it takes a long time to generate wealth in VC. I'm just now starting to see carry checks from my old firms. I have a decent amount accrued on paper, but 1) those are at high marks that are coming down, so who knows where they end up when distributed, and 2) not sure how long it will take to distribute all as exits are hard to come by nowadays. Salary in the meantime has trended ok, but I've gravitated towards smaller funds where the cash comp is lower and carry higher.
Thank you so much for doing this. First post, a mid management professional with 20 years experience. Exploring a career pivot in VC, working my contacts and network as the base. The drive is to be able to source and deliver capital creation even if the pay is less. Based on your answers, it seems like a more sales and intuition based skillet. Have you seen anyone do this? Is it iastart at the bottom as don't have CXO type shoulder stripes?
What is your current role and career history? This might be a bit blunt, but there's a lot of ageism in VC & Silicon Valley in general. If you already have 20 years of experience, if you don't have the gravitas to be able to be a full GP at a firm, it's going to be really tough to break into VC. There are plenty of associate/analyst candidates who are in their early-mid 20s that firms would prefer to hire to groom from the bottom. There's no incentive for a VC firm to hire a 40-something junior level person. If you have significant operating and/or founder experience, you could possibly join a firm as a GP. Otherwise, you might be better off joining a startup as an exec and trying to prove yourself there first.
This is an incredible Q&A, thank you. Are you at the tier 1 or up and coming fund now? How much of you career success is driven by platform / brand vs. your ability to generate deals / being a great investor? I ask this because in VC, I have heard that there is a much higher concentration of success / returns amongst the small handful of top VCs (besides very niche ones or outlier funds in good vintages) vs PE. Given the nature of sourcing + importance of branding to founders, if I was at a top VC (Benchmark, Sequoia etc.) then surely it is MUCH easier for me to source the best deals because the best companies want money from me (and sure, I need to be competent, but I dont have to be the best investor to stick around with this huge advantage...).
In that regard, isn't it much harder to purse a career in VC unless you're at a top fund? (particularly when junior and you dont have any personal brand).
I've been at both. I started at a Tier 1 venture shop (one of the prominent ones everyone would recognize), and am now currently and a newer, unbranded shop. I think there is definitely an advantage career-wise to starting or spending a stint at a Tier 1 shop. It builds credibility on your resume that will carry with you, and it's great training. The great thing about the Tier 1 shops is that you will instantly be exposed to excellence across all dimensions: excellence in firm management, deal flow, portfolio, LP base, and operations. That being said, I think there is more career growth opportunity at newer funds. All the Tier 1 shops are incredibly political and competitive. It's next to impossible to make partner, and even if you do, there's still a lot of internal politics amongst the partners. I would much rather do a brief stint there to get it on my resume, learn the ropes, then join a newer shop where I can apply the training and network to make them successful, or strike out on my own and raise my own fund.
Thank you! In my mind VC sounds like a much more collaborative environment than large PE funds, but I've also heard it can be very political (esp. sourcing). Seeing VCs promote their personal brands online and appear as happy, nice, extroverted personalities makes me mistakenly believe that top VCs are nice places to work. I'm sure the reality is different, can you give some insight into the politics / competitiveness that may be more specific to VC? Also, I assume this is the case in Europe / London too and not just the US?
What are your thoughts on the emergence of venture studios. Do you think it will settle upon a good business model that works?
I'm generally skeptical on the studio model. IMO they have very limited value-add, aren't easily scalable (very ops heavy to manage), and have adverse selection because of their punishing ownership requirements. Other than YC, I don't think any other studios have been very successful or highly regarded. Many VCs see them as a negative signal.
Thanks for so much insightful sharing!
May I ask for some advice about one offer I have received? The offer is from an early-stage (pre-seed/seed) venture fund, for me I like their investment philosophy and the team, while the only consideration is that there is very little dry powder left (around €5M euro). The average deal size is €2.5M, so around two deals left in the upcoming year. The fund just closed its fundraising at the end of last year, so it seems that it's unlikely to raise a new fund soon. Would you recommend joining this fund as a new grad? I do like VC and have an interest in furthering my career in this industry. Thanks :)
Hard to say without knowing more. One red flag: why did they deploy their last fund so quickly? If they closed the fund at the end of 2022, and they only have 2 deals left, that would make it a ~12 month deployment, which is extremely fast, and reckless.
How do you feel about the existing portfolio? Do you feel like there are gems in there? And what can you glean from their LP list? Do they have legit institutional LPs?
Thanks for replying :) The first fund was launched 5 years ago, with around 30 existing portfolios so far, 3 of them are unicorns already, 3 more are potentially future unicorns, and all of them are from the first fund. GPs are entrepreneurs turned investors, who founded two startups and made a success. They have a very strong network and presence at home base as well as several regions in Europe. Quite some deals are done with notable VCs in Europe. LPs are legit institution players too, actually the majority of the investment is from institutional LPs. I found it quite strange too, they have deployed money too fast...
Thanks for your posts!
Have a nice day!
1. VC is very cyclical. Returns are very concentrated in the tail end of bull markets (98-2000, 2020-21), but can be lean in other time periods. We are going through a rough stretch right now, and it should bounce back over time. But that being said, VC is maturing as an industry, so excess returns overall should go down, much like they did in hedge funds, buyouts, etc. There will still be alpha, but much more difficult.
2. These are all very different types of careers. I wouldn't look at just the money here. If all you care about is making a lot in a short period of time, VC is not it. Go into hedge funds. You can make a lot of $$ in VC if you're good, but it will take a while. You should do it because you love it: you love technology, startups, helping founders, and evaluating early companies. Figure out what you *like*, then go from there. You can make plenty of money in any of these fields.
Thank you! May I ask one more stupid question: How did you find your interests and how would you make choice between what you find interesting and what you are good at?
As an analyst at a VC-firm who has been given a lot of "ownership" with moving forward deal-flow, how can I best navigate calls where I am expected to take the lead for parts of the discussion? For example, our diligence process has a checklist of questions that are supposed to be answered by certain stages in the deal process. Towards the end of calls, I am generally given time to jump in to ask particulars that some of our senior members might have missed to ensure that we have all of the necessary information for our post-call discussion. I am expected to ask questions and also "press into" areas where their answers do not seem adequate. How can I balance being respectful (given that I am just an analyst) but also effective?
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