General Partner at Top Tier VC fund. Previously at other VC funds, a MM PE fund and BB M&A team.
Been a contributor to WSO (thanks for the recruiting guides for PE which helped me break in the industry!) since 2011, this is a new account to stay anonymous.
Time to give back, ask me anything!
I came to VC as a Principal, via Private Equity (mid-market buyouts, I was also Principal/VP Level) and was in investment banking associate before PE.
The transition was very difficult and it took me 3 years of networking and research to find a position. I took a 75% pay-cut in the process and that first job was not ideal for a number of reasons, but it was a way into the industry that paid off years later.
It's more that there's nowhere near the same fixation on the MBA as a component of career progression in venture relative to buyouts.
Private equity is immensely risk-avoidant. Venture is immensely risk-tolerant. An MBA is a risk-avoidant move. You go to put a floor beneath yourself. You are subscribing to the idea that the brand says something about you. The comment about the top three schools being valuable is because if you went to Harvard or Stanford you are going to have been classmates with some people who went to school knowing they wanted to be founders and planning to use all the pitch competitions, elective classes related to startups, and adjacent labs or other resources (Rock Center at HBS, E-Club and Startup Garage at GSB) - with the logic being that the 'best' of that subset went to those schools.
You do not need an MBA in venture. You are legitimately better off spending two years living off of savings going around and talking to founders, angel investing $10k at a time, supporting those companies through pure grit (I detest the term 'hustle'), and developing an understanding (and eventually, thesis) of one or two specific spaces. Doing so will generate a valuable network and reputation. That means partners will know you, either because founders introduced you saying "you have to meet this guy/girl" / they saw your name several times on the cap table of a company they're investing in or attempting to / you reached out on your own for a meeting. After a single year of this, you will have people asking if you want a job.
Think about it. An MBA signals you are fairly conventional in thinking and you highly value a formal mode of instruction where your butt is in a seat and you get talked to (or at least highly enough to pay $200k for it and forego 2-3x that in income). Venture is nothing like that. You succeed with unconventional thinking, you are in a perpetual state of learning, and it's remarkably self-directed.
In my view the job of an associate is to source deals only, the job of a principal is to source AND execute deals, and the job of a partner is to execute deals AND make money (i.e. have a proven track record).
As a Principal, if you want to keep moving up, I think it's important to start creating a 'brand' or a niche of being good at something specific. Especially something that your current fund lacks. For me, I chose to gradually focus on a few specific obscure sectors that nobody wanted to cover - and turns out they're massive now. Some folks choose geography, some others tried to be good at building relationships within the industry, some others very creative on social media, etc.
In the end, I believe career advancement in this industry often comes down to differentiation and luck. You can't change your luck (although making as many investments as possible will help your chances - because people remember your winners and not your losers, and winners returns tend to be much more than your losers losses, and you learn much more doing deals/being on boards). But you can choose to deep dive in some areas and be extremely knowledgeable on a few topics rather than being just another sourcer. The more indispensable and unique your expertise is, the more you'll be sought after by entrepreneurs and other VC funds.
Also another tip that worked well for me was to automate as much as you can in your day job, leveraging technology and people i.e. slowing down to invest in those tactics, to be able to go much faster
Thanks for the thoughtful feedback. Sector expertise and brand are few things I've been conscious about. Within our firm, it has been nice to know partners can rely on me for deep dives in the three sectors I've picked out. I've started to blog more, but still early innings. The sector deep dives have been incredibly helpful in finding companies and clearly explaining to founders why I have conviction.
More recently I've started to think how I help position the firm and myself to win competitive deals. The last 2 years I've been focused on developing core relationships with various F500 companies (CDOs, CIOs, etc.) and I know founders have appreciated the customer intros etc. Over the years, how did you and the firm think about winning?
Here’s the imminent shallow question - can you give ballpark comp figures for each level? Assume top VC firm
That's really hard to answer because it varies hugely depending on the AUMs (seed vs later stage) and the compensation structure has cash + bonus + carried interest and at GP level management fee components. Also as a partner you have to put a bunch of money (often multi $100ks) in the fund, and sometimes at principal level too. Also it varies by geography quite a bit (SV vs other US vs International)
Ballpark I'd say:
$50-100k analyst/associate + some bonus (0 to 50%) + token carried interest, if any.
$100-$250k for principals + some bonus (30-100%) + carried interest.
$250k-$1.0M partner level. No bonus + carried interest + management fees if you are General Partner (i.e. a shareholder of the management company). Carried interest can be enormous if you're at a top-performing fund, and management fees can be an extra $1-2M yearly.
Extra comments:
(i) Generally speaking cash compensation is less attractive vs IB or PE at similar levels. The carried interest payoff can be huge, but only a small portion of the industry actually makes good returns.
(ii) It takes a long while to get paid even at successful funds, because you have to wait for exits and performance to get your carried interest. So you need to be in the industry for a long time (min. 10 year, and you most likely will have to wait for 6-7 years to get your first carried interest cheques) AND be in a consistently good performing fund to really make money.
(iii) The longer you are in the industry, the more valuable you become because of network and deal experience. So again, it doesn't make sense to be a VC for a couple of years and you have to stick to it for very long, and ideally start very young to make partner as fast a possible and start to get meaningful carried interest.
(iv) If you want to get rich quickly, you're be much better off in PE or Hedge Funds.
I believe that digital currencies, and in general decentralized currencies, are the future.
But, Bitcoin etc. have failed at becoming true currencies, at least for now. They're way too volatile to become a true asset class. It's become a Ponzi scheme and I'm afraid that many people are going to get burned very badly.
The parallel I make with digital currencies is the internet in 2000. You'll get a first wave of excitement with the new technology and the potential it offers. Then you get the stupidity, exuberance and the crash. Then the crap gets washed out and only viable business models and concepts survive and you can finally see true innovation. I think we'll see true innovation in crypto the next 10 years, and as a VC I'm more of an investor in 'crypto infrastructure' and 'crypto picks and shovels' which will still be around for a long time whatever the price movements of the underlying assets.
a) Not making it to partner sucks... If at a Tier 2 firm they usually get picked up by a Tier 3 firm or by Corporate Venture or go into some kind of 'Head of Innovation' job, or go to incubators/accelerators. I've seen a few going into angel investing/advisor roles and sometimes pick up advisory board seats here and there. I also know a guy who's been a principal for 8 years at the same firm (although very rare). Also sending people to portfolio companies in BizDev roles or 'Head of Growth' or 'CFO' is quite frequent.
b) ok but the jump from operator to GP is a huge step. First, you need to stick to some operating role, assuming you enjoy being an operator, and then you also need to move up the ranks quite fast, with all the politics and luck that is involved, and get to a VP level position, minimum. You see the successful ex-operators guys at those funds, but those are the top 1% or even 0.001% of operators and your chances to make it are slim (assuming you want to go to a top tier fund), and then you probably won't want to leave because stock options/vesting etc. The Partners that are ex-operators are my fund are almost exclusively ex CEOs of companies that made $500m+ exits so the bar is super high nowadays and getting higher.
The best way to make it to GP at a top-tier fund, is to build specific, unique expertise and get picked up by one. Maybe it's something you can get with a shorter stint as an operator in a sector you like, add an MBA if you get into HBS/GSB, and try to land a principal job at a Tier 1 fund, and work your way up to the Partnership internally.
-Can you expand some more on what VC diligence looks like compared to the type you would do in PE?
At seed it's all about team references and domain expertise, market opportunity/addressable market size, and also feedback on either (i) early users (ii) potential users or (iii) getting some expert opinion, usually from our portfolio or own network.
At Series A / Series B it starts to get closer to PE type diligence with more emphasis on metrics, viability of the expansion strategy, capital efficiency, team setup, and 'deal structuring'.
The key difference is that in PE, I used to spend way more time doing financial modelling and spent time on cost optimization because PE-type companies have much more predictable cashflows. Also, in PE, you pay more attention to your downside because one blowup may tank the fund, which is not the case in VC, so you end up doing a lot of stress testing and scenario analysis. Finally, while I do try to figure out who the buyers will be in a VC deal, when it came to PE deals I would spend an enormous amount of time thinking about the path to IPO or trade sale and exactly who I would package the company to sell to eventually. The last very different bit was on the amount of time spent on legal work - probably max a few weeks in VC (for seed deals, a few days), but in PE this could take several months of intense work with consultants, accountants, bankers, tax experts and dozens of lawyers in the mix.
Since I mostly do seed investing nowadays, the PE skillset is not very transferable, but I'd say it would be for Series B+ investing.
-How much equity is typically offered for someone with your background (M&A>PE) joining an a startup in the series B-D stage?
Depends on job-title. C-level you may get a couple of percentage points. Anything below that you're looking at <1%. The later the stage the lower the amounts. Also you can usually buy stock at a discount, get more allocation over time, etc.
-What are your thoughts on the virtual signalling in VC now a day across twitter, everyone has a newsletter, etc. Are these things required at this point to have a successful pipeline?
There's a pretty strong negative correlation between 'social media presence' and 'investor quality'. Social media generates 0 quality dealflow. People do it as an ego boost between VCs or to push deal announcements or market their portfolio or whatever interests suit them. Junior guys do it because they hope to get noticed by Sequoia or to impress their peers.
There are a few people I follow on twitter, usually not for the content but to get a feel of where the market is trending (like checking the stock market in a way). The most outstanding investors don't tweet much, many are not on Twitter. They're busy talking to founders and doing deals. However, I used twitter to sometime tweet to founders instead of emailing them, or to share some thoughts on products they are building.
-What are qualities or habits of the most successful analysts and associates you've worked with across various funds?
Curiosity for sure. Some analysts and associates that worked for me ended up making partners at some of best names in the business. When they started, they sucked at speaking to founders, had no clue about due diligence, legal docs etc. (I like to pick juniors fresh from school or with 1-2 yrs XP max). But they were f* curious and asked questions about everything all the time and were learning like sponges, you clearly could feel the passion for learning and digging into everything. But most importantly they had opinions and beliefs. In this job you don't need to be correct 100% of the time. You just need to be correct 20 or 30% of the time to make it big. Very few people grasp that concept, that you have to be wrong to be good.
The guys that don't perform, end up leaving the industry or just become some other twitter/clubhouse/linkedin VC, usually are those who cannot form strong opinions (overanalyze, fear of taking responsibility), or the reactive/passive folks (just do what they are told) without taking the extra step of building expertise or network and finally, people who just copy what others are doing (something called social mimicry in psychology).
Best habit ever: no twitter (ok, maybe 30min a day if you must), no Techcrunch, no chit chats with every VC in town. Just talking to great founders and great operators, developing your mental pattern recognition and building inside knowledge.