Q&A: VC General Partner at Top Fund

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!

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Comments (103)

Apr 25, 2021 - 12:31pm

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.

  • Associate 1 in PE - LBOs
Apr 25, 2021 - 9:00pm

Did you work in TMT in banking / PE? Currently a MF PE associate that is looking to move into VC, but have not previously focused on TMT in IB / PE so curious how challenging of a path this would be, as I realize many VC firms want people with a technology background (ideally someone who knows how to code even). Would getting an MBA first be the easiest path here? Also ultimately are you happy with having made the move?

Apr 26, 2021 - 6:27am

I was in TMT both in Banking and PE. But imo any sector specialisation is relevant and can be used as an angle, it's all about how you 'package' it to the VC fund.

The Banking and PE experience is really a filter when it comes to recruiting, what we're looking for is high energy, existing network (or ability to build it really fast), analytical capabilities, ability to learn super-fast, and fit within the team.

My views about MBAs is that they are helpful when from a top 3 school, otherwise it won't increase your chances or might even hurt your chances. Instead of an MBA I'd spend more time networking and researching a few trends you like to make the conversation with VCs interesting.

I'm happy with the move overall. I'm 100% sure that I would have made more money if I stayed in PE in the mid-term, but I found the PE job soul-destroying and too processed. The best part of VC is that you can build a large network of talented people, it's very fast-moving, and intellectually rewarding. 

Apr 27, 2021 - 8:18am

Thanks for doing this, Archives. Curious about your point on the MBA: assuming you've got a few years under your belt in a role that translates well to VC (like tech IB or growth equity), are you saying it's better to network your ass off and join in a pre-MBA role rather than go to Sloan/Booth/CBS and compete for a post-MBA seat?

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Most Helpful
Apr 27, 2021 - 1:46pm

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.

I am permanently behind on PMs, it's not personal.

  • 8
Apr 25, 2021 - 12:16pm

I'm currently a VP at a venture fund and am starting to hit my stride (sourced two and starting to step in as an observer). What are some of the things you focused on as you transitioned to a principal role? Top of my mind is continuing to work closely with founders in port cos and continue sourcing well.

Apr 25, 2021 - 12:45pm

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

Apr 25, 2021 - 1:01pm

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?

  • Business School in PE - LBOs
Apr 26, 2021 - 4:00pm

Re: finding a niche that your firm lacks... I'm a new Principal myself at a VC/growth equity firm and one thing I'm struggling with is how much to pattern match to what the firm is already good at vs. carving out new areas.  

Covering sectors that nobody else is focused on to make yourself more valuable seems like great advice at first glance, but I'm conscious of focusing my time on companies that no partner at the firm has the expertise to really sponsor. Maybe it works differently at your firm, but for a principal to get a deal through where I am, you need to get at least one partner on board to pound the table for it and I'm not sure how to do that if it's a space none of the partners have experience in. Would love your thoughts on how you got over this hurdle.

  • Analyst 1 in IB-M&A
Apr 25, 2021 - 2:21pm

Here's the imminent shallow question - can you give ballpark comp figures for each level? Assume top VC firm

Apr 25, 2021 - 3:39pm

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.

Apr 25, 2021 - 3:18pm

How difficult/easy is it to raise money for a startup in this environment given the right background (top mba, undergrad, good work experience)? Seems like there's a lot of capital out there.... anyone with a decent background is getting their startup funded, even if the idea isn't the best, just so the VCs can deploy capital. 

Array

Apr 25, 2021 - 3:47pm

It's true that there is a lot of capital out there, but that doesn't mean everything gets funded. Rather that the best startups raise more and faster and the capital is flooding to the top tier companies and teams. That translates into more and more mega rounds, sometimes $100m+ of funding for pre-revenue startups, if they have a killer team (i.e. repeat entrepreneurs or world class industry experts)

If you're a good team, it's true that it's easier to raise than before (esp. post COVID when you can pile 100s of VC meetings over zoom), but if the idea is not great, it still won't be a walk in the park. And good teams want to attract the best funds because they know that getting money from a crappy third-tier VC is not going to help with their Series A.

Apr 25, 2021 - 6:56pm

Given the amount of capital in the space, are equity ownership terms more favorable for VC entrepreneurs compared to the past? 

I have a blue chip background (Top MBA, ivy undergrad, top BB experience), but I am itching to do a VC backed startup with a group of other similar qualified friends. I've ran/owned traditional stable cash flow businesses in the past, so doing something VC backed is a bit of a higher risk/higher reward scenario for me. I could potentially walk away with nothing or earn way more money than running a traditional cash flow business...... 

Heard countless stories in the past of VC backed entrepreneurs not retaining any significant equity ownership even having a successful exit (2012-2017 era). They were completely diluted by their VC investors. 

Array

  • 1
Apr 25, 2021 - 7:20pm

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.

Apr 26, 2021 - 6:34am

Both valid.

IBD is a good and common filter for junior recruits.

For founder/operators, both my best and worst junior recruits had that profile. Some can make the transition to investing very well, some get stuck and either get bored or become uncomfortable with the analytics

My personal favourite recruiting grounds are IB, incubator managers/event management types (combined with a technical experience/degree), and I like ex-journalists because of their network and ability to synthesize information and tell a story.

Apr 26, 2021 - 2:32pm

Ex journalists, that's very interesting. I guess Mike Moritz is arguably the most successful VC ever, and he has a journalism background...

What are the odds of a non pedigreed person snagging any VC cash? Like that Chewy guy must be the very rare exception, no?

  • Business School in PE - LBOs
Apr 27, 2021 - 12:30pm

Not OP and haven't made partner myself, but have been in the industry a while and my two cents:

Sourcing a completely proprietary deal is a pretty tall order these days - there's so much competition out there it's a pipedream to think that you're going to find a deal that nobody else is looking at.  You used to be able to win by finding deals nobody else has heard of but I don't think that's all that achievable anymore, especially when you have big shops like Insight and TA with cold-calling armies of analysts. If you're at a smaller firm, you're just not going to win on coverage.

On the other hand there's also so much opportunity out there that it's impossible for every firm to look at everything. There might be less alpha available from sourcing these days but I think there's a lot of alpha to be generated in picking the right areas to focus. In a sense, growth equity is looking more and more like the public markets every day, and the game is going to become about having conviction on when to pay up and lean in vs. when not to.

Apr 27, 2021 - 12:38pm

Angel investing vs. VC?

Say the capital is available, what do you believe would be a more rewarding career route both financially speaking and fulfillment wise (helping founders grow their ideas into world changing companies) ? With that said I know successful angels can make the transition joining a VC fund or starting their own.

1) The "direct" to VC path would be aimed to be accomplished through the MBA -> IB -> VC 

2) Angel investing - just grinding to slowly build up the portfolio over a number of years and working hard to develop the network. (I understand the level of difficulty in developing the deal flow in the early years, know it'll be tough)

Any additional thoughts?

Apr 27, 2021 - 6:20pm

Being a successful angel is only dependent on your ability to access the best opportunities. Almost anybody with some tech or investing experience can spot a top-tier team or idea when they see one, it's an unfair game. The problem is 'how to hear about it and how to get in'

So you either have to be in a position where your expertise/fame is sought after and you can capture dealflow (say were the Head of Marketing at Airbnb, or the ex VP Engineering of Stripe, or you're a famous actor, etc.), or you just have to pound the pavement like some of the best full-time angels do, but that requires a lot of capital with no returns for many years.

Overall, I think top angels make much more money than a lot of VCs, and they can get liquidity fast through secondary exits. Hell, some founders even make more money through angel investing than through building their own companies. Personally, I think being an angel is very fulfilling because you really get to get close to founders, and you invest at your own pace, and that personal freedom is super valuable.. I've been thinking about it, but switching costs are just too high in my situation.

Apr 27, 2021 - 2:13pm

Given the intense competition for deal flow in the current climate - what are your views on how to develop differentiated sourcing capabilities? Beyond network, has your firm considered using some data science and web scraping to develop leading indicators of potential targets?

Apr 27, 2021 - 6:30pm

we do extensive data mining of public and proprietary data on a massive scale.

Algo-scoring of founders based on who they are, what they say, how they say it, and also tracking real-time growth signals. We even do that for people who haven't even left their employer or even thought about launching a startup but are likely to do so (or should do - we'll try to convince them). We're fairly advanced technology-wise but quite a few of the top firms have built similar engines. 

I know of at least one firm that has identified very statistically significant 'founder traits" that lead to superior returns and they've been crushing it. VC investing will more and more become like a game of Black Jack with some clever folks counting cards.

Apr 27, 2021 - 3:56pm

Great thread and I am appreciative for you paying it forward to the WSO community!

I am about a year into building an eldercare technology startup that is finally starting to catch traction. I own 80% of the company and we have enough cash to carry us through 2021.

When the time is right, we would like to scale our business through venture capital... but we don't know when the time is right. The firms that have taken interest in our efforts want us to show between $5K - $20K MRR. All of our previous encounters were pre-revenue and it did not feel as though we were in a position of power.

At what MRR and in what "stage" would you recommend we be targeting to formally raise through venture capital if we have enough cash to get us through the end of this year?

  • Business School in PE - LBOs
Apr 27, 2021 - 5:01pm

There's no one-size fits all answer.

First off, every firm is a bit different, and the seed-stage venture landscape is super crowded these days so you'll get a lot of answers.

Also, at the end of the day, seed investing is mainly about the founder and the market. The numbers are only relevant insofar as they validate the market and the founder's ability to execute. If you have a rockstar background (serial founder with previous successful exits, or other strong signals on your resume) you'll have to prove a lot less. Similarly, if you find a firm/investor with high conviction in the problem you're solving, you'll also have a lot less to prove.

If I were you, I would try to meet a small handful of investors each month (i.e. maybe 5) and have casual conversations with them. Focus on investors who you can get a warm intro to or who are domain experts in your space. Don't say you're fundraising as this will set expectations for the conversation too high - just tell them that you want their feedback and advice. Don't spend a ton of time making a deck or preparing for a formal raise but be prepared to talk about high-level numbers. When your business is interesting enough for them, believe me they'll tell you.  

Once you get signals from VCs that they want to invest, formalize the process, make a polished pitch deck and other materials and start meeting with VCs en masse, but this will be a large time suck so I wouldn't go down that path until you get those signals. I think a lot of founders focus way too much on fundraising and end up spinning their wheels. I'd spend no more than 10-20% of your time on seeking out investors until you're sure it will be worth your time.

Apr 27, 2021 - 6:41pm

there is no good timing to raise, you should always be 'passively' raising. As a guide

pre-seed: no revenues / idea stage

seed: no revenues or very little, but working product

A round: MRR of $100k, or enough to demonstrate product-market fit

B round: MRR of $300-500k with repeatable go to market process, 'adding fuel to the fire'

I think it's fair for some VC firms to ask for revenues to show product-market fit. But my sincere opinion is that at your stage, in the current market, if a VC wants you to show more revenues, it just means they don't like the business (i.e. don't believe there is a market for it, or don't like the team) or don't understand the business (i.e. they don't want to do the work because lazy, but also don't want to pass because FOMO).

.For fundraising, you don't want to be in a position where you have 3 months of runway left and have funds smelling blood, so I'd start pounding the pavement.

  • Principal in VC
Apr 27, 2021 - 6:02pm

Currently fairly senior at an emerging fund at a young age and grateful.

However, I'm not sure about making my career at a 2nd or 3rd tier firm. There's the fact that most of these firms have inconsistent or subpar returns and also, that you could have been spending your most valuable years of your career gaining operating experience, etc. 

a) What do you see happening to mid-senior level/VCs that don't make it at these funds? Do they just transition into a portfolio role most of the time? I'm talking less about ex-Startup CFOs and founders who are GPs but more the BB IB -> Tier 2 VC and then Principal but doesn't make partner due to fund performance or other circumstances.

b) I've gotten advice from some folks to basically go get operating experience/a top MBA and basically step back from VC a bit to eventually get a GP role at a solid fund 5-7 years down the round. This seems odd but logical to me, because I see these types of folks (great operatin experience or top MBA) at leading firms regularly winning great/competitive deals. 

There's also the network working at some of these leading cos at the Series C-D/a top MBA helps in bringing you deals. But the idea of taking a detour for 4-6 years to go operate/to school to do what I already do sounds so painful. Is the long-term view right or just spin from ex-startup operators or HBS/GSB grads who are now GPs?

Apr 27, 2021 - 7:05pm

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.

May 18, 2021 - 1:02pm

Should I not bother with Wharton if I'm looking to get into VC later but also want an MBA now? They seem to still send about 30 people a year into the VC space. I have some solid startup experience (early employee at a non tech and had a decent exit) but got ding'ed by H/S this round.

Jun 11, 2021 - 3:30pm

I've had 8 years in product marketing/growth roles in FAANG, and am now at HBS/GSB. Because of this, I'm lucky enough to have a great network at fast-growing startups, and also at VCs (a little less so at the top tier ones, but I feel confident I could get a job at *a* VC if I wanted to). I'm trying to figure out which path to take after graduation. Eventually I'd like to do VC, just not sure if I should try climbing the VC ladder now or make the jump to VC after being in a leadership role at a startup for a while. I was leaning toward the latter, but you're saying it's increasingly competitive. Is VC immediately post-H/S for MBA the best path for most optionality , then?

  • Associate 1 in PE - Other
Apr 27, 2021 - 6:36pm

Thank you so much for doing this. I'm junior at the classic $100m emerging, early-stage fund. My background is more unusual in that I joined venture out of undergrad and my only experiences have been in seed / Series A investing.

I see a path to principal / partner at my current fund, but have a couple of concerns as I think about career trajectory:

1. Lateraling - my fund wins reputable deals but it's no household brand. Even with a couple sourced deals under my belt, how does it bode in 2-3 years if I'm out looking for a senior associate / partner-track role in venture? I know I'm largely constrained to early-stage, but will moving 'up a level' in fund brand be an uphill battle as well? 

2. Ops roles - without banking, growth / PE, or operating experience, where have you seen investor folks like me fit in at startups? Concerned that I may be siloed into sales / BD roles only, and lack the hardcore transaction skillset for strategic finance / corp dev roles and technical skillset for product? 

3. Similar to the above commenter, 50% of trusted folks have advised me to do something else other than venture, then come back, specifically an MBA (even if its Wharton  not HBS / GSB) + couple years of top co ops experience. The other 50% think it foolish of me to give up a seat with upward mobility in venture. Would love your take on this :) 

Much appreciated!

  • Principal in VC
Apr 27, 2021 - 7:22pm

#3 - I literally get mixed feedback on this all the time. Turning down top 3 MBA schools or a great startup job (i.e. a serial entrepreneur who is successful offering you a VP role and significant equity) to stay in venture, but then simultaneously getting feedback that you should take these detours... to get a better job in venture down the line is tough to wrap my brain around.

May 18, 2021 - 1:22pm

imo long term career optimization is BS. It assumes that the world is static but it never is so shoot for what you want now.

But - HSW has strong ROI in the medium/long term, if you didn't do a prestigious undergrad. And I'd advise doing your MBA as soon as you can in your career because of opportunity cost. When you hit very senior roles or launch a company, people do care about education prestige, rightfully or not.

Apr 27, 2021 - 7:32pm

1. In the current hot market, 'moving up a level' is getting increasingly common. I actually lateralled from a second-tier fund into a top-tier fund myself a couple of years back thanks to a great track record, unique sector expertise, and I'm pretty sure there were only a handful of candidates available in the market :)

2. VCs usually end up getting stuck in BD or 'fundraising guy/gal' roles and its a huuuge learning curve. For Corp Dev you'd most likely end up fairly junior and to be fair, the best place to learn those skills are in banking/PE.

3. I think that if you have VC experience, and do an MBA (H/S/W - don't advise anything other than that), you'll easily get a job back in VC after school. Most likely an even better one, because cool new network. You can squeeze a couple of internships pre-MBA and during the MBA and even post MBA to make your CV look really good, Stripe here, Google or whatever hot startup there, and spend 2 years of networking with every VC in town, and see what kind of job you can get. If you're not getting what you want, the other option is to do a post-MBA operating role for 2 yrs and then jump back in VC as fast as you can.

My personal views are

(i) Operating experience, unless at very senior levels, doesn't make you a better VC, but looks good on the CV as a differentiator. It's a job hunting optimization technique. 

(iii) VC is such a long-term game that you want to get in as young as possible and stick to it for at least 10 to 15 years. But you have to be at a top platform for it to be rewarding professionally and financially. If the fund where you are doesn't give you exposure to some hot deal experience, you should try really hard to move somewhere else as fast as you can!

Apr 28, 2021 - 12:33am

About to start at an MBB - really interested in VC or growth as an exit but unsure of the transition from consulting to earlier stage buyside. 

Questions

1. What do you think of internal consulting groups that do projects for port-cos vs the investment team? I'm thinking of insight's onsite team (unsure if there are others but KKR capstone is an example from traditional PE). Is the work interesting? Are there good exits into high growth startups, or perhaps transitioning to an investing role?

2. How do I position myself best to make the jump to a VC/GE role from consulting? Is it just a matter of making the connections and waiting for an opportunity? Should I do it before or after an MBA? How do I build up a platform for myself in terms of getting into the VC world? Would projects with my MBB's in house startup incubator be relevant/useful experience?

Reading these questions back, I'm gonna guess it's mostly "it depends" lol but yea careers are confusing and nonlinear so it's not a huge deal

Apr 28, 2021 - 1:47pm

1. We have those teams as well. Thie job is really interesting, they benefit from doing operations while being 'shielded' at a VC. Transition to investing is quite rare, most of the people in those roles tend to stick to it quite long or open their own consulting firms because the lifestyle vs pay ratio is amazing, and most of them get carried interest as well.

2. It's quite common, although it depends on your area of consulting expertise. If you're still early in your career I would just blast a lot of funds and try your luck, pitching your ability to synthesize large amounts of data, go deep in due diligence, sector insights, etc. Consultants are a good fit for growth equity funds or 'thesis heavy' funds. Startup incubators projects are an amazing way to demonstrate you have a strong interest in tech.

MBA: almost irrelevant to help with your VC career if you already have pedigree through your undergrad or work experience. Maybe a small plus for the network if from GSB/HBS but small ROI.

Apr 28, 2021 - 4:35pm

Thanks for your answers! Interesting that operating partners get carry, that's cool to hear. Followups:

1. Is transitioning to investing rare because they generally aren't interested? or is it because the funds themselves don't like to recruit them?

2. What do you think of a getting an MBA from H/S in terms of building a network with likely founders? A bunch of unicorns have been founded out of H/S, so isn't that network valuable for sourcing purposes? 

3. What does "thesis heavy" mean in this context?

4. If I want to go towards more of the blue chip VC direction (e.g. sequoia, accel, a16z) what sorts of consulting skills would be attractive to them? You mentioned that consultants could be a better fit for growth funds, but curious about seed stage, series A/B focused funds

  • Works at Bain & Company
May 4, 2021 - 4:00pm

1. What do you think of internal consulting groups that do projects for port-cos vs the investment team? I'm thinking of insight's onsite team (unsure if there are others but KKR capstone is an example from traditional PE). Is the work interesting? Are there good exits into high growth startups, or perhaps transitioning to an investing role?

Insight Onsite's Strategy/Analytics is basically part of the investment team - you primarily do deal work. There's a weird internal political element to it because Insight is a sourcing shop first and foremost so the people who bring in deals get valued more highly. Meanwhile Onsite does a lot of the analytical deal work that the "investment team" isn't trained to do because they're mostly people who were hired out of undergrad to source.

Look at where folks who started on the Onsite team have gone - they mostly move on to the investment team whether they stay at Insight or join another shop.

But if you're thinking about interviewing there,  don't tell them that you switch over to the investment team because they'll get pissy at you.

May 4, 2021 - 6:56pm

Huh that's interesting - so my confusion there would be why onsite exclusively recruits consultants if most of the work is deal work, unless you mean that it's solely focused on the diligence portion of execution. It seems that the prevailing narrative around buyside exits is that bankers are much more qualified to lead the overall execution of deals while consultants are very good at specific parts like diligences.

Apr 28, 2021 - 1:50pm

after we issued a term sheet?

Due diligence findings: manipulated numbers & founder reputation issues are the most common. It happened to me twice, once the numbers that were shared with us were almost made up and invoices were missing, company money was used for personal purchases etc. In another case we found that the CEO was a heavy drug user and we had a bunch of red flag in reference calls. 

Apr 28, 2021 - 2:31pm

Archivesofthepast

after we issued a term sheet?

Due diligence findings: manipulated numbers & founder reputation issues are the most common. It happened to me twice, once the numbers that were shared with us were almost made up and invoices were missing, company money was used for personal purchases etc. In another case we found that the CEO was a heavy drug user and we had a bunch of red flag in reference calls. 

Aha.

You mean like hard drugs? Surely you can't back out because the founder happened to be a stoner or used LSD couple times. Especially since most creative and successful entrepreneurs are known to be users of psychoactive drugs. 

Another question. Where do you see fou ders of failed start up at? Are they all living a cushy lifestyle because they cashed out at some point and got an offer to work at a corporate setting or they living in a trailer park?

  • Prospect in Consulting
Apr 28, 2021 - 2:28pm

As someone interested in joining a startup, your comment "Almost anybody with some tech or investing experience can spot a top-tier team or idea when they see one, it's an unfair game. The problem is 'how to hear about it and how to get in'" was interesting.

-Can you give a deeper explanation to help evaluate what a good company is because that would help to narrow the search of choosing which startup to join eventually. I am thinking of joining a Series A-D startup (B stage is probably ideal for me in terms risk/reward if I have enough conviction company will do well) I'd imagine things like investor quality, board members are important but anything else I am missing?

For clarity, I am a fresh grad consultant right now who, when joining a startup, would like to join 1-a rocketship and 2-early enough that I should be able to grow into a VP/head of ops role or something within a few years. I understand this is easier said than done hence why I am asking how to choose startups.

Apr 28, 2021 - 3:02pm

For your purposes, your best bet is 

- quality of investors and angels is by far the best public proxy

- check the pace at which the company is growing, no. of job posts, or get a Linkedin premium and check the headcount growth, especially in sales and marketing (the premium version lets you do that) so that you don't go in a stagnating business

- watch videos of the founders to get a sense of how good they are. Repeat entrepreneurs are usually a very strong bet.

- another way, if you know somebody at a VC fund, is to ask what their hottest company is

- finally, there are a few very hot sectors at the moment, anything that has to do with the data stack in software, NFTs, privacy/compliance in fintech, etc. etc. you can browse techcrunch or top VCs websites, read what the most famous VCs tweet about, etc.

- I agree with you that B stage is the best risk / reward stage if you're fresh to the startup world

Apr 28, 2021 - 2:37pm

i have an idea for a startup - a marketplace for services for senior citizens, kindof like uber / airbnb, equally marketed to the 30-50yr old children of the senior citizens, as to the 65+ seniors themselves.

this area is often not seen as "sexy" but the demographics are in favor of expanding demand for services as a wave of baby boomers become seniors over the next 5-10 year, and lots of money is spent on this sector.

right now, this is just an idea, and i'm looking for pre-seed funding.  how should i go about getting that initial funding....seeking 300-500k for 10% for this pre-seed round.

background on me, the founder.  econ degree --> software developer at investment bank --> rates trading desk strategist --> rates market maker --> rates prop trader

during covid 2020 spent lot of time helping senior family members with health issues, and found large holes in services targeted for seniors - an uber/airbnb type model would be a great solution and benefit both sides.   Seniors would get more access to affordable and more convenient services, and service providers can make $$ money servicing this growing demographic.  There are a few businesses that have started to gain foothold in this market (aplaceformom.com  care.com and a few others that are similar) but nobody has created an "uber" or "airbnb" for senior services....certainly not in the way that i envision.  I wish this existed...would have made my life 10x easier when i was acting as a caretaker of a senior family member.

Sorry i've been a little vague on which specific services and exactly how the business model would work here....but would be happy to go into more detail if you are interested in potentially investing.

regardless, how should i go about this stage?

just google it...you're welcome
  • 2
Apr 29, 2021 - 5:27am

You won't raise funding based on an idea, that's only for repeat entrepreneurs or very experienced profiles with deep domain expertise.

The reality is you probably don't need the money right now. There're a lot of progress you do that doesn't require money. Locking in the supply for example (with a few providers you mention), testing the audience and demand for such product (what are the marketing channels, and also it's easy to just put a website out there and spend $200 on Google ads and see what you get, etc.). Essentially, for most online businesses, you should be able to show evidence of market demand and traction without spending much money. That will allow you to raise money faster and with better folks (friends and family < angels < VCs). 

There is also the incubator / accelerator route. Make sure you have a co-founder, solo founder businesses are hard.

Apr 28, 2021 - 5:39pm

2 questions.

1)Let's say I have an idea. There already is a seed stage start up that exists. But I think I can differentiate and do even better. Should I still pursue this idea? Have you seen these businesses be successful?

2) What would be the best paths to find co-founders. My network is limited and I need about 2-3 more co-founders to have an initial team. I have in mind 1 person but no idea who I want as a CTO.

Apr 29, 2021 - 2:06pm

1) Yes. It's not uncommon to see 5-6 startups in one given space but usually, only 1 or 2 manage to differentiate and lead the pack. If you think you can do 10x better, do it. but if its a margin feature improvement, you would think harder unless the market is gigantic and growing super fast (in this case, you are just carried by the market and differentiation matters less than execution or capital)

2) If not from your network (which is the most ideal), there are a number of incubators that specialize in helping finding co-founders.

Apr 28, 2021 - 7:04pm

This has all been a great read so thank you in advance. Hoping for some career advice as I'm thinking moving from AM to VC. I work on a fund that runs a Thematic strategy. I believe that our research on innovation, new business models and TAM translates well to a an associate role at a VC. I've been networking and have been told I'm being kept in mind for a brand-new fund. FWIW, the fund will be focused on a niche (clean tech in Canada)

- What kind of career risk do I put myself in by joining a new fund without a track record?

- What things should I be keeping in mind and evaluating when considering to make the transition? 

- What are your thoughts on waiting it out for a position at a established VC versus just getting a foot in the door and getting experience?

- Thoughts on the clean tech VC industry as whole? I know its gone through a bust in the past decade but is heating up again

Thanks in advance!

Apr 29, 2021 - 2:14pm

- What kind of career risk do I put myself in by joining a new fund without a track record?

If you're early in your career and just want to break in the industry, not a huge risk because it's not that hard to move between funds after 2 years in. The only risk is that they don't raise a new fund or take ages to do so, or that the deals they do all turn out to be poor (but that is less of an issue early in your career), or that they don't manage to do enough deals.

- What things should I be keeping in mind and evaluating when considering to make the transition? 

In VC your CV is your deal sheet, so you need to make sure they can deploy capital in decent opportunities. Cleantech is a big space so I think there will be big opportunities to network with other funds and that's what you need to think of career-wise. Also ask about your role in the fund (pure sourcing? diligence as well? exposure to the portfolio? market research?). I know some associates who only worked on market research and market sizing and filling in IC memos, and that is not a great experience. 

Also the quality of the team is important, make sure that those guys are of high-caliber and they should at least impress YOU when you are interviewing.

- What are your thoughts on waiting it out for a position at a established VC versus just getting a foot in the door and getting experience?

That opportunity may never come or you may not get it. My advice is always to try to jump in your chose industry asap because its much easier to do a lateral move. Opportunities will come along the way to move to better funds, if you work hard and build deep sector expertise.

- Thoughts on the clean tech VC industry as whole? I know its gone through a bust in the past decade but is heating up again

I don't know much about the industry. But I think it's a large industries with multiple sub-sector trends that should at least offset each others. There are always good deals to be had in both bust and booms cycles. Make sure you really like that industry though because you'll be viewed as the cleantech guy.

Apr 29, 2021 - 7:01pm

This is an amazing response. Thanks for your help. A lot to consider especially because I already have a good gig in investment management right now. 

The opportunity is most definitely interesting and it sounds like I'll have a fair share of responsibility as the first fund is smaller. However, I still have to think through their specific mandate and on if it can provide the returns they think it will. Will be speaking to the head of the fund over the next couple of months which also gives me good opportunity to evaluate fit versus just doing a couple of interviews.

  • Analyst 2 in IB - Gen
Apr 29, 2021 - 7:54pm

Thanks so much for doing this. Such a great thread. Couple of questions:

-Can you expand some more on what VC diligence looks like compared to the type you would do in PE? Other than customer calls, reference checks, etc. how deep does the deal team go and did you find your skillset from PE transferrable to that extent or is it completely different?

-How much equity is typically offered for someone with your background (M&A>PE) joining an a startup in the series B-D stage?

-What are your thoughts on the virtual signaling in VC now a day across twitter, everyone has a newsletter, etc. Are these things required at this point to have a successful pipeline?

-What are qualities or habits of the most successful analysts and associates you've worked with across various funds?

Apr 30, 2021 - 6:16pm

-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.

  • Analyst 2 in IB - Gen
Apr 30, 2021 - 7:41pm

Extremely helpful and insightful. Thank you for the detailed response.

  • Prospect in Consulting
May 1, 2021 - 6:44pm

Follow up question regarding the twitter VC thing. In your opinion, who are the good VCs that are on twitter? My thoughts are Keith Rabois, David Sacks, Chetan and maybe a few others but your post made me question if maybe I was just being brainwashed by twitter to think they are good. 

Edit: I think the underlying question that I might also be asking is how to get a sense of who good VCs are? Obviously firm brand and list of exits but anything deeper I am missing?

  • Principal in VC
May 4, 2021 - 3:47pm

OP - you talked above finding a niche that your firm lacks... I'm a new Principal myself at a VC/growth equity firm and one thing I'm struggling with is how much to pattern match to what the firm is already good at vs. carving out new areas.  

Covering sectors that nobody else is focused on to make yourself more valuable seems like great advice at first glance, but I'm conscious of focusing my time on companies that no partner at the firm has the expertise to really sponsor. Maybe it works differently at your firm, but for a principal to get a deal through where I am, you need to get at least one partner on board to pound the table for it and I'm not sure how to do that if it's a space none of the partners have experience in. Would love your thoughts on how you got over this hurdle.

May 4, 2021 - 5:35pm

I understand your point. I think being a Principal is the hardest job in VC because you're expected to source and execute deals, but at the same time you need to manage internal politics and get sponsorship from a Partner, who may view you as a competitor if you get too close to his/her space, and you need to work on your differentiated expertise to make yourself indispensable (=get in the partnership). It's a lot to handle on top of the day job.

If you're in a firm that is entirely partner-led, and they only rely on you for sourcing and execution, frankly you just have to optimize for deals that will go through, hence things that your partners like. You have a bit of leeway though - if a partner likes software, there are many ways to slice the pie and many areas for you to specialize in: SMB saas, infrastructure software, devtools, datascientist tooling, etc. What you can do is come up with a specific thesis on a few broad sub-segments, validate them with a partner, and just go after those areas.

Expertise is often driven by your first few deals. The key is for you to be able to tell your own story and build some kind of brand, and you'll gain respect for your views, but can usually be 'packaged'. For example, if you did a few consumer deals, you can become 'the passion economy' expert.

Personally, I got in the partnership after 3 years as a Principal because (i) I sourced and executed a deal that already has a 60x markup (the partner took 100% of the limelight and the board seat, but I got some internal credit and told every founder/VC that I sourced and led that deal anyway) and (ii) I started to be the go to guy for a particular sub-sector. Word spread, funds started to headhunt me because they wanted to buy that expertise, and I managed to gently twist my firm's arm to get in the partnership.

  • Analyst 2 in IB - Gen
May 4, 2021 - 7:51pm

this is great. could you expand some more on the office politics point? for someone who isn't particularly great at it, what are the some do's and don't you've picked up over the years? how much would you say politics plays into moving up the ladder in VC vc. true meritocracy?

May 5, 2021 - 9:02am

Who do you think are the most aggressive pre-seed funds?  Funds that will actually invest as close as possible to idea-stage startups?

just google it...you're welcome
May 5, 2021 - 6:07pm

So many of them. Everybody is going to seed and pre-seed, even if they may not mention it officially.

What's aggressive is all those scout programs. Funds give free money to industry experts/super networkers to invest in super early-stage companies. Sometimes to students. I swear funds are going to start giving out free credit cards to Stanford CS students one day, I've actually thought of such scheme myself.

The other trend is the emergence of super angels, usually repeat founders, current CEO founders or senior operators, or just HNW that invest in 30+ companies a year. Some of them are reaaally good and end up building syndicates and incubators of some sort.

In general, if I come across a repeat founder I like, I'll give them a blank cheque on the spot (it's always paid off). I've even funded research for people iterating on some idea while they were still employed. Most top early-stage funds do this nowadays.

The craziest thing I've seen is a company that's raised $150m+ PRE revenue, PRE launch. But that was a proven concept and the team had incredible CVs.

May 5, 2021 - 3:41pm

question - so i'm building a 2-sided marketplace, geographically localized, for a healthcare-related service for senior citizens..."Uber/AirBnB for xyz home service" (not actual healthcare..this service is generally not regulated...but provides some general health benefit)

There is a brick and mortar solution that exists (a couple actually), but they are clunky, not easy to use, and often expensive.  Roughly 4 million seniors (of the 40 million so 10% of the population) have this significant problem every year that goes mostly untreated because the current solution is both too expensive, and not easy to access.   This is a multi-billion $ market opportunity, annually.

My idea is for an Uber / AirBnB version...so just like how AirBnB disrupted the hotel industry, i want to disrupt this industry and provide a better product with more access, where regular people are the service providers (just like regular people are AirBnB hosts or Uber drivers)....the incumbents have high fixed costs and generally must be ~70% occupied to cover costs, this industry is ripe for disruption from an AirBnB type solution...but its not sexy...hence why nobody has gotten to it yet...but the money is huge.

I'm building my MVP now...and figure it makes most sense to target the supplier side first (easy and free for supply to list themselves on the website).

However, just like AirBnB in the early days, this is not easy.  Its actually harder, because AirBnB could tap into craigslist...but there is no such platform for this market.  Majority of consumers find supply thru recommendations from social workers, hospital staff, and other senior services groups.

I'm confident that google search ads, facebook ads, friend referrals and tv commercials will be the primary method of growing users in the early days...but those are expensive (except for friend referrals...but that requires initial users).

how do i go about growing my marketplace in this early phase, and how do i get pre-seed VC investment?

About me - was a software developer for investment banks, and then an interest rates quant / trader..but have been semi-retired for a few years.

just google it...you're welcome
  • 2
May 6, 2021 - 4:54pm

whenever you get stuck, break your problems into smaller pieces, until those first pieces become solvable.

in your case FYI - your marketplace need to solve a painpoint to work - and its either (i) discovery (because supply or demand is very fragmented) - (ii) security/convenience in the form of guaranteed payments, ease of transaction, invoicing or whatever old school process you can digitalize and for it to be amazing, there should be some network effect, as in the more supply or the more demand there is, the more compelling the value proposition is.

There is always a side between supply and demand that is easier to crack. Get the easiest one (supply in your case), then go find potential customers and convince them to use the platform (given it commission-free for 6 months for example). But if your marketplace fulfills condition (ii), they should be willing to use it anyway without much convincing.  Don't think of marketplaces as marketplaces initially, but more as 'transaction platforms', and as you grow you can create those true marketplaces conditions

btw - sure airbnb tapped into craigslist but in any business you can always tap into public data i.e. job boards, Linkedin scraping etc. but its fine to start with google ads and then build more channels at scale.

  • Intern in RE - Other
Nov 29, 2021 - 6:29pm

Really appreciate your time and information! Can you recommend books related to your "discovery", "easier to crack" points re: supply/demand?

Anything related really to the themes of supply and demand in your post.

Thank you!

  • NA in IB-M&A
May 7, 2021 - 3:15pm

Hope Im not late to the discussion, super interesting answers. I have a couple of questions too if you dont mind.

1) Any opinion on starting out at a european corporate VC right after uni? Is a switch from there to a regular VC possible?

To add some more info on this:

  • its a CVC of a leading insurance group and focuses on an emerging geography that I believe will continue to grow quickly in the future (CEE + DACH)
  • it has invested in a couple of good startups (one became a unicorn too), although none of them are world-known
  • They lead around 50% of their deals and one of their associates took a board position too
  • They will be launching their new fund around the time when I would be joining
  • Total AUM around 150-200M eur (including the new fund)
  • The team is very friendly although during the interview they didnt come off as particularly 'amazing' professionally. Looking through their linkedin, I couldnt find anything special either, other than the CEO who founded and sold a company and then took on senior level operating roles at large firms.
  • They have a focus on fintech and digital health, none of which particularly interest me (although I could see myself getting interested in the latter)

2) How big of a disadvantage is it to not have an operational background?

3) With investment platforms such as Republic and crowdsourcing sites becoming more and more popular many think that a lot of VCs will become irrelevant in the future if they are not able to add additional value. (i) Do you think this is the case? (ii) If so, how do you see the future of VCs with my background (M&A --> VC) in a world like this?

4) How frequently do VCs get offers from founders to join their startups and from what level (eg. analyst, associate) do these offers usually start coming in? Do these offers come from current portfolio companies, ex-portco founders, or other sources? What positions would a VC take in these companies and what exactly would they be doing?

5) What kind of online courses would be useful taking as a VC? Does learning data science / digital advertising make sense, or are there any other skills that would be more relevant for a VC?

6) Have you ever thought about going down the public equity route, and if so, why did you choose VC instead? I am asking as I also have an offer from a large asset manager (100+ billion AUM) and I am wondering which one to take. Obviously, the fact that I have never worked in public equities nor VC makes my decision harder.

May 10, 2021 - 4:29am

Sure

1) Most CVC are sub-par compared to independent VCs, with only a few exceptions (Salesforce, Google, etc.). It's just that incentives and structures are not designed for investment in most cases, and you end up with very average investment teams at best. If you don't have any other options in VC - I do think it's ok to start in VC that way because you may turn it into a sector specialism, but with the objective to get out as fast after 2 years after a couple of deals, don't hang around.

2) None. It just looks good on the CV. Personally, I don't value operational background unless comes with a massive network or is combined with some kind of investing experience. A good architect is rarely a good real estate investor.

3) (i) Nope. VCs are a filter, bring positive market signaling, and most do add some kind of value add either in terms of sector knowledge, network, strategy advice, etc. I think they'll become a solid alternative in specific cases (B2C companies) or complement.

4) Quite common at all levels from portfolio companies, sometimes from outside the portfolio. What happens is that the VC who worked on the deal gets super excited about the opportunity, then wants to join because you do the math and 1% of $10bn is more than what you'll earn in your lifetime as a VC. Or they work on the deal, don't get in, get even more frustrated and same thing they want to join. There reverse (founder asking a VC to join) also happens when there is good chemistry but it's fairly rare.

The most common job VCs do are 'CFO' (help me fundraise), 'Bizdev' (use those sales skills to find me customers), also COO or Chief of Staff. The job is often a sales/finance job. Let me say that VCs rarely transition well in operations, because VCs tend to be very high level - it looks good that the startup attracts a VC, and sure VCs are great at building your fundraising deck and VC access, but as a pure operator I've rarely seen somebody doing really well. Also, if the VC was that good, they would build their own company.

5) Sales sales sales ahah. Seriously I think working on your pitching, sales and personal skills is the best investment here. Learning something about data science is interesting because it's so prevalent. What I would do personally, is really read those pitch decks from late stage companies/portfolio companies that have 'made it', and try to understand everything they do in some depth. (googling stuff is usually good enough)

6) Yes, actually had this conversation with a friend who was in banking with me but went the public equity route. I'll be honest, back in my principal days I had interviews with the likes of Citadel and tried hard to get in the industry.

My rationale is that in VC - if you do well and hit lots of $BN+ companies, you'll get paid, its fun, but you have to wait 7-10 years until the exit. and hopefully the rest of the portfolio doesn't blow up because you need to make money on a fund basis too. But in public equity, if you make a killing in a good year, you get paid super fast. So from a personal 'time to $', public equity is better

The downside is that public equity is just spending your days facing a screen and building models and having mini-heart attacks as soon as something happens in the market, and if course, if you screw up, you're out of the fund, and probably out of the industry. VC is much more interesting from a human perspective, it's less pressure, and you'll probably do quite ok regardless of performance $ wise. 

I never take headhunter calls when it comes to startups or or funds because I feel I'm in the best place I can be, but when it comes to big hedge funds I'm usually curious.

  • NA in IB-M&A
May 12, 2021 - 1:56pm

Thank you, really insightful. A couple more questions if you dont mind:

1) What do you think of growth equity career path vs VC? How hard is it to transition from VC to growth equity? What about the other way around? Also, any thoughts on MM PE as a career choice?

2) What trends do you see in the world of VC for the coming decade? What industries/technologies/geographies would it be worth to specialize on?

3) How realistic is it for someone without an entrepreneur background to later launch their own fund or angel invest?

4) What kind of comp can someone with a focus on Europe expect 1-5-10 years in the job? Also just to get a feel for how big the upside is: how does it look like in terms of money when someone in VC hits it big?

May 11, 2021 - 11:15pm

Thank you so much for doing this! As someone with 5 years of public equities and in-house strategy experience at name-brand firms thinking about a VC career path, I had a few questions for you:

1)  Given I would ideally leverage my current industry knowledge to break in, what do you think is my best course of action?  a) see if I get any traction with corporate VCs or independent funds, b) move to corp dev to gain transaction experience, c) get operating experience at a startup, d) apply for MBA and aim for HSW

2) If I take route d from the above and end up getting into another M7 school, does it make sense to still shoot for venture or should I focus on building my pedigree / network with MBB / IB recruiting?

3) What kind of experiences would make you interested in a non-traditional candidate? (e.g., not from IB, MBB, or a startup) 

4) At what point is it too late to break into VC as an associate? 

5) Do you believe the anecdotal saying that VC returns are disproportionately driven by top funds? Should folks like me take this into consideration or with a grain of salt? 

6) As certain industries start to converge (e.g., fintech -> embedded finance), are conflicts of interest between portcos a problem for new investments and potential follow-ons? 

May 12, 2021 - 3:00pm

1) all those are valid. I'd try to avoid corporate VCs and go direct to independent funds. Corp dev could be a good way in. The MBA may also give you a good shot if you do internships in VC/big startups, which should be easy to lock in at HSW.

2) I'd avoid any school outside HSW, even if you have to try a few times to get in. It won't give you an edge in VC recruiting and the cost doesn't justify it. For MBB/IB recruiting it's fine of course, but it's not getting you any close to the VC path (especially not post MBA).

3) I like journalists (because of network, ability to make sense of data and tell a story), hedge fund/trading guys (I just like the way they think about optionality and tradeoffs), I also hired people who use to run events/conferences (again, network + salesmanship). Influencers (seriously!). I also saw a fund hiring a model who had a CS background, I guess that's one clever way to appeal to technical founders :))

4) Guess once you hit early 30s VCs may think it's going to be awkward to ask you to do cold calling. While I do believe that most of the industry is getting more 'diverse' (or at least, open to be diverse and trying to get there), I do think there is some age discrimination. But that doesn't mean you can't break in as a principal if you have more experience that is relevant. There is always some kind of way in the industry if you are resourceful and try hard enough.

5) It's true. Some may get lucky and hit on something big by accident, but that success rarely reproduces itself. VC investing has this virtuous circle where the better the deals you do, the better your dealflow and your ability to do more better deals becomes. Not only are returns coming from top funds, but they are coming from a few companies at the top funds. Frankly, the majority of funds have terrible returns.

6) Yep. Happens all the time, sometimes I had to step off boards and we had to put Chinese walls in place, or one of the company decided to stop sending us updates and inviting us to board meetings. I've seen situations where the same fund backed a US winner and a European winner, and those two companies started to get into each other's markets. It's hard to navigate conflicts but the best practice is to ask the two founding teams if they would be ok with an investment in both.

  • NA in IB-M&A
May 13, 2021 - 1:06pm

Do you have to be an extrovert to succeed as a VC?

What is the best part of your job? Any memorable moments that stand out?

What is the worst part of your job?

What are some common misconceptions from outsiders about VC?

May 15, 2021 - 5:12pm

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  • NA in IB-M&A
May 16, 2021 - 5:45pm

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Nov 18, 2021 - 2:04pm

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