Q&A: Answering questions about working in VC

Merry Christmas, WSO! I figured I'd start a forum about venture capital, since there's less good (and recent) information about it on this site. Happy to answer questions from prospects or current professionals trying to break in. Other VC investors should feel free to chime in too! 

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Comments (88)

  • Intern in PE - LBOs
Dec 25, 2020 - 1:49pm

Really appreciate the AMA! I have a couple questions:

  • Would you mind providing a little background on how you got into VC?
  • Any good tech related podcast/newsletter/website recommendations to stay up to date on the industry?
  • If you joined VC from banking could you provide some detail on what the recruiting process was like. Did you recruit on-cycle or off-cycle?
  • Why did you choose to pursue VC over other options like traditional buyout PE?

Thanks!

  • Intern in PE - LBOs
Dec 25, 2020 - 1:50pm

Oh and also what percentage of your work is sourcing vs diligence? And how do you differentiate yourself in the sourcing process?

  • Associate 1 in VC
Dec 25, 2020 - 3:00pm

It honestly depends week-to-week. On average, maybe sourcing is 25-30% of the job? There's a lot of follow-up work involved when sourcing (i.e. light DD) and if you decide to move forward, DD gets more intense (research, memo writing, customer calls, talking to other investors, etc.)

  • Associate 1 in VC
Dec 25, 2020 - 3:06pm

I also don't do much cold calling; a lot of my sourcing comes from my existing network, the network of friendly investors, accelerators, things that the partners ask me to look at, etc. This eliminates a lot of the headache / time hassle associated with banging your head against the wall doing only cold sourcing

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  • Associate 1 in VC
Dec 25, 2020 - 2:59pm

All great questions. 

Recruiting is very different based on the fund's stage, size, and returns (by that last part, I mean that the best-performing funds tend to recruit more ad hoc). I met some of the investors at my fund over a year before I ended up working for the fund, and I wasn't looking for a VC job at the time. I got to know the investors over a year, and when a position opened up, they decided to bring me on. Very informal.

I'd read what's on Techcrunch for sure. Newsletters tend to be the best: Fortune Term Sheet, Axios Pro Rata, StrictlyVC, and then maybe some substacks of investors you like.

As I mentioned above, it wasn't on-cycle. There are some VC funds that recruit on-cycle like PE funds do, but most of the recruiting (especially at the more well-known, high-performing early-stage funds) is off-cycle.

PE is interesting, and I thought about doing it, but I think technology is really what will drive our economy forward in the decades to come, and venture put me front and center in the tech ecosystem

  • Associate 1 in VC
Dec 25, 2020 - 3:04pm

This is generally a good overview of what the process looks like at a lot of places -- it can be very informal and long-term. If you want specifics, let me know

  • Associate 1 in PE - LBOs
Dec 25, 2020 - 2:12pm

Hottest consumer tech sectors right now... gaming/esports? Fitness tech?

Hottest consumer sectors broadly... alternative proteins?

  • Associate 1 in VC
Dec 25, 2020 - 3:02pm

Consumer social is back again, mostly centered on new forms of community and the creator economy. Alternative proteins had their moment in the last two years with Beyond and Impossible, but I suspect it'll ramp up again -- think you're right that it'll be hot again

  • Intern in IB - Cov
Dec 25, 2020 - 3:09pm

Do you think IB experience is valuable for VC? Or do you think getting into VC out of undergrad is the better option even if it's a small fund/no-name. 

  • Associate 1 in VC
Dec 25, 2020 - 4:06pm

Small fund and no name are two very different things. Benchmark is a small fund, but it's arguably the best fund in the world. You probably know that, but just flagging for those who aren't as familiar with the industry.

I think most funds, however, are not worth joining -- just like any venture portfolio is driven by a few outliers, the industry is as well. Unless you have the opportunity to join a fund -- big or small -- with excellent deal flow where you'll build a great network, it's probably best to do something else (maybe banking or consulting, or better yet, a startup) out of school

  • Associate 1 in VC
Dec 25, 2020 - 4:13pm

Banking experience is certianly valuable. You develop hard skills and develop a sense for strategic issues. It's a great place to start a career if you're not 100% set on doing other things.

Having said that, I think people on this forum tend to underestimate operating roles, especially if they want to do something outside of PE / HF. I'd take a cool role at an awesome startup, especially if the IB offer is bleh. It's harder if you have the opportunity to go to a top bank, but I think people should think a bit more oustside the box

  • Intern in IB - Cov
Dec 25, 2020 - 5:07pm

Thanks for the insight. Any idea how I can gauge the quality of the better funds that will provide a great experience? I know there's probably like ~10 that everyone recognizes as a major VC and is a no-brainer to take an offer from (Sequoia, Accel, Benchmark, Index, etc.) I'm wondering which other VCs are worth taking over BB IB?  

Most Helpful
  • Associate 1 in VC
Dec 25, 2020 - 4:10pm

The Bay Area will remain the most talent and capital-dense tech / VC hub in the short to medium term, just because it's the center of gravity today and there's a lot of stickiness -- people with families can't just pick up and leave. Having said that, things are absolutely distributing, and Texas / South Florida / NYC / LA / Denver / etc will certainly benefit as folks look to move to places with a higher quality of life. California's government is horrible, and local leaders in SF are even worse. Most big cities are run by liberals, but the liberals in California are self-destructive in a way others aren't. The tax and cost of living issues will drive people out, but the general quality of life things are really what's behind the exodus -- it's just not nice to live here for many people. People say "well, it's just a few who are leaving." But these few are the ones who support the budget. Unless things change in a big way, the Bay Area will no longer be the massive center of gravity it once was

  • Analyst 1 in IB - Cov
Dec 25, 2020 - 6:37pm

Is it true that if you want to do VC long-term, it can be better to not get into it right after IB? I have heard that buyout PE and/or operational experience at a startup can be a better place to prepare for a career in VC. I heard that most associate VC positions are not partner track, and that gaining operational experience would lead to a partner track position. Would appreciate your insight on this.

  • Associate 1 in VC
Dec 25, 2020 - 6:44pm

It's true that most associate positions are not partner track, but I don't necessarily think that means you should turn one down if your long-term goal is VC. Instead, you can go into it with the goal to build some industry expertise and think like an investor, leave to go work in an operating role, then make your way back. 
 

Alternatively, sure, you can avoid VC altogether in the early days and instead leave banking for operating roles, hoping to move in later. The nice thing about an associate role is 1) you learn a lot, 2) you get to see a variety of interesting startups and can use that experience to figure out where to join, and 3) you can see if you actually like it as a long term option 

  • Associate 1 in VC
Dec 25, 2020 - 6:45pm

So I guess your way is a fine way to look at it. Another is: do venture, leave to be an operator, and then come back 

  • Associate 1 in VC
Dec 25, 2020 - 6:47pm

I'm not sure buyout PE makes sense; an operating role is a much better option. I think buyout investing teaches amazing skills, and they're definitely "harder" than what you'll pick up as an early-stage investor, but the skills are very, very different and not as applicable to venture 

  • Associate 1 in VC
Dec 25, 2020 - 6:47pm

That's not to say don't do buyout PE. I'm a big believer that smart people should work on cool things that interest them, and that if they build the right network and are curious, fast learners, they can do anything 

Dec 29, 2020 - 3:15pm

Depends on your background. I have a friend who was an associate for 5 years at VC and left to be chief of staff at one of their portfolio companies. Also know a person who was a SWE for a startup that got to their B series funding and they joined a fund as an associate 2 years ago and just got promoted to principal this past fall. Asked them about thejr work and they said nothing's really changed besides their title and comp. still does their own DD and sourcing but has a seat at the decision table for investments and is being mentored by a partner for partner track.

VC is very much an apprenticeship from what I've gathered. You can't just dive into it at the partner level unless you've launched and exited a startup. You also can't move up from associate unless you've got partners that want to see you grow and succeed and not just run deal sourcing and DD forever

  • Associate 1 in VC
Dec 25, 2020 - 7:55pm

To be honest: it's very variable. 
 

Generally, the hours aren't that bad - certainly not like banking or consulting. What's different is that a lot of your "off" time is really quasi-work. You often hang out with people in your line of work: other investors or founders. The line between work and play blurs. 
 

Comp is very variable between firms. But for non-partners it's generally in the low six figures. Some places let you co-invest. Others give you carry, although this is very rare for anyone but the principals and partners 

  • Associate 1 in PE - LBOs
Dec 28, 2020 - 11:27am

Seems like shitty comp. Well funded startup leadership teams make that, consultants make that at EM, PE guys make that at 25 out of banking. I've wondered a lot about this.

Can you comment? How does that affect lifestyle adjusted for age? Where are these guys living? Do they send their kids to private school? House in Tahoe? There's a not-so fine line between $200mm early stage fund that piddles along within a sector to say, Benchmark. It's all in carry but... I'm still reaching. Would love if you could describe more how to think about it (as opposed to say PE where it's a little more cut and dry).

Dec 25, 2020 - 8:43pm

Hello,

Thanks for doing this. I'm currently in a process for a spring internship before I start full time at a buy side firm.

What are some best practices in interviewing for VC. Anything I should look out for or make sure I touch on in the interview?

  • Associate 1 in VC
Dec 27, 2020 - 11:06am

It's not like banking where they care about your technicals. Very different. Aside from them needing to want to work with you, like you, etc...

You need to demonstrate an interest in the field and some unique perspectives on industries or companies you'd want to invest in over the next 5-10 years. And it helps if you can show that you have a network that helps expand beyond their own network, ie expand the universe of deals immediately. 
 

to that end, I'd think through several industries you find exciting. What problems need to solve? Why? What companies are solving them? Where are gaps in the market? How will you go about finding companies that might fill those gaps?

  • Intern in IB - Gen
Dec 25, 2020 - 11:03pm

hi -- is it common/not rare for people to go from product management at MFAANG to VC? what if they also have an IB background?

  • Associate 1 in VC
Dec 25, 2020 - 11:19pm

Having product experience plus a financial skillset is great. I'm sure you could get a great job. Startup experience is preferable but we're nitpicking here - sounds like you have great experience (I had larger tech co / banking experience too)

  • Associate 1 in PE - LBOs
Dec 26, 2020 - 7:41am

How do you build actual conviction in an investment with so little proof and data?  Beyond the top firms, how much of it comes down to the spaghetti method? It seems very easy to raise capital even for mediocre founders with unconvincing ideas, do you expect a wave of propped up ventures falling over after stimulus ends?

  • Associate 1 in VC
Dec 26, 2020 - 8:27am

You're thinking about the strength of the team (can they execute), size of the market (could this company be big or important), quality of the business model (is there a path to sustainable economics, and is there something about this business that compounds over time), and qualify of the tech, if applicable. 
 

Most startups are going to fail, whether there's stimulus or not. I too think that valuations are really high, but I'm not sounding the alarm on a bubble yet for two reasons. The first is that capital is so plentiful and yields so low that venture makes sense - they're long-term bets with high upside. The second is that COVID has shown that we're only at the beginning of the digital transformation in our economy, and software markets are much bigger than we thought 

  • Associate 1 in VC
Dec 26, 2020 - 10:40am

I tend to focus on friends who are in the business and / or targeting junior people who are at funds who we've coinvested with. It's tricky, because you want to find people you trust at funds that aren't competitive - maybe they're later or earlier than you are, or they don't write lead checks, etc 

  • Associate 1 in VC
Dec 26, 2020 - 10:39am

No, definitely not. There are definitely former bankers / sell side people who have had great careers (Gurley, Meeker) or who are younger and doing well. But it's not a requirement whatsoever 

  • Associate Consultant in Consulting
Dec 26, 2020 - 2:26pm

Curious about your thoughts on how venture firms differentiate themselves nowadays as valuations are bid up and rounds for hot startups have become extremeley competitive. 

  • Associate 1 in VC
Dec 26, 2020 - 3:16pm

In early-stage venture, there's a few key differentiators. 
 

One is experience with go to market across consumer tech and both bottoms up / top down SaaS. Investors who have been able to help companies sell and figure out the GTM motion are good. 
 

Another is deep industry relationships, both in Silicon Valley and outside of it. The best investors have both  

A third is deep investor relationships with later-stage funds that trust you. If you can help them raise a Series A or beyond, it's a huge value add. 
 

A fourth is being someone who they are willing to work with for 10+ years. Startups are a long haul. If they only see you as a check and don't like working with you, good luck. 
 

A fifth is a demonstrated history of being founder friendly and not trying to control the company. This is less common than you think 

  • Associate 1 in VC
Dec 26, 2020 - 8:25pm

I think CVC is ok, but I'd probably shoot for a traditional fund over a corporate one. The best senior people tend to be at traditional funds, so you'll have the best mentorship as a junior employee there. Corporate funds are good too, but the investment process looks different - you're not as sensitive to price, you might only invest in companies related to the parent company, etc. 
 

I have no idea on compensation because neither I nor any of my friends work in a CVC job. Having said that, my gut feeling is that it is comparable to what corporate development people make 

Dec 29, 2020 - 3:19pm

CVC pay varies but strangely enough i know a principal at a TMT CVC that makes more than principal at VC. They invest from a team budget though and not actual LP funds so I've heard their carry is basically like a CD bonus structure vs. lucrative payout on successful exit

  • Associate 1 in VC
Dec 26, 2020 - 8:06pm

I didn't expect this to get the attention it has, so I wanted to qualify here: unlike IB, PE, or consulting, job responsibilities, comp, investment styles, etc vary REALLY dramatically. Not to say that those other industries are homogenous. They're not. But venture is very different fund to fund, so my experience and perspective may not match others

  • Analyst 1 in IB-M&A
Dec 26, 2020 - 10:38pm

Why do VC people have such a big focus on social media like Twitter, writing blogs, LinkedIn posts, etc.? 

Do good PE associates make good VC investors and vice versa? Which skills translate well and which don't?

  • Associate 1 in VC
Dec 26, 2020 - 10:52pm

Some people in venture - especially junior ones - feel like they can build their brand and ultimately their network / source of deal flow by writing and tweeting publicly. When done well, I think this is a great way to go about. However, I often think these people are being performative and egotistical, writing for the sake of writing and frankly not saying anything important. It's a hard balance to strike, but those who do it well REALLY do it well, and those who don't come off as pretty transparent. 
 

Good PE investors have probably developed a sense of how early stage ventures might want to develop strong business models with unit economics that get better as they scale and with advantages that compound. If they can do that and learn how to think over a longer time horizon + evaluate founding teams, they could be good venture investors 

  • Associate 1 in VC
Dec 26, 2020 - 10:56pm

People who write good, original content are great. People who parrot tired ideas for the sake of sounding smart and "contributing" to the conversation are lame. Not everyone fits into the second bucket but a lot do  

Dec 27, 2020 - 1:55am

What are your thoughts on the VC cycle this time around? Seems like there has been a terrific run over the past decade and I hear two schools of thought. One being that valuations are overdone and will revert to the mean (as others have mentioned already). The other is that lower cost of starting technology companies, combined with companies staying private longer and a premium on growth means this VC cycle is going to run for a lot longer.

Would also be interested to understand what you look for in founders and their ability to scale a business, particularly for fast growing companies where the role of the founder may have to shift quickly.

  • Associate 1 in VC
Dec 27, 2020 - 6:35am

I don't know. Valuations are definitely hot. I think some of these businesses need to grow into their valuations, and if they can't, things could implode. Same is true for companies with bad economics but a path towards sustainable ones - if they don't show improvement, sentiment could sour quickly. But broadly, yes, it's never been easier to start a company, and software markets are way bigger than we ever expected. So I think good companies will continue to command strong valuations 

  • Associate 1 in VC
Dec 27, 2020 - 6:37am

We really like founding teams rather than solo founders. It helps to have someone who can build the product and manage the team building it as well as someone who can fundraise, sell, manage hiring, and run go to market. 
 

Having unique experience and perspective in the area you're building is a massive thing we look for. Finding people who can effectively sell and recruit is huge too. Building a business really boils down to having product vision, figuring out how to sell, and then hiring a team that can go scale all of that

Dec 27, 2020 - 9:57pm

I'm looking to break into roles in VC after an MBA (also plan to pursue CFA during this time). Pre-MBA, I tried starting my own business for 1.5 years and that didn't go well for me (completely failed - no revenue or funding) . I heard that I may end up being over qualified for finance roles after an MBA. May I know your thoughts on this?

Dec 29, 2020 - 2:24pm

how well does IB prep for VC?

Why do so many more people go PE than VC?

What are the long-term career prospects of VC?

Do you think your experience in VC will set you up to be an entrepreneur?

path less traveled

  • 1
Dec 29, 2020 - 2:52pm

Currently a PM at a private unicorn on IPO track in the roughly near future. Interested to hear how you made in roads with the firm while at your startup, and whether you reached out to firms that were not investors in your company.

  • Associate 1 in PE - LBOs
Dec 29, 2020 - 2:58pm

Do you think a job doing late stage venture (Series D and later, minority deals mostly) will feel much different than mature LBO PE? It's vague but can't help not being vague here.

Dec 29, 2020 - 3:35pm

How many people are in your firm and how often do you typically hire? Is it on a one time basis as needed or will the firm hire multiple people at once every year?

Dec 29, 2020 - 4:42pm

Didn't go to a target school and currently employed as a treasury consultant at a large financial institution.

I am itching to get a CFA and looking at some masters programs (masters in finance with some IT/data component vs MBA) also learning Python

Where should I put my energy to have a reasonable shot at landing in VC

Thanks and happy new year

Dec 29, 2020 - 9:35pm

depends on the fund you're targeting but if you're in treasury management, stick with it for a year or more longer then pivot to a payments startup. These are hot especially around (Zelle, OCT/Push to Card/RTP/FedNow) any experience in this space will make you a hot commodity in the payment startup community. Ride out the startup and then pivot into a cushy VC job. VC, even in the later stage isn't as much financial engineering as IB/PE. CFA/MBA aren't really needed for VC but if you want to break in sooner than later an MBA at Harvard/Stanford can pivot straight into VC - albeit maybe not in the same techy/TM space you're in now and could be any sector of tech.

  • Intern in PE - Growth
Dec 29, 2020 - 8:08pm

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