Exit Opportunites Out of VC?

This is kind of a weird question, but I've read a lot about the "sourcing model" at places like Summit and BVP. What do those analysts do after a few years not having found a deal? Is it easy to get into other PE jobs if they haven't necessarily gotten the strong modeling/quant experience at other IBs?

It seems like their marketability rests exclusively on their knack for calling companies...

I'm interested only because I've seen some VCs recruit at my campus full-time this September (undergrad at top 5 school), and I'm wondering what I'd do with experience like this. I'm sure you could work at an industry firm in the industry you are covering (i.e. software, pharma) but can you lateral into another shop?

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Comments (14)

Aug 10, 2009 - 6:51pm

I spoke to a VP at Summit and he told me usually associates at Summit either exit to a top 5 b-school or work at a competing PE firm.

Usually it takes two years of sourcing to get a deal done. During that time though, associates do work on a few potential deals that fall through. So they have more opportunities to do modeling experience besides the deal they source.

If modeling experience is important to you though, I don't think sourcing is a good fit, especially at VC firms. My experience at a VC firm has taught me that financial expertise isn't really important at sourcing deals. The need for financial expertise comes after the investment is made: how to structure subsequent financing rounds to mitigate dilution etc. However, that's done by the finance team, not the investment team. The later stage the investments though (i.e. what Summit is looking at), the more need for financial analysis.

@Aviator BVP = Bessemer Venture Partners right? I'm pretty sure most venture firms have their own sourcing team: investment bankers aren't exactly enthusiastic at covering a small start-up (or growth equity deal), and there needs to be someone to convince a startup that their capital is better than another firm's capital.


Aug 10, 2009 - 2:08pm

Hmm, I guess two questions:

a) Would there be any way to supplement our sourcing experience with quantitative modeling experience? i.e. by ways of outside continuing education?

b) Do you think that a sourcer who closes 1-2 deals in his two years at a place like Summit/BVP/etc. would have enough marketability when he looks to exit to a bigger PE/competing growth equity shop?

Aug 10, 2009 - 2:40pm

^ So if my ultimate goal is to be part of an early stage investment team, an analyst IB stint would be relatively useless right? Most MD's at ES funds come from predominantly operational backgrounds, so would it just be better to start out of school at a VC backed start up? Would there be any point of going IB->position at startup?

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Aug 10, 2009 - 2:59pm

@TeamLRAM: Yea, I was referring to Bessemer Venture Partners. I just assumed that the deals came to them through the partners contacts and networking, but I understand now, they still need someone to make the cold call for most deals.

Regarding the skills required for a VC role, I had a phone interview with a VC two weeks ago, not seed stage but do some early stage deals, not too big but they've been around for a while and know their stuff, surprisingly, they didn't stress financial modeling skills too much. I don't have operational experience but I mentioned during the interview that I would like to gain op experience at some point, they viewed that favorably.

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Aug 10, 2009 - 7:45pm

In regards to black1venture's question,

a)The transferability of financial modeling skills into sourcing depends on if you're sourcing for venture stage deals or not. Sourcing is both about getting an entrepreneur to want to take a firm's capital and about qualifying the company's potential. For VC deals, the qualifying is pretty much all about the business, management team, and market size. From my understanding, as the deal gets more later stage, then financial modeling is more appreciated in the analysis.

That being said, and this answers Westfald's concern, VC firms do value investment banking experience. They want either someone with operational, banking, or consulting experience. I think the work ethic needed to succeed in ibanking is always valued.

However, how much a VC values the ibanking experience is dependent on the VC. Some VC's are full of past investment bankers and consultants whereas others only want past successful-entrepreneurs.

b)Closing a deal a year is considered extremely good/lucky so I would expect an associate who closes two deals in two years time to have excellent marketability.

I'd like to point out though that sourcing is not analogous to a sales call in that the associate has to see whether the company is even fit for investment and a deal isn't struck over the phone or even within months of speaking to the entrepreneur. One deal at my firm originated from an associate speaking to the CEO a year ago (I think). The CEO wasn't looking to raise money then but contacted the associate back once he was ready.

Sourcing is more like actively expanding the firm's network so that when companies either a) need money and/or b) show that they are successful/worth investing into, the firm is in the top of the company's list for preferred investors. Conducting a lot of calls and being good at selling the firm will help increase the chances of an associate sourcing a deal, but it certainly won't guarantee it.


Aug 11, 2009 - 1:23am

Few questions if you guys don't mind:

1) Do associates at places like Summit have cold-call quotas like a traditional sales organization? Do they have to make 100 calls/day or something like that? I'd assume it's not easy to get the CEO on the line, and most of the time he'd just say "Summit what?"

2) What happens when an associate sources a deal? Do they get a large bonus? Are they relieved of their quota responsibilities?

3) If they are successful at sourcing a couple deals... will they really have traditional PE opportunities, or will they have sourcing PE opportunities at other shops?

4) How do they market this experience for business school? Business schools are all about leadership, teamwork, etc. A sales environment is very competitive and probably the antithesis of this. Also, aren't people that cold call generally looked down upon in B-School admissions?

Aug 20, 2009 - 6:20am

pre-MBA VC career q (Originally Posted: 06/04/2010)

Hey quick q guys - how useful is a pre-MBA VC exp. for breaking into post-MBA PE? Is there any route that has worked before? Or is it too distinct and has no relevance. (assume top-tier US B-school).


Aug 20, 2009 - 6:21am

A headhunter told me that they are definitely transferable. Of course, the closer they are in stage, the better. For example, growth equity VC to PE is easier than early stage VC to PE which is MUCH easier than working at a shop that buys/packages/develops inventions. There are also PE firms that have early stage practices. Once you're on the buyside is easier to move around. There will be some people who will tell you because PE requires more complex transactions, the skills are not really transferable, but based on what this headhunter said, once you're at VP level or around there (which you will be after bschool), being able to spot business drivers, how a business operates, having a solid network, etc are more valuable. In fact, some PE firms may actually prefer one or two members with VC experience because it gives a different perspective and also people working with early stage companies are more conscious about how viable a business is, growth trends, market drivers, etc.

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Best Response
Aug 20, 2009 - 6:22am

As you have laid out the question, I think this is a realistic goal for you. The biggest factor will be your business school. PE recruiting is done exclusively (for the most part) at a few schools. You need to go to one of those schools.

You will be competing for these prime spots against all the guys who started out in PE and those who started as Analysts at the BB. So you would need to stand out compared to your peers, and also hope that PE firms are recruiting in high numbers (PE recruiting has been very low in the past two years).

PE financial modeling is much more elaborate than VC modeling. Obviously, the stereotypical VC investment is a high-growth company, so creating a five year forecast and model is somewhat pointless. VC investments are typically made as "12 times EBITDA", but the focus/research will be entirely on the growth potential of the technology, the management involved, etc. PE will build an elaborate forecast and work tirelessly to manage each line item. So anyway, don't focus on "are my skills directly transferrable"....business school can help you with the modeling. Focus instead that you were motivated and talented enough to secure a prime VC spot. The PE shops basically look for somebody with transactional experience, which it sounds like you have.

Aug 20, 2009 - 6:23am

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