Exit opps small&upcoming VC fund vs well-known VC FoF?
Hello fellow monkeys,
In this new year I’ve got two offers in the venture capital industry:
- the first one is from a new VC fund (GPs have a solid track record), that started fundraising last year and planning to finish fundraising at 150million AuM this year. The fund is focused on a tech market that I like and that is fast-growing.
- the other one is from a well-known FoF, investing primarily in private equity but that is expanding its VC team. I would do approx. 50-60% co-investments and the rest in primaries. They also plan to fundraise for a VC co-investments fund (1B AuM).
In both funds, I landed an analyst role.
Which one do you think is better in terms of exit opportunities? I saw that people say FoF is bad in this forum, however the role includes at least 50% of co-investments and the brand name is good. In the VC fund, I would have a direct investing role, but the future of the fund and whether they can fundraise successfully, is more uncertain.
Any insights on these?
Thank you very much, and happy new year!
This is super tough to answer unless we know you personally, your risk appetite, and what sort of work you enjoy, etc. I presume this is an associate-level role, if not a lot of this may change.
That said will give some high-level thoughts here:
a) Joining a first-time VC fund is one of the highest beta early career moves you can make. The fund does well and is top-quartile? You're set. Why? Because most solid VCs/GPs don't need a headcount to scale and they usually prefer to promote from within. A new fund, esp a VC - is like a startup - there will be a ton of opportunity to prove yourself and rapidly make partner if things work out. It is truly incredible and lifechanging luck to be an early employee at one of these funds, akin to being an early employee at a successful startup
b) That said, first-time funds "fail" and can struggle to fundraise down the road for a variety of reasons. In which case, you likely will need to lick your wounds, go to your network, and either work at a startup after or find other options. It's possible to lateral, but in general, I have found that folks that are not DEI candidates from first-time funds don't always have the brand name to land decent VC gigs after their shop struggles to fundraise. Some do, some don't - there are just very few good venture opportunities and they are highly competitive so experience at a random fund gets you in the initial interview but doesn't differentiate you.
For your specific situation, you're at even higher risk because the fund is not even raised yet. So I would weigh that in my thinking and then ask for more carry than they might otherwise be willing to give to compensate for the risk.
There's also the fact that to see the benefits of the venture path unfolding, you need to stay there for 7-8 years for your carry to vest, and another 10 to actually see your big winners pay off! So make sure that these are people you could see yourself working at least a couple of years for. If there's any pause on that angle, don't take the VC gig. Also, If they're not willing to pony up at least ~1-2% for their first associate hire joining before the fund is raised, they're probably not people you want to be in relationships with.
On the FoF side, this sounds like a more traditional, lower risk option but it probably lacks the excitement and learning opportunities you'd get at building a new VC fund. Not saying you wouldn't learn a ton at the FoF, but the learning opportunities and career progression from joining a new and growing firm are unparalleled.
I've seen FoF VC folks make the moves to funds later on but it's quite rare - they usually have a different career path and even if they work on direct investments, it is with a different lens and in a different culture than direct investing for a VC firm. That said, I think the one exciting thing for you here is that the amount of VC fund managers is exploding, and being able to work on sourcing new managers, co-investments, etc. is really exciting and will be a valuable skill set for many family offices/FOFs, etc down the road. You'll be building a skill set that will be well valued there.
TL;DR - depends on how risk-oriented you are and how much you like and respect the VC firm. If you are given pause about never being able to get back into VC again after doing the FoF role. then do VC. If what you just read from me gave you pause about doing VC because it seems a little risky, do the FoF.
Thanks a lot for your answer, it really helps!
I just have two additional questions:
- This is actually for an analyst role, I was never employed full-time before. I interned at various VC funds and startups, and built a quite successful project on my own. Would your answer change given this fact?
- You say it is rare for FoF VC folks to then move to funds: what moves do you usually see from people coming from these FoF?
Considering the VC fund:
I do not consider compensation at all (it is good in both offers) as it is a first time role, I prefer the experience and what it can bring me later on.
I do not plan to stay on the VC fund more than 3-4years (I guess the ideal plan would be to be promoted to associate, stay a bit and then leave) as it is in a foreign country. I am currently based where the fund is and got to know the team, we get along well. GPs have a solid track record and managed VC funds/did angel investing before.
I would take the FoF role then. You should not take a VC role out of undergrad unless it is with an absolutely stellar firm with a track record and record of training their analysts (Bessemer, Kleiner in the past, maybe Insight...)
A few reasons
- No upward mobility to partner in 98/100 cases. In your case very little mobility to sr. associate
- No real training outside of solid shops
- Mentorship and exit opps widely vary and tend to be much poorer than banking/consulting/startup PM/software engineer by a wide margin
- Path dependence: no optionality early in your career
- Compensation is low
- If you are startup curious and actually care about VC vs. the prestige of doing it outside of school, you can find ways to expose yourself to the entrepreneurial ecosystem in other ways while working elsewhere
Careers are incredibly long. People who work in 2 years at some of these early shops in consulting/banking/leadership rotation programs get branded for life and get solid training.
You would move on to asset allocation roles likely - other FoFs, etc. I'm not the best person to have a detailed reply here - but you'd probably move to a pension fund, endowment, etc.
It's a different but more stable and lucrative career track in its own right.
leave to go where ideally?
What do you want to exit to?
I like early-stage investments (in companies) and would see myself doing that for the next years
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