Breaking Into Venture Capital
By Melvin J. Howard
The truth is there’s no one, uniform path that will guarantee a role at a venture capital firm. That’s true for both jobs in investing as well as roles on the platform side. You’ll know that you’ll spend your days meeting with founders, doing due diligence, supporting portfolio companies, and researching market opportunities. And, most importantly, you’ll be responsible for writing checks to founders and managing the deployment of capital from the fund. Many assume a finance background or an MBA is necessary for a job in venture capital. While that experience is definitely helpful, it’s not required. In fact, diverse work experiences and skill sets can bring a unique perspective to the table when identifying and evaluating investment opportunities.
Early-stage investors come out of many different backgrounds with varying areas of expertise. Those who are the most successful develop a specific skill set or perspective on a business model, technology, or market that allows them to identify patterns over time.
For one, having a good sense of the growing pains inherent in early-stage companies and what a founder or business model needs to be successful is a great asset for an investor. That’s why past roles in operations and business management, such as jobs as a chief of staff or as a product manager, can be helpful in building experience evaluating teams and businesses. Jobs that build industry or technical expertise, such as journalism, engineering, corporate development, public equities and research, can provide a VC with valuable insight into a market or technology roadmap. And that experience helps build networks with other early-stage entrepreneurs and within the larger tech community, providing sources for potential new deals, portfolio support, and diligence. Early-stage investors can do over twenty deals a year, and if the firm is category agnostic, the more exposure the team has to different markets the better. I started working closely with early-stage companies while in still in university. My early operational experience gave me insight into how businesses scale, empathy for founders, and context behind the numbers.
At the later stage, the role changes. With more financial and operational data available to accurately model a company’s outlook, there’s more quantitative analysis. And a background in finance or data analysis can be helpful for modeling a company’s financials and more accurately valuing the business. There’s also more negotiation through the deal process, and more oversight that’s required as the business scales. With less asymmetry of information and a little less risk in the business, later-stage deals become more competitive, so having a background negotiating, selling, winning and closing deals can be an advantage. Given the information available, the valuation of a business and deal terms also become more complex.
Prior roles in consulting, private equity, banking, or finance or operations roles at big tech companies tend to be helpful backgrounds for late-stage investors. These VCs only do a handful of deals per year, so they spend a lot of time with a company’s numbers and team before writing a check.
Having experience stewarding large businesses that require greater operational efficiency and a focus on long-term growth can set you apart as a potential partner and advisor. Similarly, understanding both public and private markets for potential exit opportunities — and having a network within those areas — is another highly valuable asset.
Venture capital is about experience
There isn’t a standard recruiting process in venture, and there aren’t recruiters for early-stage funds like there are in other tech-focused industries. Venture capital is about experience and being able to identify patterns, and, ultimately, the best way to get into the industry is to generate that experience and pattern recognition. An investing role is broken down into three general parts: sourcing, diligence and portfolio support. Although as an investor you’ll need to do everything, it can be done but pace yourself. Identify which you believe is your particular strength and demonstrate it.
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