This question comes up every time I speak at a college. There is a romanticized version of venture capital out there that VCs are super wealthy and all you have to do is pick winners. Everyone thinks it’s pretty simple. Kind of like ordering at a restaurant. You see the menu of companies and you choose. Of course, since VC’s are so smart, most companies VCs pick are winners.
That’s not true. Most companies VCs pick are losers. Being a VC is not hard physical work, but it’s hard mental work and really can bust up your emotions. If you can’t deal with rejection, you shouldn’t be in VC. The stress comes from generating a return on investment in something that you have little control over. Similar to my trading career, you can do all the research in the world, all the charting, all the data crunching you want. Once you write the check you have almost zero control over if it works out or not.
Certainly, VC’s can add value. But, that depends on the VCs network and their ability-and how focused they are.
I think in this day and age, the best way is to go work for a VC backed firm. Develop a relationship with that firm. Perform well for the company and show you have the necessary skills to be a good VC. Get hired as an associate and start working your way up.
A lot of people that get into VC really don’t like it at all. There are a number of things that aren’t seashells and balloons. Raising money for example. Raising your first, second and even third funds is a brutal process. Networking for deal flow is something people don’t like. To be a good VC, you have to meet with lots and lots of people. You aren’t going to get along with all of them. You aren’t going to personally like all of them. The other thing is the lack of control. You can’t control when an entrepreneur turns the tables on you and says, “We chose someone else to be in our deal”. Or, when things go awry in the deal and you have no bearing on their success or failure. Entrepreneurs are often control freaks and when you are a VC, you have control only the things you can control-and that’s your own process.
I have a fair amount of entrepreneurial friends that considered going into VC after they successfully exited companies. They declined. They’d rather build or be a part of another startup. Sitting around and listening to pitches doesn’t do it for them.
As Brad Feld said in his answer, his firm Foundry Group doesn’t hire interns or associates. They aren’t even going to bring new partners into the fold. You should do research on the firm you are thinking about working for. Culturally, they may not be a fit. Even though firms look similar from the outside, they are different on the inside.
Here is what I tell people when they ask me how to get into VC. See if you agree or would add to the answers.
- Win the lotto or have family money. Have a pile of money and start your own fund.
This one is tongue and cheek but it happens. In Chicago, the majority of funds are family money funds.
- Build a business, make a lot of money, start your own fund.
This is not out of the realm of possibility. Plenty of examples in the VC world. See Andreessen-Horowitz. See Bryan Johnson’s fund.
- Go work for a VC backed startup. Develop a relationship with that firm. Perform well for the company and show you have the necessary skills to be a good VC. Get hired as an associate and start working your way up.
- Find out which firms hire associates. When they broadcast that they are hiring, apply. Some firms don’t broadcast it. You will have to network for those kinds of jobs so you know when they are going to come available.
- Have a unique skill that a VC wants and can’t get without hiring you.
If you think this is impossible it isn’t. Benedict Evans of a16z is a good example.
- Have a unique network that a VC wants and can’t get without hiring you.
This can be especially important in medical and finance type startups.
- Angel invest in firms that become successful. Show that you have an aptitude for it.
This last one is the most arduous way. If you hit it big as an angel, see the first way. Chris Sacca did that and so did Jeff Clavier. My experience with Fund of Fund investors is they don’t care because they see the two ways of investing (angel and VC) as different balls of wax.
Like most industries where there is a lot of money to be made, venture capital looks pretty simple from the outside. However, like most industries where are a lot of money can be made, it’s fraught with very high risk and it’s really hard to excel at it. Just because you went to the right school, or followed the “right path” won’t guarantee that you will become a good VC.