"How can I break into the VC world" is the second most asked question I get after "How can I break into the startup world."
To most, VC is sexy. VC, especially at the seed and A round, is really sexy. But there are very few VC jobs. Like next to zero. The chance of you getting a VC job is not as difficult as winning the lottery but there is very little supply and a huge amount of demand.
So how do you get a VC job? And just to clarify, I’m talking entry-level VC, not becoming a partner or above — that’s a whole other ballgame.
Well the truth is that it is simple to understand but not easy by any means.
The answer is — source as many good deals as possible. If you send high-quality deals to investors that they end up investing in, you will be looked at as a vital source of deal flow. There are only two things that every VC needs and that is a) $$$$$ to invest and b) access to the best deals. If you aren’t going to give $$$, your best bet is to be a point of access to the best deals.
This seems simple, and conceptually it is, but it is definitely not easy. At this point I’ve sourced a handful of deals to a variety of funds and it takes a few tries to get the right company/team to the right investor. I’ve found that the best way to help investors is to get a follow-up email from a company you meet (something like—- Hey Alex, it was great sitting down last week. Here is what we do…….. Let me know if you think anyone would be interested in talking to us….) Then I forward this along to a handful of people I think might be good fits.
There are some hits and some misses but it shows investors that I’m seeing companies before they are. This is key in the seed stage. It’s reached a point where some investors even want to know about high-quality potential founders when they are still at a company or in school so they can meet them BEFORE they even venture out. At a certain point if you are good at sourcing deals the VC firms you send deals to will want exclusive access to your deal-flow. This means they want you to join their team.
So if you are interested in getting into the VC game, what do you do? Well you go find great companies and get them in front of investors before the investors even know they exist. The companies can be childhood friends, some girl that your college friend is dating, some guy that you met on line at Whole Foods, etc. You need to keep your eyes open and ears to the ground. This is one of the only surefire ways to break into VC.
There is an obsession with raising venture money from top tier VCs. Taking in money from a VC that also invested in Facebook, Twitter, Snapchat, Instagram, etc. may seem like a great thing to be able to tell other people.
“Oh yea, we have the same investors as Instagram.”
The thing is, it really doesn’t matter. It may make you feel good in front a certain type or group of people, but it is not going to make mainstream people or businesses use your product/service/offering. In fact, they’ve probably never heard of KCPB, Sequoia, Accel, NEA, AH, USV, Spark, or any other VC or seed stage fund. For them it is more about what your product/service/offering does and why they should care.
The truth is:
- Startups raising money from top tier VC’s aren’t always successful
- Expectations get higher when you raise from top tier VC firms
Now, I’m not trying to discount what investors bring to the table. Obviously they bring capital to operate a business. Time and time again, I have seen investors help identify and recruit essential employees. They can give feedback on your product/service/offering. They may also help you get some press coverage. But at the end of the day it is up to YOU to make your business a success. Your investors have tons of companies in their portfolio and only a limited amount of bandwidth to help, so don’t depend too much on them.
What I am trying to emphasize here is that some startups seem to believe all their problems will be solved if they can just get investor “X” to lead or participate in their fundraising round.
Don’t believe this. It’s toxic. You are better off finding a specific investor that gets your business at a less prestigious VC than taking money from a Tier 1 just to say you have a Tier 1.
VCs will help you think big about your business, might help you recruit some key personnel, and may even play a key part in getting you acquired (if it comes to that), but they will not solve all your problems. You need to do that yourself.
There is a lot of noise out there right now. So many startups raising money, going through the hype cycle of the tech blogs, it can really mess with your head. Seeing things announced on prominent tech blogs, day in and day out can make you feel shitty and ask yourself “why not us?” It was a lot easier when startups were not as sexy and companies could focus, mess up, fix things, and get them right without the bright-light in their eyes.
After all is said and done, the ONLY thing that matters is building a product that people actually use and care about. Sure you need money to operate and scale a business. And sure you need to promote your product so more people will discover it. But if you do all these things and forget about the most important thing (i.e. the only thing that matters) you will not last.
This is why it concerns me when companies, who depend on user adoption, raise money before they have a product in the marketplace. It’s frightening to think that people would even fund something like that. If you consider that a good product is the only thing that matters, you’d think people would want to see a product that people care about and use before pumping money into it.
This also make me think about the real startup work. This isn’t the sexy aspects that you read about on TechCrunch. This is the stuff that is happening behind the scenes. The blood, sweat, and tears. The determination. On occasion you will read a blog post about what it is really like, but this is not a side frequently seen in public. Product spec’ing, long days and nights of writing code, bug testing, pipeline building, market research, copywriting, product iterating, and more. Nailing this is what makes a company successful. Not the stuff that makes noise.
So when you see some big splashy announcement- read it, internalize it, then remember - “don’t believe the hype” - it will mess with your head.
Making a career out of being a VC is not an easy job. You need to score good returns for LP’s (limited partners). If you don’t, you will have difficulty raising a new fund.
So, making a career out of VC is tough. However, in the first few years it’s difficult to tell if your fund will do well. Not impossible, but hard. It’s very easy for VC’s to seem like they are doing well (i.e. companies you invest in continue to raise additional capital at higher valuations), but without the liquidity necessary to return to investors.
Bottom line: VC is not for the faint of heart. While it might look like a great job (and you may get away with being mediocre at it for a few years), you should be aware that it is very tough to make a career out of it.
Most people, myself included, have thought or think that being a VC is such a hunky-dory gig and it’s just hopping from tech hub to tech hub investing in cool companies. While there is a big piece around having a good time and investing in cool companies, Fred gives a realistic view of what happens post-investment.
I hope he continues to write more sobering pieces like this one.
I’ve been thinking about the concept of a hacker-in-residence (HIR) and entrepreneur-in-residence (EIR). I think these are very cool roles at VC funds. Lots of place have them now. But I have a nagging question in the back of my mind: Can you trust an early-stage VC with your idea/biz when they have a HIR and EIR?
First off, stealing ideas is a misnomer. Ideas are valueless, it is all about execution. Anyone who says differently is either misinformed or unable to execute. But, normally when people ask if a VC will steal your idea when you pitch them, I’d say, maybe…but doubtfully. They are not in the business of building companies, they are in the business of funding companies.
BUT… with an EIR and HIR, where the EIR is actively looking to build a business at the VC and spin it off, and they have an in-house hacker that can build a prototype quickly…well now things change.
I still firmly believe VC’s are in the business of funding companies, and you shouldn’t worry too much about an EIR stealing your idea/business. EIR’s are there to give an entrepreneur’s viewpoint and help incoming business.
But listen, it’s not like it hasn’t happened before…
Every founder who asks me how much money to raise (seed/A), I always tell them to raise enough for everything to go wrong for six months to a year PLUS pivot money.
Whether they did it on purpose or not, Stickybits/Turntable is a great example for this.
They raised $1.6mm for Stickybits and once they realized it wasn’t sticking (see what I did there?) they pivoted to Turntable.
So you should raise whatever you think you need plus enough money to fire all the employees, retain founders (or key employees), and work for 4-6 months on a new project. This comes out to about 250k in my estimation.