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So you want to be a VC? 5 ways to find a VC job

I don’t think a week goes by that someone doesn’t ask me if we are hiring at New Atlantic Ventures. (No, we are not!). Seems that everyone wants to be a VC these days. So I thought that I would share a few thoughts on why a job in the VC industry is so hard to land – and if you are really determined, how best to find one.

The VC industry is SMALL. I’m going to guess that there are fewer than 10,000 institutional Venture Capitalists out there. Maybe fewer than 5,000. Probably fewer than 1,000 who have actually made money for their limited partners in the last ten years. Fewer than 250 who have earned carried interest in the same time period. Maybe fewer. So the first thing you have to think about, when looking for a job in the VC industry, is that there aren’t many jobs total in the industry.

The VC industry is about to go through some serious and past-due RESTRUCTURING. Why? Since 2000 the industry returns have been terrible. Lots of excuses for this. But really two reasons. First is a lack of a robust IPO market. This has limited the number of “big wins” in a VCs portfolio. Lots of reasons for a bad IPO market: Sarbanes Oxley compliance costs, disappearance of boutique investment banks, and decimalization of stock trades and its impact on brokerage revenues (resulting in a power shift within investment banks to proprietary trading and away from underwriting and brokerage).

As a result most VC exits since 2000 have been via the M&A route with lower exit values than IPOs might bring. This has disproportionately impacted the bigger VC funds which simply can’t return capital on M&A alone. Second is a self-inflicted wound. After the go-go days of the late 90s, VCs raised bigger and bigger sized venture funds. The $100M fund became the $250M fund became the $500M fund became the $1B fund. And then a funny thing happened along the way. 20% annual returns, the “norm” for the VC industry for the 30 year period from 1970-2000 fell off a cliff. 2000-2009 has seen single digit VC returns. And that is for the top quartile funds.

What is behind this? Venture Capital is not a business which scales well. VC is not like Buyouts. Early-Stage investing is completely different than Late-Stage investing. Most successful Early-Stage VCs with $100M funds failed as later stage VCs with $500M+ funds. But they won’t tell you they failed. No. They will tell you that it is “too early to tell” about the success of a 2000+ vintage fund. They will talk about the shock to the economy post 9/11. And you will hear about the current financial crisis. And the drought in the IPO markets. And Sarbanes Oxley. But at the end of the day a VC is in business to create value for its investors by helping entrepreneurs build successful companies. If the results aren’t there, then, the VC has failed. But they will keep raising new funds if they have a good brand – because many LPs believe in brands. But after 3 poor funds, even the most loyal LPs are starting to say “No” to some famous VC names.

Why is this important? Because those big VC funds are about to see some creative destruction. They are about to get smaller. This means there is less management fee to go around. Which means they need fewer employees – because the guys (yes they are mostly guys) at the top don’t want to earn less. Which means it will be really hard to find a job at a larger VC fund because many of them are about to shrink. The silver lining here is that many of the soon-to-be-shrinking VC firms (and no one will admit that THEIR next fund will be smaller – it is always the other VC which will be impacted!) Will be shedding partners. Often shed are the younger partners with the better recent track records since the established players won’t fire themselves. And from these fired partners, new firms will be born. They will raise smaller funds (at least initially) which might offer better returns. And a few of them may be in the market for a great analyst, associate, or principal. But they probably won’t be hiring partners.

The successful VC skill set is RARE. With the risk of offending almost everyone, here is what makes a great VC: a technical (engineering, science, computer) degree from a top school + work at a top consulting firm understanding business strategy + being a founder/top executive of a start-up + a passion for new technologies + a desire to help others accomplish their ideas (not your ideas). What generally doesn’t make for a good VC? A former lawyer (too risk averse), a former investment banker (too transactional), a private equity background (VC is not financial engineering), or only one of the “Great VC” skills listed above. So, if I haven’t scared you away from the industry, here are a five tips on how to make the move: 

1. The easiest way “in” is joining a big VC firm right out of college as an analyst or out of business school as an associate. Why? Because many VC firms have hiring programs here for “temporary” positions, ie they expect analysts to leave after a few years and go back to business school. So they are always (a very few) openings here. But if you aren’t coming out of a top school, you won’t get a lot of attention. Why? Because like it or not, colleges do a good job screening the best and the brightest early on. It is later in life where “what you have done” matters more than “where you went to school.”.

2. If you are not graduating from anywhere but want to try a lateral move in, you will generally aim for an associate or principal level position. Here, it doesn’t matter how stunning you or your resume are. It matters if the VC firm is hiring. And that is the proverbial needle in a haystack. Here is how to find out who might be hiring: A firm has just raised a new fund, or had a first close on a new fund. A group of partners is leaving an established firm to start their own firm. Partners have just left a firm and the former firm might have a hole to fill. A fund just had a very big and high profile exit (a leading indicator of the partners feeling wealthy and able to start raising a new fund). A firm has just hired a placement agent to raise a new fund.

3. Work your way in through a VC firm’s portfolio company. Our companies are always looking for good people. If you come in through us, go to work for one of our companies, and it is a huge hit (which you are a large part of) then we will look fondly on you when hiring time comes along. Doesn’t mean we will have a job. But at least you will be in the “under consideration” pile.

4. Try to be an Entrepreneur in Residence or a Venture Partner or a Summer Intern. These mean different things to different VC firms. Simply put, if you have a good reputation and track record, are eager and energetic, want to hang around a venture firm and make little to no money (yes these are often unpaid positions) hoping to go into a portfolio company or prove your worth as a potential investor, then try to be a loosely affiliated EIR or VP. You may not get paid so don’t try it if you can’t afford it. And you may call that unfair. But when we raised our first funds, we worked for 12-24 months, unpaid, on the hope of raising a fund.

5. Raise a fund yourself. If you have a good name and a successful career, lots of time, don’t need a current income for a few years, and have made successful angel investments, this might be your best way to becoming a VC. The route isn’t easy, and it is long. But it can be done. That is how all of us at New Atlantic Ventures got our start. Good Luck!!