How to Break Into Venture Capital

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Venture Capital - Sand Hill Road“I’m an engineer with a 3.6 GPA at a top university. I have a full-time investment banking offer lined up at Credit Suisse, and I’ll be working in their tech M&A group. Do you think I can I break into venture capital?”

While venture capital receives less attention than private equity and hedge funds, I’ve gotten many, many VC-related questions over the years.

In this 2-part interview (part 2 on the job itself, lifestyle, hours, and pay right here), we’re going to speak with an investment banker who broke into venture capital.

In part 1 – focused on recruiting – you’re going to learn:

  • How to make the move from investment banking to venture capital
  • What types of people VC firms look for and the 3 entry points into VC
  • The role of headhunters in the VC recruitment process
  • How resumes and interviews for VC differ from banking and PE
  • How to position yourself to break into the industry

How It All Got Started

Q: Can you tell us about your background and how you got into finance in the first place?

A: Sure. I studied engineering at a top university in the US – I wasn’t sure what I wanted to do afterward, so I applied to Master’s programs and took a combination of math, finance, and engineering classes once I got into my top choice.

Since it was a target school and the market was much better back then, banks and consulting firms came to recruit at my school and I interviewed for everything from engineering jobs at companies like Google to consulting and finance positions.

Ultimately I had become more interested in business, so I went to a well-known tech banking group.

Q: Right. We’ve been over how to break into investment banking about 597 times before, so let’s skip over that and talk more about getting into VC.

Did you know you wanted to get into the industry in the beginning, when you first started out in banking?

A: No, I barely knew anything about the buy-side and exit opportunities in the beginning. At bulge bracket banks you get exposed to this early on because headhunters start calling you 6 months into your time on the job, but at smaller and regional places you don’t get as much exposure.

By the time I started thinking about exit opportunities, I had been working for a few years and had already been promoted to Associate – so I didn’t want to leave right away.

After I had been an Associate awhile I started looking more seriously at buy-side job postings on sites like Glocap and I began to contact headhunters in my area, but at that point I still wasn’t set on VC.

Q: You mentioned job posting sites and headhunters – don’t you have to network a lot to break into VC?

I always thought that networking was even more important there because the firms are so small and they have less money to spend on recruiting compared PE firms or banks.

A: Networking and cold-calling Partners yourself can be helpful – and especially when it’s a bad market you need to do more of it.

But a lot of it depends on what type of firm you want to work at. The biggest and most well-known VC firms – think Sequoia – use headhunters, as do many late-stage VCs. The smaller the firm and the less capital they manage, the less likely they are to use headhunters.

I didn’t network that much because I had a brand-name school on my resume, I was already in banking, and I was aiming for late-stage funds that actually used headhunters.

Venture Headhunters

Q: Right, so let’s talk about headhunters in the VC industry. I’ve written before that in private equity – at least in the US – the 3 major recruiting firms are SG Partners, CPI, and the Oxbridge Group, with a few others also contributing. Are those 3 active in venture capital as well?

A: SG Partners doesn’t do much early stage VC recruitment, CPI had a good number of VC openings, and Oxbridge I can’t speak to because I didn’t work with them too much.

Glocap had a good number of VC openings across different types of funds, and I used them quite a bit – I’m not sure how good they are for PE or hedge funds, but for VC they were helpful in my search.

Q: Interesting. I dealt mostly with SG, CPI, and Oxbridge when going through private equity recruiting but I guess it’s different for venture capital.

What do recruiters look for when you apply to VC jobs? I’m assuming they act as the “initial screen” and then recommend you for interviews depending on their impressions of you?

A: Yeah, that’s accurate. What they look for is not too much different from what headhunters in private equity or investment banking look for: they want people who are well-spoken, have good deal experience, and show the potential to source investments themselves.

The last point in particular is really important for the buy-side because even at the Associate level, you’ll be expected to cold-call executives and find interesting companies yourself.

Q: Are they looking for any particular type of person? For example, do VC headhunters value banking experience more than consulting or business development experience?

A: I would frame it a little differently. There are 3 entry points into venture capital:

  1. Pre-MBA: You’ve done banking, consulting, business development, or product management before and now you want to apply what you’ve learned to invest in tech companies.
  2. Post-MBA: You’ve done any of the above or maybe you’ve been an engineer or marketer or anything else, and you’ve gone to business school to re-brand yourself.
  3. Operating Partner: You’ve been a VP of Sales at Oracle or another tech company for 10 years, and you’ve had a lot of success and risen to a senior level. Your boss or another colleague knows a VC, and you get a referral like that.

Of these methods, #3 is the most difficult to use when breaking in because you actually have to be successful in the real world.

At the pre-MBA level, they like bankers with good deal experience or anyone with product management / business development experience at tech companies because you have a lot of insight into how companies operate.

Consulting backgrounds are also good, but some are more helpful than others – advising tech companies on strategic partnerships is a lot more relevant than doing HR consulting, for example.

At the post-MBA level you see people with a wider variety of backgrounds getting in – you just need to go to a top school and have access to recruiting channels there.

Pedigree also matters quite a bit – not so much in terms of the specific bank you worked at, but more so with the university or business school you attended. VC firms are very traditional and they get tons of resumes, so they like to take the path of least resistance and filter by school name.

Stuff Venture Capitalists Like

Q: Interesting. I guess it’s unlike private equity, where you pretty much need to have been an investment banking analyst before breaking in at the post-MBA level.

We’ve talked about the entry points and what recruiters look for, but what about venture capitalists themselves? What characteristics do they look for in recruits?

A: It depends on what type of VC firm you’re applying to – Early stage? Late stage? – and what the firm’s focus is – Sourcing? Due diligence? Portfolio company work?

Each firm focuses on different things, so they look for different qualities in recruits. Let’s take a firm that’s very heavy on sourcing – an example would be Summit Partners, where you do a lot of cold-calling as an Associate.

A firm like that would assess how presentable you are in front of a CEO, how articulate you are, and how confident you are in making presentations and talking to people. In an interview, they might even ask you to make an impromptu presentation to them.

The closer a firm moves to the “private equity” side of the spectrum, the more important due diligence and deal execution work becomes.

So those types of firms expect you to know a lot about coordinating lawyers, accountants, and bankers, analyzing a company’s financial statements and creating financial models – similar to investment banking.

Early stage firms place more of an emphasis on sourcing, market sizing, and investment thesis development – e.g., how many people will adopt Mobile TV? When will it hit the “tipping point?”

Interviews at those places are very subjective and consist of chatting about the industry, recent trends, and companies you’re interested in.

Finally, some firms focus more on working with portfolio companies – they’re not as common as late-stage or early-stage VC firms, but they do exist.

They’re more interested in people with strong operating backgrounds and anyone who has experience creating and managing products, developing partnerships, marketing to customers, and so on.

Q: Wow, I didn’t realize there was so much variety just within venture capital. Most people just think of trying to find the next Twitter or Facebook when you talk about VC, but there’s a lot more to it than that.

You mentioned what types of people different VC firms prefer to recruit, but is there anything that all firms really like to see? Any common mistakes that recruits make when pitching themselves to VCs?

A: I’d say the biggest point is having a strong opinion on a given company or industry. Lots of people walk into interviews and just casually chat about the tech industry without expressing a specific opinion.

That’s fine if you’re an investment banker, but on the buy-side you’re making investment decisions and you need to be very opinionated about what industry is going to take off and what companies you should invest in.

You need to be ready to go in there and say, “XX is awesome because of points #1-6, and they’re going to be huge in 5 years – we should invest in them.”

The other mistake a lot of people make is focusing too much on a company’s products rather than its market position and how it stacks up against the competition. Even though VCs invest in technical companies, investing itself is still a business decision driven by the market rather than technical product details.

Q: Right, that makes a lot of sense. It’s just like how too many IB and PE hopefuls focus on their hyper-advanced LBO models rather than the business results of the deals they worked on.

What’s important to emphasize on your resume or CV when applying to venture capital jobs?

A: You don’t want to seem like you’re a hedge fund, PE, or quantitative finance guy or girl – they want people who are interested in startups and technology.

Deal experience is fine to list but you want to focus more on how you worked with CEOs and other executives and the market sizing / business development work you did.

They don’t want to look at your resume and see tons of numbers and obscure acronyms everywhere.

In the Interests section, you want to list items that are related to technology (or bio-tech / clean-tech if you’re applying to those types of VC firms).

VCs would rather have presentable people with a passion for technology than number crunchers with no interest in startups.

Q: Ah, ok. So if you’re applying to VC jobs, you can use the deal experience resume template but you might have to modify your descriptions a bit. What about the interview process for VC firms – how is it different from investment banking and private equity?

A: It’s very informal. They’ll say, “Come in for lunch and let’s chat. We’ll see who’s around and they can sit down and meet with you.”

You’re just going in to have casual conversations with the Partners – compare that to private equity interviews or investment banking interviews, which are more structured and technical.

They might respond quickly or they might drag out the process over many months – there’s never a rush unless you have an exploding offer.

VCs pay less money than PE firms, so they can’t just throw wads of cash at you and expect you to work 80 hours a week for them.

They are obsessed with cultural fit because they don’t want people who are in it only for the money – they want people who are genuinely passionate about technology and finding exciting companies.

This is in total contrast to banking, PE, and hedge funds, where many people only do it for their year-end bonus.

Q: So I’m guessing you never received modeling tests during the recruiting process?

A: Nope. Even at late-stage firms I didn’t get modeling tests – though again, if you move closer to the private equity side of the spectrum they might be more common.

One other point I would raise: we’ve mostly spoken about VC firms that invest in technology companies.

But if you go to one that does bio-tech, healthcare, or clean-tech investments, you may get more detailed technical questions on the technology itself – they may ask you about fuel cells or different types of solar panels, for example.

Final Thoughts

Q: Great. I just have a few more random / miscellaneous questions that we haven’t gotten to yet.

I get a lot of questions from engineers and science majors who are interested in leveraging their backgrounds to break into venture capital – what would you say to them?

A: Either do investment banking or consulting first, or get an MBA from a top school. There are just too many other engineers who want to do venture capital and you won’t stand out unless you have some kind of “validation.”

I have a few friends who didn’t even do banking or consulting before business school but who are now going to VC firms – just because they got an MBA from a top school.

Q: Right, using business school to re-brand yourself is a proven strategy and it’s almost a necessity if you want to move into VC without that pre-MBA business background.

Some people argue that you have to have been a successful entrepreneur or operator to be a good VC – do you think that’s true?

A: No. The VC industry – just like investment banking or private equity – has many artificial barriers to entry, but in reality lots of people could do the job.

If you look at one of the top VCs in the world – Mike Moritz at Sequoia – he was a journalist at Time before getting into the industry.

He’s an outlier, of course, but I’ve seen lots of data showing that there is no correlation between operating experience and being a good investor.

It’s a “gut feeling” type of business, and having experience starting companies doesn’t mean you’ll be great at investing in companies.

Q: Another common argument is that you need a lot of connections to break into VC, because they want people who can tap their networks to find great companies.

If you look at the websites of some VC firms, the Associates seem to fall into that category – they’ve worked in a certain industry for a number of years and have a huge Rolodex. How important do you think connections are?

A: I don’t think it’s that important at the junior level.

Most firms don’t expect you to come in as a former investment banking analyst with a huge Rolodex – connections are more important if you’re moving in at a more senior level or you’re going to a “premium” firm like Sequoia or Kleiner Perkins where they want people who can hit the ground running.

Q: Awesome, thanks for your time. We could keep going but this is already quite long, so let’s pick up with part 2 next time.

A: No problem.

Next In This Series:What Do You Do as a Venture Capitalist?” – What you do day-to-day, how much you get paid, how you advance, and what our interviewee liked and disliked about the industry.

About the Author

is the Founder of Mergers & Inquisitions and Breaking Into Wall Street. In his spare time, he enjoys learning obscure Excel functions, editing resumes, obsessing over TV shows, and traveling so much that he's forced to add additional pages to his passport on a regular basis.

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133 Comments to “How to Break Into Venture Capital”

Comments

  1. Silverback says

    So coming up to end of my first year in M&A and looking to jump ship.

    Ultimately I want to do VC, but that only seems accessible after 3/4 years of experience.

    Am currently considering a few junior positions at distressed debt hedge funds and just wondering how it would impact my chances of getting into VC later down the line?

    I was thinking I could go from distressed HF to distressed PE and then to VC, or would distressed HF to VC be possible?

  2. Garc says

    I just finished my first year as an analyst at a bulge bracket. I’m not a huge fan of my team and have been considering accepting a fp&a offer at a really interesting tech company. In the long run though, I think I’d like to work in venture capital, so my question is: do you think it would be smarter to take the offer or stick it out for a while at my bank and try and move directly into vc?

    • M&I - Nicole says

      If you don’t like your team, I’d join the tech company and see if you can move up the ladder within the company and gain exposure to VCs. And then you maybe able to move to a fund. You may still need to get an MBA or relevant startup experience to get a role at a fund but I think this experience maybe a gateway to that

  3. says

    Hi Brian!

    My background starts at Business Administration and I plan myself to join this industry in the long term when reached 7-8 year experiences in Business Analyst (SQL, VBA, Stats) – which is thought to become valuable to business growth in early stage and late-state as well for crystal reason:

    – By working as Business Analyst (BA) in tech firm, I can understand a lot about how business runs and make profit? what’s the pros and cons a new product often needs to be tackled? which steps can be developed to cut cost, lower risks or increase profit of firms & products? which channels should be boosted to speed up sales effectively?

    => Then I definitely have the well-rounded viewpoint of business operation to make right strategic move when needed (from data analytics to business development and product development).The only thing left could not be found here is the valuation skills of finance, then i can take it later via CFA (or something else) to qualify my self better to step into VC career.

    Can you give me advise on this ? is it possible track to follow?

    Tri

    • M&I - Nicole says

      - Yes you can learn the ins and outs of new products, and what you mentioned I believe. It does depend on the firm and the description of the role.
      – If you want to get into VC, a target MBA and startup experience will help. So you may want to found/being one of the early employees at a startup after the role at the tech firm. And you may find that you don’t want to go into to VC thereafter

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