by Brian DeChesare Comments (2)

The Venture Capital Principal: Pathway to Partner, or Career Purgatory?

Venture Capital Principal

If you’re considering a career in finance, you’re probably focused on the bottom (Analysts) and the top (Partners and MDs).

You need an entry point into the industry, but your real goal is to grind your way to the top by suffering through grunt work and long hours.

But you can’t just ignore mid-level roles, such as the Venture Capital Principal.

Even if you reach the top eventually, you’ll still spend many years in the mid-levels.

And, more importantly, there’s a good chance you won’t make it past this level – because promotions depend on luck and timing in addition to your achievements.

So, if you’re at all interested in venture capital, you need a realistic sense of your promotion chances and exit opportunities from this mid-level role:

The Venture Capital Principal Job Description

This article assumes that you already know what venture capital is, the basic outline of venture capital careers, and how to get into venture capital.

If not, start with those linked articles to get a sense of the industry.

If you look at the job descriptions of different VC roles, it might seem like Principals are a “mix” of Associates and Partners:

  • They still source and execute
  • They still support portfolio companies.
  • And they contribute to the firm’s brand-building, internal operations, and possibly even a bit of fundraising.

The main difference is that the percentage of time spent on these tasks differs.

Venture Capital Principals, similar to Investment Banking Vice Presidents, are in the “jack of all trades” business.

In practical terms, that means:

Principals vs. Associates – Both source and execute deals, but Principals do far less Excel, PowerPoint, and research; they tend to review Associates’ work and suggest changes.

Also, Principals lead the higher-level aspects of deal execution, such as negotiating terms in the final stages and reviewing due diligence assembled by other team members – not collecting it in the first place.

Principals vs. Partners – Principals spend more time working with portfolio companies on everything from operations to growth strategies to M&A. By contrast, Partners tend to spend less time on the day-to-day deal and portfolio company tasks and more time on fundraising, LP relations, and building the firm’s brand.

But the most important difference is that Partners get to approve or reject all deals the firm considers, while Principals do not.

As a side effect (or cause?), Principals also contribute less of their own cash into the VC fund and earn less in carried interest.

There are exceptions to some of these points because firms like Andreessen Horowitz (a16z) and Lightspeed call everyone a “Partner” – but that’s not how it works internally.

Also, some VC firms may give Principals check-writing power as well; in that case, they’re more like “Junior Partners.”

The bottom line is that there’s less consistency to job titles in VC than there is in PE or IB, so it’s best to think of the levels in terms of who can write a check and who cannot.

Venture Capital Principal Lifestyle and Hours

The average workweek is quite similar to an Associate’s, and it doesn’t change much as you move up: expect 50-60 hours per week, with a lot of meetings, some travel, and a fair number of events outside the office.

Although you’ll spend less time in Excel and PowerPoint than Analysts and Associates, much of that extra time will go into meetings and personnel issues.

There are also more emails and phone calls to stay on top of, as you’ll receive more inbound inquiries from entrepreneurs and industry contacts.

Venture Capital Principal Salary, Bonus, and Carried Interest Levels

Base salaries and year-end bonuses depend heavily on the firm’s size and age, but the total compensation range at the “average” VC firm is $250K – $400K USD.

And at very small firms, such as seed funds with under $100 million in AUM, total compensation could easily be in the $150K – $200K; you might also see numbers in the $200K – $250K range for funds with less than $300 million or so in AUM.

Base salaries represent 60-80% of total compensation, with bonuses accounting for the rest.

Investment Banking Associates and many Private Equity Associates earn total compensation in this range, so the VC Principal role is not that lucrative next to IB/PE roles.

Compensation is lower mostly because VC funds tend to be significantly smaller than PE funds, which means less in management fees.

Also, fund performance is far more variable, with huge differences between the top few firms and everyone else.

There is one other factor with compensation: carried interest.

Venture capital firms raise outside capital from Limited Partners, use it to invest in startups, and then distribute 20% of the profits from that investing activity to the firm’s employees.

The vast majority of this 20% profit percentage goes to the Partners, Managing Directors, and Managing Partners.

Generally, less than 5% of the total gets allotted to the Principals, which means a max of 20% * 5% = 1% of the fund’s investment profits.

That translates into 0.1% to 0.5% for each Principal, depending on the firm size and headcount.

Let’s assume that you have 0.5% of carry in a $100 million fund, which grows to $300 million by Year 10, when all the profits are distributed.

The investment profits are $200 million, and you get 0.5% of that, which is $1 million.

Since it took 10 years to deploy the fund and distribute the proceeds, that’s an extra $100K per year in total compensation.

So, it meaningfully adds to your total cash compensation, but it’s probably more of a 30-50% boost rather than a 2x, 3x, or 4x increase.

And this represents a great outcome because ~65% of VC funds generate a 0-1x multiple!

The bottom line is that carried interest can increase your total compensation as a VC Principal, but it’s unlikely to be a game-changer unless you stay there for over a decade and the fund performs very well.

How Do You Join or Get Promoted to a Venture Capital Principal?

It’s quite rare to enter the VC industry as a Principal because it’s in the middle of the hierarchy.

It’s much more common to join as a Post-MBA Associate and get promoted, or, in rarer cases, to enter as a Pre-MBA Associate and work your way up.

Sometimes, candidates with experience in product management at tech companies or startups break in at the Principal level, but only if they were quite senior in their previous corporate hierarchy.

The same goes for roles like sales, business development, and operations: it’s possible to move from there to the VC Principal level, but it’s not probable.

At the other extreme, if you were the Founder or CEO of a highly successful startup or a senior executive at a big tech company, you’d probably enter venture capital as a Partner instead.

To advance from Associate to Principal, you need to prove that you can:

  • Execute Deals – This includes all the due diligence, legal work, market research, team evaluation, and negotiation of terms.
  • Source Good Deals – You’ll also need a track record of finding new companies to invest in, followed by solid exits or substantial valuation increases.
  • Solve Portfolio Companies’ Challenges – These include everything from helping them build their teams to executing growth projects and M&A deals.

The main reason to do the Principal job is that your long-term goal is to reach the Partner level.

This is an important point because there aren’t that many exit options if you decide against it or fail to get promoted.

The main one is to take an operational role at a startup or tech company, but you’re unlikely to get into IB, PE, or other investing roles directly from VC unless you’ve had previous experience in one of them.

Growth equity is a “maybe,” depending on the firm, strategy, and how closely related your experience is.

A Day in the Life of a Venture Capital Principal

An average day depends on your firm’s size, strategy, and industry/deal focus, but if it’s a mid-sized, early-stage, tech-focused firm, it might look like this:

8 AM – 9 AM: You arrive at the office, check your email, and request a few updates from your Associates and Analyst on deliverables.

9 AM – 11 AM: You have back-to-back meetings (virtual or in-person) with startups in various stages of pitches. One or two seem promising, but most of the others seem derivative or confused about the market they’re targeting.

11 AM – 12 PM: You dial into a Board meeting for a fintech portfolio company that has been struggling to recruit sales talent and win larger enterprise accounts.

You suggest some recruiting strategies and then promise to make introductions to the CEO and VP of Sales afterward.

12 PM – 1 PM: You go to lunch with one of the Partners to catch up on recent deals and portfolio company news.

But you’re also there to get clues on your chances of being promoted within the next few years, which means paying close attention to off-the-cuff comments about your deals.

1 PM – 2 PM: You meet with another two Partners to pitch a deal you’ve been leading for the past few weeks.

This one’s for an e-commerce company with the best unit economics you’ve ever seen, so you spend your time justifying the numbers, which are almost too good to be true.

2 PM – 3 PM: You step out to help one of the Associates with a flow-of-funds schedule for a portfolio company that’s being sold.

It’s tricky to figure out the right amount of proceeds for each investor group because the company has a confusing capital structure, with multiple uncapped convertible notes and preferred stock issuances.

3 PM – 5 PM: You go to another portfolio company Board meeting, this time reviewing the company’s disastrous results from Q3 of this year. They missed their revenue target by 50%, and everyone wants to blame someone.

You’re there to defuse the situation and help them figure out if they need to hire or fire people to get back on their growth trajectory.

5 PM – 6 PM: Back at the office, you interview two candidates for Senior Associate roles. One comes from a product management role at a big tech company, and the other is currently in a top MBA program.

6 PM – 8 PM: Your firm is hosting a dinner/networking event for your portfolio companies, so you head out to attend and introduce yourself to the founders and executives you don’t already know via your Board seats.

It’s a 12-hour day that’s heavy on meetings, putting out fires, and managing rather than doing the work directly.

How to Succeed and Get Promoted to Partner

You can often “grind your way up” from entry-level roles to the mid-levels in the finance industry.

But that stops working once you become a Principal because you’re judged based on your results, not your hours worked.

Holding calls with 25 startups in a week is pointless if all 25 are mediocre and lead to nothing; it would be much better to focus on the top few companies instead.

To advance, you need to prove yourself with deal sourcing and investment judgment.

The challenge is that many companies take 5-10 years to achieve an exit, but you’ll probably only be in the Principal role for 3-5 years.

Therefore, you need a track record of solid incremental results to make a case for yourself.

These results might come in the form of companies increasing their valuations in later funding rounds, significantly growing their revenue, or, in life sciences, completing clinical trial phases.

While team-building and deal execution are nice, they’re usually not significant enough to justify a promotion.

You need at least a few deals that have performed well (e.g., 5-10x potential returns) or cases where you’ve turned around a portfolio company or solved a big problem.

Each additional Partner means a lower carried interest percentage for the existing Partners, so everyone needs to feel confident you’ll be a net addition.

Finally, it’s always easier to advance when your firm is expanding significantly or raising new funds or when existing Partners retire or get forced out.

Since venture capital is a relatively cushy job at the top, though, it’s wiser to bet on the “expansion / new fund” case for your own advancement.

Is the Venture Capital Principal Job Right for You?

As with all mid-level finance jobs, this isn’t the right question.

The right question is: “Do you want a long-term career in venture capital, or, if that doesn’t work out, an operational role in startups or other tech companies?”

If the answer is yes, you have a good reason to aim for VC Associate roles and then advance to the Principal level.

If the answer is no, you should reconsider your career choices.

For example, if you’re considering VC because of money, ease of advancement, a good lifestyle, or exit opportunities, these are all bad reasons.

You could get better results in any of those areas by pursuing other fields in the finance industry; to succeed in VC, you must love finding and working with startups.

If that’s you, the Venture Capital Principal role will be more of a pathway and less of a purgatory.

M&I - Brian

About the Author

Brian DeChesare is the Founder of Mergers & Inquisitions and Breaking Into Wall Street. In his spare time, he enjoys memorizing obscure Excel functions, editing resumes, obsessing over TV shows, traveling like a drug dealer, and defeating Sauron.

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  1. Unless you join a handful of tier 1 firms, are lucky/smart enough to pick a soon-to-be tier 1 firm, or come in at the partner level, VC doesn’t sound like the promised land it’s often made out to be…

    1. Yes, this is true. Any finance role is heavily slanted toward the people at the top and the “top” firms, but VC is by far the worst. At least in areas like PE, you can still earn a lot and advance even if you’re at a lesser-known firm. But in VC, the returns are so disproportionately distributed that lower-tier firms aren’t really worth it.

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