| The Job: | | | | Before jumping in, however, would-be VCs should be |
| What do venture capitalists do? Venture capitalists | | | | realistic about their expectations from this job. |
| invest money in start-up companies to help fund the | | | | "People sometimes have a glamorized vision of this |
| development of new products or services In return, | | | | industry," says Mhatre. Spend some time with a |
| they receive a stake in each company they help | | | | venture capitalist and see what the day-to-day rigors |
| finance. If the start-up company succeeds, the | | | | are like. "There are some terrific highs in this |
| venture capitalists who back it realize a profit. Very | | | | profession but you also work very hard without |
| simply then, a venture capitalist has four basic job | | | | immediate feedback," he adds. Like physicians, the |
| functions: | | | | notion of being "on-call" is a very real one...except |
| * Finding the deals-Seeking out good private start-up | | | | venture capitalists are always on-call and always need |
| companies to invest capital | | | | to be responsive to their entrepreneurs. "Successful |
| * Winning the deals-Convincing the entrepreneurs | | | | venture capitalists tend to be able to multi-task and |
| that the VC money will bring the most value-add to | | | | are generally intellectually curious. They also tend to |
| the start-up | | | | be high energy, whether this is veiled by a more |
| * Working the deal-Collaborating with the | | | | casual demeanor or not," Ahuja concludes. |
| entrepreneurs to make the company a big success. | | | | Getting Started |
| * Raising the Capital - Raising the capital to invest in | | | | Pick up any major metropolitan newspaper-you'll be |
| these companies | | | | lucky if you see a job listing for a venture capitalist. |
| Unlike angel investors, who put in from $250,000 to | | | | "This is a mentorship-driven business," explains |
| $500,000 into companies to help get their business | | | | Mhatre. The way to get an entry is as untraditional |
| plans and market research done, venture capitalists | | | | as the profession itself. Some venture capital firms |
| typically invest from $5 million to $50 million. "So they | | | | like to hire technical people as consultants and |
| have their skin in the game in terms of ownership," | | | | advisors and that is one way to learn the business. |
| explains Atul Kapadia, a managing director at Infinity | | | | Other venture capital firms have something called an |
| Capital, a venture capital firm based in Palo Alto, | | | | Entrepreneur Residence program. They invite |
| California. Therefore, a venture capitalist's role goes | | | | directors, VPs or CEOs of different companies to join |
| much deeper than making mere equity investments. | | | | their company under this program and use the firm's |
| "Venture capitalists are active advisors to their | | | | resources to research and evaluate the market, build |
| portfolio companies on issues ranging from operations | | | | networks and leverage opportunities. If this proves |
| to strategy. They support entrepreneurs and | | | | to be a successful partnership, they often land the |
| management teams during the growth phase of a | | | | job of a venture capitalist. A third way to try to |
| company through their own efforts and extension of | | | | enter the industry is by getting an MBA from |
| their network," explains Anju Ahuja of the | | | | Stanford or Harvard University, since most of the |
| Chicago-based First Analysis Venture Capital firm. | | | | venture capitalists are alumni of these two schools. |
| Whether it is finding and hiring the right talent at | | | | "Work at a start-up, get noticed and jump into |
| short notice, identifying the best bankers for an | | | | venture capitalism," Mhatre says. |
| equipment lease line, or getting an introduction to the | | | | Getting Ahead |
| first key customer, venture capitalists have the ability | | | | To get ahead in this game, "network, network, |
| to open the first few doors for their portfolio | | | | network," Mhatre states emphatically. Focus on a |
| companies. | | | | specific domain and become an expert in it. "At least |
| The Successful Venture Capitalist | | | | one area has to be a leading indicator for you," says |
| Relatively few recruits to a venture capital career | | | | Mhatre. But whatever your path, once you gain an |
| come directly from the university. Sure, a BE, MBA, | | | | entry, you should learn by working closely with |
| or CPA will provide a useful foundation for venture | | | | people who have had experience. Unlike other |
| work. "But if you understand emerging technologies | | | | traditional careers like engineering or high-tech |
| and market fundamentals, if you are really motivated | | | | marketing, this profession has a less crisply defined |
| to help other people succeed and if you have an | | | | career ladder. Over time, a venture capitalist will |
| intellectual curiosity about new ideas, you are well | | | | progress in terms of level of credibility and |
| suited for a career in venture capital," says Mhatre. | | | | responsibility. He or she may join the firm as an |
| Historically, venture capitalists came from operating or | | | | associate, and over time, advance to become a |
| finance backgrounds. More recently, individuals with | | | | general partner, a managing director, a VP, president |
| technical backgrounds plus strategy and corporate | | | | or CEO. |
| development experience have become active | | | | The money in this business is good. "Money is never |
| venture capitalists. Each of these backgrounds | | | | the problem; its about how much value you add and |
| provides a unique and beneficial perspective although | | | | what companies do you build," says Kapadia. If you |
| "it is becoming more difficult for individuals with pure | | | | are good at what you do, there is no discrepancy in |
| finance backgrounds alone to differentiate | | | | how much a person with a technical versus |
| themselves and provide the depth in strategic | | | | non-technical background can make in this profession. |
| guidance and operating support that entrepreneurs | | | | "Mike Meritz, a journalist by profession is just as |
| seeks," says Ahuja. This is especially true for | | | | successful in venture capital as Vinod Khosla, an |
| early-stage venture capitalists because start-ups are | | | | engineer," says Mhatre. |
| looking for business and strategy advice. "People with | | | | Typically a venture capitalist gets 2 percent of the |
| financial engineering and investment banking are a | | | | total fund to manage it. An associate with 2 to 3 |
| good fit for later stage companies," she adds. | | | | years' market experience before or after an MBA |
| Certain sectors of the market, such as fabrication or | | | | may easily make from $100 to $200 thousand, a |
| telecommunication, that absolutely require technical | | | | general partner may net from $200 to $300 |
| knowledge. In these cases, an engineering degree or | | | | thousand and the top honchos may rake in upwards |
| technical experience is invaluable. "Domain knowledge | | | | of $500 thousand annually," states Purkayastha, |
| is everything in these markets. I've spent the last | | | | cautioning that is just a general, ball park estimate of |
| two years of my life understanding the data | | | | compensation. Ahuja, Purkayastha and Mhatre |
| communications market," says Kapadia. For markets | | | | suggest looking up the December 1998 issue of the |
| like e-commerce, a non-technical background is okay | | | | Venture Capital Journal for compensation statistics. |
| so long as the venture capitalist is deeply connected | | | | "You don't succeed in this business for the love of |
| within the industry. "But you must also understand | | | | money," says Mhatre. Ninety to ninety-five percent |
| that a venture capitalist will never know as much as | | | | of compensation is tied to the performance of the |
| the entrepreneur he is backing so business | | | | investments your venture group makes. |
| experience is very important. An MBA from a top | | | | The Hot Spots |
| notch university or solid on-the-job training would be | | | | In the US, the Silicon Valley still remains the best |
| a big plus for a venture capitalist," adds Dev | | | | market for venture capitalists. New York, Boston, |
| Purkayastha, a 19-year veteran venture capitalist | | | | Seattle, Atlanta and the mid-west have also started |
| from southern California, who is about to form his | | | | reaching a critical mass. "The markets are more |
| latest fund. "Some companies are attractive for their | | | | conservative in the east coast and things don't move |
| technology, but most companies live and die by sales | | | | with the same velocity as in Silicon Valley," says |
| and marketing strategies. Without a solid market | | | | Mhatre-but stresses that these areas have good |
| approach and unique points of differentiation, the | | | | markets as well. According to the |
| best technologies will never reach their full potential," | | | | PriceWaterhouseCoopers Money Tree Survey for Q2 |
| Ahuja says. "While a technical background is quite | | | | 1999, Silicon Valley led all regions in total venture |
| helpful, the ability to refine business models and work | | | | investments, with 35 percent of all Q2 dollars going |
| through corporate development issues is necessary," | | | | to bay area companies. The highest growth rates by |
| she adds. But, says Mhatre, whether your | | | | region between Q2 of 1998 and 1999 were in New |
| background is technical or non-technical, "someone | | | | York Metro with 322 percent growth, New England |
| with experience with startup companies, marketing | | | | at 177 percent, and Los Angeles/Orange County with |
| and operating experience, and an MBA degree would | | | | 167 percent growth. Only the Southeast trailed Silicon |
| be a good candidate for a venture capital job." | | | | Valley's 115 percent growth with a 47 percent |
| In this business, personality is just as important as | | | | increase. |
| professional background. "Above everything, the best | | | | "These different geographic markets tend to have |
| suited traits for a VC are good interpersonal skills and | | | | different industry focuses. As a result, the venture |
| a good network. You should be able to co-exist and | | | | firms in these markets tend to have a perspective |
| lead your entrepreneur while adding positive energy | | | | that is unique to that region," says Ahuja. |
| within your partnership," Kapadia emphasizes. "You | | | | Like venture capital itself, venture capitalists will be in |
| have to be passionate about what you do," agrees | | | | demand for a long time to come. "Many people |
| Purkayastha. "At the same time, you have to have a | | | | debate the nature of market activity with the |
| little bit of detachment to maintain a level of | | | | dramatic number of start-ups, consolidations, mergers |
| objectivity in monitoring your investments," he adds. | | | | and acquisitions. But few will truly dispute the amount |
| "Ideally, venture capitalists should be extremely open | | | | of market activity to come," says Ahuja. "We're so |
| minded," says Ahuja. They must balance playing a | | | | blessed with creativity in this country, that as long as |
| visionary role along with identifying processes and | | | | entrepreneurialism is alive and well, the demand for |
| methodologies that help young companies grow. "This | | | | venture capital is going to be insatiable," states |
| is a people business. Venture capitalists don't invest in | | | | Purkayastha confidently. So if you're smart, well |
| business plans or concepts, they invest in teams with | | | | qualified, driven, resourceful, people oriented, have |
| visions and skills to make those visions a reality," she | | | | nerves of steel and a heart of gold, and can be |
| explains. As a result, venture capitalists must be able | | | | passionate about success, this might just be the |
| to work with diverse personality types. | | | | career for you. Care to capitalize on this venture? |