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Venture Capital
Career Primer
20162017
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What do the data say about

venture capital recruiting?
Percentage of the MBA Class of 2015 Taking Venture Capital Jobs
4%

3%

2%

1%

0%
Stanford MIT Sloan* Yale* Wharton Dartmouth Duke Fuqua* UCLA Northwestern Columbia
Tuck* Anderson* Kellogg

*Includes private equity

Source: School employment reports

Compensation for Venture Capital Positions

$200,000 Average annual base salary Average signing bonus
~$168,360
~$149,270
$150,000

$100,000

$50,000

$0
Average Venture Capital Post-MBA Average Post-MBA

Source: School employment reports

Although venture capital (VC) jobs are in demand, opportunities for MBAs are fairly

scarce within the industry. Only a small percentage of students from top-ranked

MBA programs enter the industry immediately after graduation.

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Rohan Manchanda

The Org Chart

As an MBA, you will likely interview for a senior associate role. VC teams are

generally small and have open cultures, where the voices of even the most junior

staff carry weight in the investment process. Some firms rely heavily on senior

associates to source potential investments, while other firms expect them to focus

on internal duties (e.g., conducting market research, reviewing business plans,

creating investment memorandums). At the partner and principal levels, you will

be responsible for fund-raising, signing off on all investments, and steering the

direction of the firm.

Partner
Significant carried interest; time to promotion varies

Principal
Post-MBA role (35 years)

Senior Associate
Post-MBA role (23 years)

Associate
Pre-MBA role (23 years)

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Rohan Manchanda

What is the job?

Venture capital firms invest in young, high-risk, high-potential companies. VC

investors think bigafter all, their job is to discover the next blockbuster company

like Facebook or Google. Using pools of capital raised by third-party investors

(typically pension funds and high-net-worth individuals), VC firms take ownership

stakes in young companies, with the hopes that those companies will ultimately

be acquired or go public via an IPO (initial public offering). An acquisition or an

IPO, however, is a special milestone that only a small percentage of start-ups

will ever achieve. In fact, according to Harvard Business School (HBS), 75% of all

venture-backed companies do not return investor capital. The business model

works because the small percentage of companies that do succeed generate cash

windfalls for the VC firm that more than offset any losses. VC investors can expect

to earn returns of 1020 times, if not more, on their top investments.

VC investors do a lot more than just write checks, however. In addition to

infusing capital, VC firms add value to their portfolio companies through active

participation in management. Large investors will often take a seat on the

companys board of directors, but all will serve as advisors to the companys

leadership team. Many VC investors, in fact, have experience starting or working

within start-ups, so they can help young founders make accurate judgment

calls. Moreover, they are advocates for their portfolio companies. They are well

connected and can help facilitate customer introductions, establish partnerships,

and spread the word. VC investors even assist companies with finding other

investors. They almost always invest in companies alongside other VC firms (a

process known as syndicating) to mitigate risk.

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Rohan Manchanda

No, really, what is the job?

All this sounds pretty sexy, but what do VC investors actually do?

The VC investor role is a diverse one. It combines elements of consulting and finance, and it requires building

relationships with entrepreneurs and other investors. We asked a wide range of VC investors how they spend

their time. The following chart summarizes their responses.

Investment
Memorandums
Due Diligence 15%
50%

Portfolio
Support
15%

The Role of a
VC Investor
(% of time spent on each task daily)

Out-of-Office
Networking
15%
Other Management
and Administrative Tasks
5%

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Due Diligence (50%) Portfolio Support (15%)
VC investors use the due diligence process to As mentioned, money is only one of the many assets

decide whether or not to invest in a company. This VC firms provide for their portfolio companies. VC

process can be broken down into two activities. investors advise their companies on ways to grow.

The first is meeting with founders and reading their This support can range from helping the company

business plans. VC investors typically meet with prepare for an important presentation to making

the management teams of two or three companies introductions to potential customers and building

per day. However, because of the high volume and the companys financial models.

varying quality of start-ups, investors usually only

meet with teams that have been referred to them by Out-of-Office Networking (15%)
other firms and trusted people in their network. VC operates within a small, tight-knit community.

Firms almost always co-invest on deals.

The second due diligence activity is market Consequently, maintaining good relationships with

research. VC investors spend a significant amount other VC firms and staying close to entrepreneurs is

of time sizing the market of a potential investment, a must. Expect happy hours and dinners out during

defining current and potential competitors, and the week.

understanding industry trends that are critical to

making a sound investment. Consulting skills help Other Management and

VC investors tremendously in this activity. Administrative Tasks (5%)
From organizing paperwork to helping manage

Investment Memorandums (15%) calendars, a VC firms junior staff is often

An investment memorandum is a formal proposal responsible for making sure day-to-day operations

that is prepared for the VC firms partners or are in order. This might include serving as a liaison

investment committee and that details the rationale with the firms lawyers, following up with potential

behind, financial plan for, and possible returns of entrepreneurs, and sending updates to investors on

a potential investment. When a VC firm believes a the firms performance.

company is a good match for its portfolio and is

ready to invest, the junior staff at the firm will put

this document together.

What about work hours and travel?

In a regular week, a VC investor may work 4050 hours, but that number can double if the company must close

on an investment (or multiple investments) quickly. VC firms typically like to invest in companies that are

geographically close so they can more easily keep an eye on them. However, a firm might take an interest in a

company in another city if it strongly believes in the companys potential. Investors at certain East Coast VC

firms travel to San Franciscothe worlds start-up hubon a monthly or sometimes weekly basis to meet with

the leadership teams who represent potential investments and to keep abreast of the latest trends.

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What is good about

the job?
VC is one of the most desirable industries to enterand for good reason. At most

firms, you will be given immense responsibility in your first six months, including

screening start-ups and making investment recommendations while conducting

financial analyses and other due diligence behind the scenes. This exposure to

hundreds of companies will help you think critically as an investor and position

you as a thought leader on a handful of industry trends.

A job in VC has five key benefits:

A front seat to the latest innovations

A high-powered network of VC investors and entrepreneurs

An opportunity to get involved in helping a company grow

Generous compensation and benefits

A great work/life balance (compared with investment banking, consulting, and

private equity)

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But surely the job has

pain points, right?
A VC role does have some potential drawbacks:

An uncertain career path: The potential to be promoted usually

exists only if individual performance is strong and the company

decides to raise another fund.

A top-heavy organizational structure: Usually a small junior team

does most of the work and must be comfortable with a high degree

of multitasking and flexibility.

Long hours: Evenings are often spent networking with

entrepreneurs and members of other VC firms.

Pay based on a funds long-term success: VC investors must wait

several years to receive their bonus payout (known as carried

interest) for a fund. To realize carried interest, an investor often

must remain with the fund for its entire life-span (seven to ten years).

Cross-country travel (especially for East Coast VC investors)

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What are the

characteristics of
VC firms?
VC firms come in many different shapes and sizes, and no two are really alike.

Fund Size Geographical Focus

(e.g., Small <$100M vs. Large $1B+) (e.g., United States vs. India vs. Israel)
How much money does the fund manage? Where does the fund invest its money?

Sector Stage
(e.g., Health Care vs. IT vs. Cleantech) (e.g., Series Seed vs. Series A vs. Series B)
In what types of companies does At what stage does the company
the fund invest? invest its money?

Stage Stage Attributes Investment Size

Seed The founding team is established. $500K$3M

The company generally earns little to no revenue.
Usually a basic version of the product has been produced.

Series A The company generally earns low revenue but is growing rapidly. $1.5M$10M
The core management and operational team is assembled.
The first edition of the product is out.

Series B Revenue is fairly substantial, but the firm is often unprofitable. $5M$20M
The company is grown up and is no longer composed of a small
team.

Series C The company is profitable. Varies

(and after) The company is seeking funding for a major expansion.

Source: Columbia Business School Private Equity & Venture Capital Club, 2013

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Who are the big fish?

West Coast

Company Year Founded Headquarters Funds Raised Selected Investments

Facebook
Groupon
1983 Palo Alto, CA $19.56B Dropbox
Spotify
Kayak

Skype
Twitter
2009 Menlo Park, CA $4.35B Instagram
Airbnb
Oculus Rift

Marin Software
OpenTable
1995 San Francisco, CA $1.25B Snapchat
Yelp
Juniper Networks

Amazon.com
AOL
1972 Menlo Park, CA $2.68B Flextronics
Google
Netscape

Airbnb
Apple
1972 Menlo Park, CA $4.12B Google
LinkedIn
YouTube

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East Coast

Company Year Founded Headquarters Funds Raised Selected Investments

LinkedIn
Skype
1911 New York, NY $3.2B Staples
VeriSign
Yelp

Uber
Square
2004 Philadelphia, PA $563M
Warby Parker
Mint

Facebook
Menlo Park, CA LinkedIn
1965 (large office in $2.5B Airbnb
Cambridge, MA)* Cloudera
Pandora

MongoDB
Workday
1977 Chevy Chase, MD $9.25B Groupon
Salesforce.com
Box

Foursquare
Kickstarter
2003 New York, NY $791.8M Twitter
Tumblr
Zynga

*Note: Although Greylock was founded in Menlo Park, California, Source: Venture capital firm Web sites, CB Insights database,

the company has become an important player in East Coast VC. and CrunchBase database

Pro Tip:
Fred Wilson, the founder of Union Square Ventures, has a daily blog

(www.avc.com) that is read by the vast majority of VC investors. He is

considered a celebrity within the industry.

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Who are other notable players

in this space?
Many successful VC firms are located across the United States and focus on different stages (see page 11) or

sectors (e.g., technology, biotechnology). Unlike the consulting industry, which has a clearly defined top three

firms, VC encompasses dozens of prestigious establishments. The field also includes strategic investors,

such as GV (formerly Google Ventures) and Bloomberg Beta, which are investment groups that operate within

larger organizations. These groups act and look very similar to other VC funds. However, they usually operate

independently from their parent company.

Venture Capital
Stage Agnostic

West Coast East Coast

Later Stage
Earlier Stage

Strategic

Source: LUMA Partners

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Where are U.S. VC

firms investing?
San Francisco, Boston, and New York are the most important VC hubs in the United

States. The three combined account for more than 60% of all VC investments.

Top 20 Locations for VC Investments

Rank Metropolitan Area Dollars Share of

(listed by core city) (millions) Total Dollars

1 San Francisco-Oakland, CA $6,896 25.6%

2 San Jose-Sunnyvale, CA $3,985 14.8%

3 Boston, MA $3,101 11.5%

4 New York, NY $2,269 8.4%

5 Los Angeles, CA $1,677 6.2%

6 San Diego, CA $1,134 4.2%

7 Seattle, WA $886 3.3%

8 Austin, TX $626 2.3%

9 Chicago, IL $547 2.0%

10 Washington, DC $484 1.8%

11 Philadelphia, PA $347 1.3%

12 Denver, CO $264 1.0%

13 Atlanta, GA $262 1.0%

14 Boulder, CO $256 1.0%

15 Minneapolis-St. Paul, MN $256 0.9%

16 Santa Barbara, CA $251 0.9%

17 Phoenix, AZ $214 0.8%

18 Raleigh-Cary, NC $184 0.7%

19 Pittsburgh, PA $167 0.6%

20 Provo-Orem, UT $162 0.6%

Source: The Atlantic, June 17, 2013

15
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How do the
economics of a VC
firm work?
VC economics typically focus on management fees and carried interest.

Let us explore the economics of a fund, using a $100M fund as an

example.

The fund will charge an annual 2% management fee of the fund size to

cover salaries, legal expenses, and other day-to-day operating costs.

This totals $2M per year.

It also charges a one-time 20% carried interest fee at the end of the

fund. Carried interest is the share of the funds profits split among

the investment team. This, of course, varies based on the funds

performance, and most of the carried interest is allocated to the VC

firms partners. Suppose a fund has a 4x return. Carried interest would

then be ($100M x 4) $100M (initial investment) x 20%. This totals $60M

in carried interest.

As we noted earlier, compensation for a post-MBA associate varies

widely by firm, but an average base salary is $110K$150K with a bonus of

$50K$100K.

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How do I get the job?

More than one path is available to becoming a VC
investor

VC funds favor applicants with start-up experience (especially those

who have founded a company) and engineering backgrounds. VC firms

prefer individuals with these backgrounds because they have firsthand

experience founding a company and have been through the learning

process of building and scaling a company. Many former consultants and

investment bankers work in VC because the roles are similar. Bankers

bring financial modeling expertise, while consultants are able to quickly

understand and assess market landscapes.

No formal recruiting process exists because most

VC firms have small teams

Do not expect to attend corporate presentations or receive emails from

recruiters. VC firms hire on-time, meaning when someone leaves the

company or when the company raises a new fund. Unlike consulting or

investment banking recruiting, wherein new full-time employees are

hired each fall, VC recruiting occurs on an ad-hoc basis. Candidates hear

about opportunities by word of mouth because many companies do not

necessarily post formal job listings on their Web sites. Networking is

vital in this industry. Successful VC applicants are familiar faces in the

entrepreneurship community. They attend tech meet-ups, are active

on Twitter and other social media outlets, and have crossed paths with

local VC investors and entrepreneurs. Discovering the next big company

requires that you live and breathe the local start-up scene, so VC firms

want to see that you are well connected. Staying top of mind will help you

secure that coveted VC spot when it becomes available.

17
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Rohan Manchanda

Interview Sample
Questions and Advice
Here are five tips for successful interviewing:

1. Be familiar with a funds portfolio, which is always listed on the firms

Web site. Which companies within it do you like and why?

2. Stay on top of the latest tech news. The Web site TechCrunch is a

great starting point.

3. Have a point of view on the industry. In which start-ups would you

invest and why? What industry trends are you observing?

4. Be prepared for technical questions. Understand capitalization

tables (tables outlining the ownership of founders, employees, and

investors after each injection of funding, also known as simply cap

tables) and general ways of valuing start-ups.

5. Never wear a suit. VC investors work with entrepreneurs, who are

typically informal. Keep your attire smart casual. Slacks and a dress

shirt would be appropriate. Depending on the fund, you may find the

team to be dressed even more casually.

If VC is your chosen industry for a summer internship or post-MBA

position, get started now building your network, conducting informational

interviews with classmates and friends at target firms, creating a VC-

targeted resume, and preparing for interviews. To learn more about how

an MBA Career Coach can assist you in securing a VC position by guiding

you effectively through each step of the recruitment process, schedule a

free consultation with us at www.mbamission.com.

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Your Post-MBA Career

Starts Whether you are entering

business school this fall,
writing your applications, or

Now!
just starting to look at MBA
programs, now is the time
to start thinking about your
long-term professional path.

Explore your options and learn about typical

post-MBA fieldsincluding consulting, investment
banking, and private equityby downloading our
free Career Primers.

Visit the mbaMission blog for posts on effective

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standout cover letters, assembling a strong resume,
and other valuable tips.

For help defining and preparing to execute your

personal career plan once you have been accepted
but before you even set foot on campus, sign up for
a free 30-minute consultation with one of our Career
Coaches: www.mbamission.com/careerconsult/.

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