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Career Profile: Venture Capital

NOTE:   To get the most from this profile, we recommend that before you read it you take these three career assessments (all available here on MyPath):

  • The Career Themes Inventory

  • The Career Abilities Inventory

  • The Career Motivations Inventory

You will find a link to these assessments in the expanding window on the right side of this page. Just click on the double arrow in the middle of the window to find the link.

OVERVIEW

Venture capitalists arrange the financing of new businesses from nonpublic sources -- typically private investors or organizations that want to invest in business opportunities unavailable in the public equities (stock) markets. They seek out new companies (or business plans describing ideas for new companies) that offer exceptional promise. They are also responsible for finding investors (limited partners) to participate in the firm's funds.

Venture capitalists work to ensure that their portfolio companies continue to receive the funding they need and expert advice necessary to become a stable and competitive business. They try to increase the value of their firm's portfolio companies and eventually sell the companies, or help them "go public" with an initial public offering (IPO) of publicly traded stock. Both of these moves can substantially increase the value of the equity that the VC firm holds.

Venture capital firms tend to be quite small compared to other types of financial services firms. They're staffed by talented financial services experts. Moreover, they tend to recruit employees through networking rather than through more formal and public hiring channels.

Venture capitalists enter the field in two ways:

  • Some start off as analysts. As their major responsibility, they review business plans and identify those few proposals that the firm's principals may want to consider for investment.

  • More commonly, they enter the field "laterally" from related deal-oriented financial services industries (such as investment banking); from management consulting; or from the managerial level in an industry that interests the hiring venture capital firm.

Regardless of the manner of entry, the goal is to become a principal of your firm. As a principal, your compensation largely depends on the profitability of the deals you've initiated and completed. For example, suppose your firm invests in one of your deals -- whether it's a fledgling company with no product or an existing company seeking a second or third round of financing. If the investment generates a substantial profit, you get an agreed-upon portion (the "carry") of that profit.

Some people have described the role of the venture capital professional as a cross between the "deal-maker" role of the investment banker and the "business-maker" role of the entrepreneur -- with perhaps more emphasis on the "deal-maker" dimension. Successful venture capitalists must, first of all, find a good deal. This often means looking over as many as two hundred potential deals in any given business area before choosing one to invest in. One venture capital professional we know said, "I'm not doing my job unless I'm on the telephone for most of the day." Venture capitalists must therefore be skilled networkers and communicators. Having a "big Rolodex" is a major asset in this profession.

Once a venture capitalist identifies an attractive deal, he or she needs to get other people within that firm on board, and then often works to structure the deal with:

  • other venture firms

  • the founders of the company being financed

The venture capitalist works to align the interests of all these parties so that the investment effort will serve the ultimate good of the portfolio company and the investors. Because these negotiations are complex and time-consuming, the investment professional needs a lot of patience, perseverance, and psychological insight, as well as strong negotiation skills.

Once the deal has been structured and executed, the hardest work lies ahead: making the portfolio company succeed. Venture capitalists typically take positions on the boards of directors of their portfolio companies and help guide their management.

However, many people mistakenly believe venture capital professionals take an active role in helping to manage portfolio companies' operations. Usually they don't. Venture capital firms often bring new managers to their portfolio companies -- but these are typically seasoned managers who have substantial experience in operating roles within the portfolio company's industry. So, don't assume that getting a job in venture capital will give you experience in managing a small company. Venture capitalists indeed serve as good networking contacts for leads to operating jobs in small companies, but they rarely move into those roles themselves.

TEST DETAILS

Interests

NOTE:  We recommend that you take the Career Themes Inventory (if you haven’t already done so) before you read this section.

You won’t find many venture capitalists who don’t have a strong interest in the Finance Career Theme, but that isn’t the only theme most venture capitalists are interested in.  Successful venture capitalists have to raise funds from investors, so they’re going to be interested in Public Presentation and Sales. They also at times have to persuade entrepreneurs that they should accept financing from their firm rather than from someone else, and they have to persuade their partners in their own firm that the ventures they want to back are going to pay off — so these two interests are doubly important.


They provide strategic advice to the CEOs of their portfolio companies, and they are in charge of managing their own investment deals. As a result, venture capitalists usually have a strong interest in the Strategic Leadership Career Theme.


Some venture capitalists get into this career by leveraging their deep domain expertise (usually in a technical area), and so may have a strong interest in Engineering and Science.  But there is a reason they become venture capitalists rather than continuing to work as engineers or scientists, so it is unlikely that their interest in this Career Theme will be as strong as it is in those already mentioned.


Finally, venture capital is a career  with very little structure to it. A strong interest in either the Leadership in Structured Environments or Office and Administrative Work Career Themes is a signal that this career is unlikely to be a good fit.

Motivators

NOTE:  We recommend that you take the Career Motivations Inventory (if you haven’t already done so) before you read this section.

Venture capital offers numerous rewards:

  • Financial Gain: By assuming the risk of investing in early-phase businesses, venture capitalists position themselves for exceptionally high return on their investments.

  • Power and Influence: Senior members of venture capital firms make major decisions about whether a particular venture will get funded. They can also strongly shape the future direction of companies in their portfolio.
  • Autonomy: Although venture capitalists work together in teams and engage in a lot of alliance building, they have substantial independence on a day-to-day basis, particularly at the level of principal.
  • Variety: People who work in this profession are constantly reviewing and developing new ventures, thus their responsibilities are highly varied.
  • Prestige: Venture capital can offer a fair amount of prestige. In general, venture capital work holds significant cachet for many businesspeople.
  • Intellectual Challenge: The work of identifying exceptional business investment opportunities offers professionals in the field a great deal of mental stimulation.

A cautionary note: Venture capital doesn't tend to provide a high-quality lifestyle. When these professionals are putting together a major deal, they often work long hours. They also travel frequently to portfolio sites. Still, the environment in a venture capital firm is likely to be somewhat more lifestyle-friendly than that of an investment bank or a management strategy consulting firm -- at least in terms of the control people have over their hours at the higher career levels. The quality of lifestyle offered also depends on the culture of the particular firm you work for.

Abilities

NOTE:  We recommend that you take the Career Abilities Inventory (if you haven’t already done so) before you read this section.

The abilities we discuss here are those that we view as being most important to success in this career.  Of course, any specific position with any specific company may call for additional abilities—or not require as much of one or more described below.  In addition, as you progress to higher levels within many careers, what you are doing, and so the abilities you need to succeed, will change.  You’ll be less involved with doing and more involved with leading and managing.

The fact that an ability is not listed below may mean that you don’t need it—at all.  On the other hand, it may be that you need it, but to a lesser extent than those shown here.  And if you have a real deficit in certain abilities (such as being able to inspire others’ trust), this will cause you trouble in almost any career.

Successful venture capitalists are accomplished business analysts, financial analysts, deal makers, and business consultants. They excel at identifying good investment opportunities, recognizing opportunities that others don't see, and weeding out the strong business plans from the weak. Therefore, they need strength in all of the Problem Solving abilities:

  • Creative Thinking: Able to think creatively, generating new ideas and approaches to situations

  • Critical Thinking: Able to think critically (define a problem and determine the information needed to solve it; understand unspoken assumptions; form and test hypotheses; and judge the validity of conclusions)

  • Quantitative Analysis: Skillful in using quantitative analysis to understand business issues

  • Quick Thinking: Picks up new ideas and processes new information quickly and easily

  • Strategic Thinking: A strategic thinker: able to grasp the big picture and think long-term

These professionals' success also depends on the following skills from the Taking Initiative group:

  • Action Orientation: makes sure that decisions are implemented

  • Comfort with Risk: Takes risks when appropriate, isn’t afraid to innovate and experiment       

  • Decisiveness: Able to make decisions even in ambiguous situations and without full information

  • Flexibility: Adapts easily to changing situations and is able to adopt new approaches when necessary

  • Leadership: Comfortable taking a leadership role

  • Multiple Focus: Able to juggle many projects and responsibilities at once

  • Power Orientation: Comfortable asserting authority and using power

  • Psychological Resilience: Handles pressure and psychological stress well

  • Recognition of Opportunity: Recognizes new opportunities and acts to take advantage of them

  • Time Management:Manages own time well

  • Work Ethic: Has a strong work ethic, willing to make sacrifices to achieve important goals

And to build and maintain strong investment alliances, they need these skills from the Interpersonal Effectiveness group:

  • Ability to Compromise: Able to compromise when the situation calls for it

  • Assertiveness: Able to defend a point of view and to confront others appropriately when necessary

  • Gaining Trust: Inspires other people’s trust

  • Merit Orientation: Judges ideas and people on merit alone, without bias or favoritism

  • Oral Communication: A skillful public speaker, good at presenting ideas and plans in a persuasive manner

  • Organizational Priority: Able to make decisions that are in the best interest of the organization, even though they cause individual people distress

  • Projection of Confidence: Projects self-confidence, even in uncertain and difficult situations

  • Sociability: Socially venturesome and self-assured; forms new relationships easily and works to maintain them

Venture capitalists especially rely on their ability to "read people" in evaluating potential investments. A venture capital rule of thumb is: First you look at the management team, then you look at the management team again, then you look at the management team again. If the people still look good, then you look at the rest of the business plan and the product.