What is Venture Capital?
Venture capital firms raise capital from Limited Partners, such as pension funds, endowments, and family offices, and then invest in early-stage, high-growth-potential companies in exchange for equity (i.e., ownership in those companies).
Then, they aim to grow these companies and eventually exit via acquisitions or initial public offerings (IPOs).
Most of these high-growth-potential companies are in technology and healthcare, but some VCs also invest in cleantech, retail, education, and other industries.
Since the risks are so high, VCs expect the majority of their investments to fail.
But if they find the next Google, Facebook, or Uber, they could earn exceptional overall returns even if 90% of their portfolio companies fail.
Why Venture Capital?
Venture capital is a “get rich slowly” job where the potential upside lies decades into the future.
Annual compensation is a significant discount to private equity compensation or investment banker salaries, so if “becoming wealthy ASAP” is your main life goal, cross venture capital off your list of possible careers.
Junior-level venture capital jobs rarely lead to Partner-track positions, so you will probably not work your way up into a senior role if you join after ~2 years of banking or consulting.
Deals are simpler than in IB or PE, there’s less financial modeling and number crunching, and you spend more time on “sourcing” (finding companies) and industry research.
So, there’s only one great reason to aim for junior-level VC roles: because you are extremely passionate about startups and you want to use the role to learn, build a network, and leverage it to win other startup-related roles in the future.
Fore more on this topic, please see our article on venture capital careers.
How to Get Into Venture Capital: Who Wins Interviews and Offers?
The three main entry points into venture capital are:
Pre-MBA: You graduated from university and then worked in investment banking, management consulting, or business development, sales, or product management at a startup for a few years.
Post-MBA: You did something to gain a background in tech, healthcare, or finance for a few years before business school (e.g., engineering or sales at an enterprise software company), and then you went to a top business school.
Senior Level / Operating Partner: You successfully founded and exited a startup, or you were a high-level executive (VP or C-level) at a large company that operates in an industry of interest to VCs.
We focus on the pre-MBA path here since you’re most likely in that category, but most of the tips here are relevant to the post-MBA path as well.
It’s very difficult to break into venture capital directly out of undergrad, and even if you have the background for it – i.e., you went to Stanford or Berkeley, majored in CS, and completed multiple startup and finance internships – it’s not necessarily a great idea to do it.
To be useful to a VC firm, you need some full-time, real-world experience and at least the beginnings of a professional network.
Venture capital internships during undergrad are more plausible and are often a useful way to win investment banking roles later on.
It also tends to be difficult to move directly from a pure engineering role into VC because market and customer analysis matter more than coding prowess or technical skills.
Yes, we’ve featured readers who have done it, but it’s quite rare.
Management consultants may have a bit of an advantage over bankers, but it depends on their background: advising on HR policies for insurance firms is far less relevant than advising on strategy for tech companies.
Overall, pedigree and prestige still matter quite a bit for VC roles, and firms tend to favor candidates with brand-name firms and universities on their resumes.