Career 2.0: Investor

This article provides a deep-dive into the considerations around becoming an investing partner at a VC/PE firm. We interviewed ~20 investing partners as part of this series by Whispered on Career 2.0 options.

Being an investor is typically NOT a Career 2.0 option if you aren’t in venture previously. It is generally a young-person’s game and hard to break into later in career. That said, this article aims to provide great insight to those thinking about a 2nd career in venture. It is based on interviews with 20+ current and former VCs, including a few who have broken in later in their career. All quotes below are direct quotes from VCs - we don’t attribute them given the sensitive nature of the industry.

Your experience as an investor will vary widely depending on the firm structure. Some factors to consider include:

Firm Size: Bigger, multi-stage firms offer more flavors of partner but also you can get lost in the shuffle.
Round Focus: Early stage firms are focused on building relationships with young founders where sourcing is likely critical while later firms compete on other dimensions.
Fundraising: Every few years a firm raises a new fund. This can change dynamics as investors need to commit for next funds, if fundraise doesn’t grow the firm the competition over pie can be hard. Ask deeply about where firms are in fundraising and see their returns - if they aren’t in top quartile, they could have trouble raising the next fund.
Partnership structure: Is this a collegial partnership (that is typically rare given the challenges described below) and how do they admit new partners?
Fund thesis and strategy: Are they an active or passive investor? Seed, early-stage, or growth? B2B or B2C? To have the best shot at success, all aspects of the firm’s strategy need to align to your background – and you need to be able to bring something new and unique to the table.
Investment team composition: Is this a more typical VC shop with multiple junior associates sourcing deals for the senior investors, or is it a smaller shop where you’re expected to bring an existing deal pipeline with you?

Pros and Con(siderations)

Below are insights both positive, negative and things to think about when exploring joining a VC later in career.

Pros:

Never Boring: You never know what your day will look like. If you crave/need routine this will be a challenge. The mix will be different at different funds/levels but will include a mix of:
- Sourcing: Great if you love networking
- Picking: Terrific for the people who geek out on diving deep in diligence
- Winning: Convincing companies to take your money (which truly is a commodity)
- Supporting: Supporting your portfolio
Compensation: The cash compensation is typically very strong. However, carry is not something you should bank on, particularly at larger funds given the return thresholds and the timeline to realize carry.

“You probably won't ever see a carry cheque unless you are at a top seed fund.”

Learning and Networking: You have a front-row seat to some of the most relevant trends in tech and get to meet some of the most talented teams out there.

“I am constantly talking to people smarter and deeper than me. The learning curve is off the charts”

Con(siderations):

Feedback Loop: If you like making lots of decisions and learning fast, you will struggle. You will make only a few deals a year. Most will fail and the time to learn from deals can many years. You won’t know if you are good at the job for a really long time. It is also hard to discern luck from skill.

“People never acknowledge when luck works for them. They always blame luck when deals don’t work out but never credit it for their successes.”

“Because the feedback loop is so long. you are only as successful as people think you are. This unfortunately means you have to spend a lot of time on your image and fake it until you make it. It can be very difficult having to project success even when you are insecure.”

Sourcing: Finding great deals and engaging founders is a huge part of the role. This is essentially a sales role where you will get a ton of rejection and need to learn how to manage your emotions. You will find it difficult to differentiate (see below)
Differentiation: It is virtually impossible to differentiate from other firms. You are essentially selling a commodity (capital). You will have to build deep relationships with founders to win them over personally.

“I’m getting tired of kissing the ass of 25 year olds to get into deals” GP at $1B+ Fund

“You need to know something the market doesn’t know.” Mike Maples Jr @ Floodgate (great podcast here)

Career Path: While the path in VC can be a long one for many (when you commit to a fund, you typically commit to 8 year stretches) it can also change quickly (see politics section).
Firm Politics: The VC role can be a lonely one. The more money is at stake (and in VC it is a lot) the more vicious the politics are.

“VCs don’t typically add headcount so the only way to grow is to kill the people above you.”

“Everyone is insecure. Young VCs just wish that had capital returns. Older VCs are insecure about being old and terrified of not being in the next hot deal.”

A Young Person’s Game: We’ve heard this consistently from VCs that many firms don’t hire people over 35 and older partners without strong recent track records can easily be pushed out. To avoid this many people look to start their own firms.

“You are only as popular as your last great deal. If you haven’t had a hit in a while, people think you are done.”

Fundraising Environment: In the past ~10 years the proliferation of funds and the maturity of VC as an asset class with LPs has meant that it is very difficult to start a new fund. So if you are struggling with politics at your firm and don’t have a top-tier track record, you are left with few options.
Schedule: While most people think you have great control over your schedule as a VC, we’ve learned from talking to senior VCs that this isn’t the case. When you are on boards, there is nobody else who can sub for you.

“Board work never sleeps. I was on a board call while in labor” GP at $2B AUM Fund

How to become a VC

People tend to think that being an operator is a good path to becoming an investor OR they take an operator role at a VC with the intent they will convince the GPs to let you start investing. Both of these have low probability of success -- unless you have differentiated networks and deal flow, or have a brand name that helps the firm achieve its goals.

Ultimately, every VC firm is a special snowflake because of the individuals who make up the partnership. You are going to have to find the right chemistry fit with a group of individuals who are willing to (partially) tie their success over the next 7-10 years on your performance.

If after all the con(siderations) you still want to become a VC, here are some tactics we’ve seen / heard succeed.

Have a specialty: Don’t be a generalist. Niche down and be great at something like understanding insurance payments, sales scaling….
Build a track-record early: Start investing as an angel but also be wary of the risks here given most deals fail. Instead, consider becoming a scout at a good fun where you can build a verifiable track record without spending your money.

“Being an angel is a great way to torch a lot of your own money. Consider becoming a scout instead.”

Be a rockstar CEO: VCs build relationships with great CEOs and want them involved. We’ve observed many top CEOs with strong exits successfully get unsolicited offers to join VC firms.
Explore venture boards: VCs are swamped with boards and increasingly offloading 2nd tier boards. While this may not lead to a full-investing partner role, it is a great way to get more exposure to investing.

Bonus

Keith Rabios on what it takes to be a VC. See 29:25 in this Podcast