What is venture capital?
“Venture capital is a kind of private equity financing that is provided by venture capital firms or funds to start-ups, early-stage, and emerging companies that have been deemed to have high growth potential or which have demonstrated high growth.”
This is a “getting slowly rich” kind of a job wherein advancing up the ladder is over the decades. But the greatest reason to enter this industry is extreme passion about being a part of creative innovative ideas that have a potential to disrupt the pattern. On the other hand, the senior level Venture Capitalists might want to continue this game because of their expectations of being at an executive role at large companies after a significant level of experience at start ups.
Before diving into the VC career aspect, let usfirst take a quick look at the VC industry at present.
In the year 2019, the Indian PE/VC industry had begun to show correlation with the Global industry. With consecutive two years of outstanding performance from the year 2017, it has again reached the heights by crossing US$48 billion showing a growth at a CAGR of 44% over these years. On the y-o-y basis, the VC/ PE market has grown to 28% and 35% in terms of value and volume.
Further, the majority of the investments are observed to be at the Seed/ Early stage.
Now let’s talk about various skill sets required to be in this career.
Skills needed for venture capitalists
To be a venture capitalist one must have a thirst to explore different sectors and various areas into it apart from being extremely excellent in the field of their specialization. A curious nature to learn new skill sets, hearing about new ideas, helping entrepreneurs with various hindrances in their start-ups will help them grow their career by infinite times.
Further technical excellence in the life of a venture capitalist is never enough if they fail to understand the importance of building long- term relationships. So is it true, even if he/ she produces returns high above the benchmarks? Yes!! It is said that in the highly competitive world, where people continuously demand for better, you might not want to become an option. So to avoid the same, one must be authentic, humble and creative in order to be able to build a long- term relationship.
Thus, job of the venture capitalists can be divided into various six areas:
- Sourcing – Exploring new ideas from the business to make an initial outreach.
- Execution of the deal – Analysing its potential, market and financial projections along with deal negotiations.
- Supporting portfolio companies– Supporting these companies with various activities like marketing, fundraising and various financial as well as administrative issues, etc.
- Building Networks and Brand– Attending various events and conferences to establish networks and build their brand .
- Fundraising and LP relations – Venture Capitalists help firms to raise fund exits from LPs and find new investors in case of future funds.
- Internal operations and other activities– Activities such as handling investor relations, accounts/legal, improvising on internal communication as well as deal tracking .
In the following chart we could understand how a Venture Capitalist can build their career while deal sourcing. “Deal sourcing refers to the process by which VCs attract entrepreneurs and sort through those opportunities to make an investment decision.” Thus the following chart explains why building relations with clients and around the industry can prove to be beneficial in the career of an individual.
Career progression for venture capital
But how can one decide their pathway on the road to become a venture capitalist? In my eyes, one needs extensive research and experience to be able to become a successful one. Thus, one might start with a venture capital firm as an analyst/ associate, growing up in ranks with a limited time period of about 4- 6 years. Further, it is advisable to join a start-up firm in order to gain an actual industry knowledge and elevate their understanding after which they can either join a VC firm again or start their own.
Thus, I have tried to summarize the same based on 3 options:
Option 1: After a MBA degree from a reputed college, one can start with a VC Associate after which they can work with firms like McKinsey, Google, Facebook, etc and then re-join a Venture Capital firm as Partner or Junior Partner.
Option 2: If you are lucky enough to start up a business and succeed, you can sell it off for above $1billion to join a VC firm as Partner.
Option 3: Another way could be to get an experience in the VC market for about 25+ years, perform Angel investing and then start your own VC firm. This experience could be in the form of mentorship or work experience.
Thus, you may look to move forward in ranks in the following order:
Not only this, a career summary has been prepared for better understanding of what to expect at various levels of your career path.
|Role||Estimated age||Salary+ Bonus+ Carry Expectations||Promotion Time|
|Analyst||22-25 years||$60K – $100K.||2-3 years|
|Pre-MBA Associate||24-28 years||$150K to $200K||Need MBA degree,experience or any other related specialization|
|Post- MBA or Senior Associate||28-30 years||$200K to $250K||2-3 years|
|Principal/ VP||30-35 years||$250K to $400K||3-5 years|
|Partner/ Junior Partner||33-40 years||$400K to $600K||3-5 years|
|Senior Partner/ General Partner||36+Unlike bankers, they tend to not retire as a result of less stressful jobs.||$500K to $2M||–|
Pros and cons
So, once you become confident enough that you possess enough skills sets, one must also look for pros and cons of being a Venture Capitalist as this forms an important factor deciding if you could actually manage to have this career as a long life commitment. Therefore, following are the pros and cons of being a Venture Capitalist:
|The biggest advantage is to see come ideas become a successful reality.||Careful analysis about the business model and ideas consumes most of the time.|
|Able to provide and execute their expertise and valuable guidance .||Any failure may lead to deterioration in their goodwill.|
|To be able to create and build valuable connections in the industry.||Long working hours along with a high level of responsibilities .|
|They are trustworthy with no obligation to pay.||You may significantly earn less than IB, PE or HF jobs if you/ your firm fails to outperform consistently.|
|You will be able to meet creative minds with innovative ideas and strong beliefs.||Separation of work-life balance becomes difficult as you are always on networking mode .Friends may become your clients.|
|There are less last moment drills and thus provide better work life balance then IB,PE, or HF jobs.||Fear of Hostile Takeover.|
|They are most likely to disrupt the ongoing trend in the world or at least in the industry,|
A day in the life of a VC
Ideally, the time allocation for an established VC varies from that who has just started. For an established VC, 80% of their time goes in managing their funds while 20% of their time goes into establishing new relationships. In the latter case, it is vice-versa. Thus, the following infographic states how in general an established Venture Capitalist spends their time.
In a survey, it was observed that on an average a VC starts with screening around 200 companies a year out of which only 4-5 investments are done in a year. The following flow chart summaries the multi-stage selection process explaining how they decide on their investments.
Further, while making investments, a VC looks for an idea which has a potential to produce 10X returns to the investments in near future. For this purpose, around 60% focus is given to the composition and strength of the management team along with their business model and idea. The following two charts well explains their investment selection strategy and compares with the factors that added to its success. Thus for a person willing to become a VC must have a good hold on the analysis of these following factors.
Discussing briefly about exits, then mostly firms try to exit via M&A or IPOs. Following explains their frequency wherein most exits occur through M&A.
Top VC firms in India
Some of the VC firms that you might consider in India are:
- Sequoia Capital India.
- Helion Venture Partners
- Accel Partners
- Nexus Venture Partners
- Intel Capital India
- Blume Ventures
- Inventus Capital Partners
- IDG India Ventures
Future of VC
Lastly, looking at the future of VC, they possess tremendous career opportunities in VC. Government with its schemes on Start-ups and other supportive initiatives, SEBI regulation in 2012 along with the industry booming in itself only adds up to the growth of this industry and you as a Venture Capitalist.
- Venture Capital Careers: The Complete Guide
- Advantages and Disadvantages of Venture Capital https://efinancemanagement.com/sources-of-finance/advantages-and-disadvantages-of-venture-capital
- How Do Venture Capitalists Make Decisions?
- Top 20 Venture Capital Firms in India
- How India is emerging as one of the leading destinations for global PE/VC capital (18th Feb 2020), by Vivek Soni, EY India Private Equity Leader https://www.ey.com/en_in/private-equity/how-india-is-emerging-as-one-of-the-leading-destinations-for-global-pe-vc-capital
- State of the Venture Capital Industry in 2019 https://www.toptal.com/finance/venture-capital-consultants/state-of-venture-capital-industry-2019
- Venture Pulse Q4 2019, Global Analysis of Venture Funding (15th January, 2020) https://assets.kpmg/content/dam/kpmg/xx/pdf/2020/01/venture-pulse-q4-2019-asia.pdf
- The Road to Becoming a Venture Capitalist: One Man’s Global Journey from India to Silicon Valley https://medium.com/angelhub/the-road-to-becoming-a-venture-capitalist-one-mans-global-journey-from-india-to-silicon-valley-cdb70a8e9ef1
- Webinar with guest- Rehan Yar Khan, Orios VC Partners.
- PMS Bazaar webinar