I probably get around a dozen e-mails a week asking me how to get into venture capital. On top of that, anytime I talk to anyone who wants to get involved in startups but isn't sure what they want to do, inevitably, I hear, "And then I was thinking maybe I should look into venture capital, too."
I've never really debated people on why they want to get into venture in the first place, even though a lot of people have misconceptions of it.
Well, let me be the first to tell you...
Ok, so it doesn't *entirely* suck--you get to meet tons of interesting people, you help build companies, you have the potential to make lots of money--but there are a lot of parts of it that outsiders don't think about that aren't particularly glamorous and can be downright frustrating.
Cry me a river, you say.
Hey, don't tell me--I know I lucked out in the career lottery, but I just want to make sure that everyone who says they want to get in, and actively tries, actually knows what they're getting into.
Here are 10 reasons you don't want to get in:
1) Most of your dealflow isn't that good, so 99% of the time, you're crawling through a Shawkshank river. Since there's no way to both make yourself accessible and not get a fire hose of inbound, most of the pitches you're going to have are from perfectly nice, smart people who have perfectly horrific, unworkable ideas. Sometimes, you get contacted by certifiably crazy people who have perfectly legitimate ideas. Neither of these types of companies are backable and much of your job is spent trudging through automatic passes.
2) People pitch you... ALL OF THE TIME. The other day I was talking to my friend about a film shoot he was on with Keanu Reeves. It was a long day, and all Keanu wanted was to get a bucket of wings--only he couldn't, because there was a hockey game on and all the local wings places were going to be packed with fans. You can't just be Keanu Reeves and walk into an off the beaten path sportsbar incognito and hope no one notices you. He had to order them out and have them alone in his hotel room. Sad Keanu! Sure it's nice to feel wanted once in a while, but you absolutely feel like a jerk (at least I do) if you have to get somewhere and you're trying to leave a pitch panel. There's nothing I hate worse than having to say "No" when someone asks you if you have a minute as you're on your way to an elevator. I know what it's like being an entrepreneur trying to get people to care about what I cared about--you feel so desperate and as if you were just one big break or random intro away from success. It's hard to say no to someone in that mindset, but eventually, you have to leave.
3) You're responsible for other people's money. When my companies report good news, I'm excited about the possibility of a big win for my investors. When they struggle, I feel hugely responsible for being a good shepherd of their capital. I know I'm paid to take risk and to make a commensurate return for taking that risk, but every moment of struggle from any one of my portfolio companies is like death by 1000 cuts multiplied by all of the individual investors in my fund. When you're out on the road pitching, and getting people to believe in you, you feel a deep sense of responsibility to your limited partners--and there isn't a day when you don't wonder why you didn't just take some easy corporate job where no one would notice if you weren't working productively.
4) Most of the job isn't in the picking, it's in the struggling. Ever watch an animal get hit by a car and limp around afterwards? That's kind of like what it's like being on board with these companies after you make an early stage investment. They're all dealing with super limited resources and they'll never be able to move as fast as you'd like them to--and there's no laying on of the hands that you can do to make it all better. You just have to hope they regain their footing slowly and get on their way. You can try and alert them to other traffic, slow it down, ease pain by being calm and present, but ultimately, it's up to them to get stronger and stronger with every step and continue on down the road. Even the best and most active board members can still feel pretty helpless. Bottom line is that you're not the CEO and you're not at the company everyday--and you have to live with that. Anyone can pick, but sticking around after the company gets funded is where the real work starts.
5) It takes a long time to be successful. If you work in trading, you can have a big win on your first day. In VC, no one's investment gets bought on the first day, or the second day, or the third day. It wasn't until my seventh year in venture capital for me to start leading deals. Fred Wilson took about the same amount of time before he became a partner. If you don't start out with your own cash, the process takes a long time and it can take even longer to see your first win. I got mine just a year after starting to lead investments, but even that felt like forever--and that's not the norm. If you're the kind of person that needs immediate and constant feedback, this isn't the right asset class for you.
6) As private equity goes, early stage venture is the most work for the least amount of money. Don't get me wrong, VCs (at bigger funds than mine) do quite well and are definitely in the top 1%, but the money that most VCs will see over a decade, partners at Blackstone probably made last year. If you're looking to optimize for wealth or own a majority stake in a professional sports team, you're better off doing buyouts, distressed debt, or hedge funds. VC funds just don't scale and so you don't get the huge management fees and other worldly carry that you do from funds with big Bs.
7) Having to raise money every 3-4 years means your time horizon limits what you can do. Given enough time, technology and human creativity can solve just about every problem we have. Given four years, we can build a better e-mail marketing tool. VC funds have to go back into the market every four years to explain to their investors what they did and how well it's doing--which means crazy long bets are pretty much off the table. If you're self funding, like Elon Musk, you can create an electric car company, but most early stage VCs wouldn't have been able to help get that off the ground in the beginning because it sounded too crazy, would take too long, and would require too much cash.
8) You're trying to be smart in a market with a lot of dumb money. Every year, a lot of new investors join the fray and a lot of beaten down investors give up. Few firms persist. Given that, you're trying to negotiate deals with entrepreneurs when some newbie comes along and offers them ridiculous terms or way more money than they need. The best entrepreneurs pick from among who they believe will help them build their business, but it isn't always easy to tell. Getting a reasonable deal in this market means having to work twice as hard to be early, be really value added, and build relationships and reputation.
9) Sometimes, it's just luck. Over the long term, I'd pick a manager that backs good teams, makes smart decisions, and managers risk well over someone who is lucky--but luck can create a lot of distraction. If your company gets bought for a billion dollars when it's not even doing double digit millions in revenues, you can't really deny that luck was a factor--but that luck will enable a firm to raise another fund, while you're trudging along. The nice thing about luck is that it doesn't persist and it can usually be accounted for--no one is really going to believe your company building story when it was obvious that your acquirer just had way too much money to play with or did the deal for ridiculous reasons.
10) Raising a fund is a completely inefficient proccess--especially a small one. There's no Angellist for funds that every family office or endowment is watching. You can't crowdfund a fund. There's no shortcut to doing a roadshow--and what's worst about funds versus companies is that the sources of capital aren't easily findable. I've got three family offices invested in my fund--one came in via Twitter, one came through press and one through a random introduction made via a co-ed touch football team. I've also got a bunch of individual angels who see a fund as diversification and a source of co-investment opportunities--but not every angel wants to do a fund. There's no filter for that on Crunchbase. All in all, not exactly a predictable lead sourcing strategy.
Still, what I do love about being in venture capital is, well most of it. All of the above stuff doesn't really bother me--which matches my personality. I don't mind taking on responsibility because I believe I have something to offer. I also don't ever get stressed-- I'm a very even keeled, zen sort of guy. I'm also a portfolio thinker who focuses more on good decision making than randomly distributed outcomes. When a fluke buy nets another VC millions, I think a lot about whether that decision, played out in a portfolio, would net good returns in the future. If it doesn't, I don't worry too much about it.
And most of all, I love people. My tolerance--no, my excitement around hanging around later than most panelists after a pitch event is much higher than most investors. I like teaching and I like helping--and so I welcome the opportunity to hear from someone who probably isn't going to be my next big win, because that's most of everyone. It helps me sharpen my thinking and build my network.
So before you ask how to get into venture, think hard about whether you understand what it really means--it's not just trying to understand whether or not lots of people will use something or whether it's a "good idea". Everyone thinks they saw a trend earlier than they really did and everyone things they understand people a lot more than they do.
Know thy self.