One of the most frequent questions I get asked is “how do I break into venture capital?”
The short answer is: you shouldn’t. The longer answer is: there’s no set path to do so.
Let’s start with the short answer. VC is a prestige career: the supply of people who want to be VCs vastly outstrips the demand for VCs. This is unlikely to change without several decades of poor returns and loss of institutional interest in the asset class (something we are already a couple decades into now). This means your odds, ex ante, of getting one of the coveted slots is low, so if you’re planning your career, it’s similar to trying to be a Hollywood star or the next big YouTuber or a successful novelist. It’s great to dream, but only a small destined few will have both the tenacity and the talent to make it.
The dirty secret of VC is that… the returns aren’t that great (especially adjusted for illiquidity and lockup). There are various studies and benchmarks you can go look up to check this for yourself. If you look at different cohorts, there were some truly exceptional returns during the Dot-Com era (dominated by investing the companies who are today’s Big Tech), and those highly attractive returns have spawned a persistent stream of capital trying to get into the space. However, there simply aren’t that many truly great companies. There are more LPs trying to give money to VCs, than there are VCs trying to invest in the next great company, than there are companies worth investing in. This also means that the few highest-prestige VCs end up getting their pick of the best deals, and indeed almost all the above-market returns are clustered in the very top-most top of the VCs. Investing in power laws itself follows a power law distribution.
Knowing that VC is itself a trap, do you still want to snag one of those coveted slots? Read on, you brave soul…
…so that I can dash your expectations a second time. Unlike say, investment banking, where your path into the industry is almost always to go to one of the best universities in the world, and then get one of the internship slots via their career office your junior year, and then parlay that into an offer… there’s no such well-trodden path into VC. And if the last sentence leaves you thinking investment banking is difficult to get into, honestly it seems almost trivial by comparison. Extremely rarely, there is some partner at a VC firm who has an unreasonable attachment to their old university, and they’ll post a job opening for a VC associate there. If you ever see one of these you should immediately try to take it. There will be competition but at least it’s an open door. (It’s similarly rare for other buy-side firms to hire directly out of college, so if you see an asset manager or hedge fund directly recruiting go for that too.)
Failing that, you need to 1) get to know existing VCs, and 2) figure out how to add value.
Probably the most common path into VC is starting your own company, having VCs invest in you, and knocking it out of the park and giving them a phenomenal return. Often this is enough to start your own VC (more common in tech), or at least be “in” with most of the good VCs in your industry. Of course, startups are also a prestige career, with a super high failure rate! So the advice to do startup -> VC is just kicking the can back to a similarly difficult challenge. Usually if someone is asking me how to break into VC, they haven’t already exited a successful company. So… scratch this off the list for 99% of people. And if you’re in the tiny minority who can make a hugely successful startup instead, well, that’s far more lucrative than VC so drop what you’re doing right now and go start that company!
Second best is not being a successful founder, but an early employee at a successful startup, ideally getting a good title and being close to the top by the time of the exit. This removes the massive risk (but also massive return) of being the founder, and expands the size of the pool of candidates. If you have a good case for having added serious value to a startup, and if you’re close enough to or in the C-suite there’s a decent change you get to at least sometimes interact with the VCs who invested in the company. This increases your odds of also being a successful founder who can fundraise from VCs later, as well as the possibility of going into VC yourself.
VCs like people who’ve gone the startup route, because VCs invest in startups, and that’s at least some evidence you can identify a good startup. Failing that, your next and final option is hustling.
(Briefly, how did I become a VC? I already worked for Peter Thiel in a different, non-investment position, so I was already inside the circle of trust. He independently knew I had expertise in biotech, and I teamed up with another trusted biotech expert internally. We knew he likes to see people take initiative, so we just found a first batch of companies and scheduled a meeting with him and handed him the investment memos, and the rest is history. So you can see why this isn’t a clear, repeatable pathway that I can just recommend to others.)
So back to hustling. The first step I mentioned above is to get to know VCs. I’ve written before about how to network elsewhere, some of the same general rules apply. It’s worth noting that VCs themselves have various levels from associates at the bottom to general partners at the top – it’s much easier to get meetings with associates, but they have much less decision-making power, and vice versa as you move up in seniority. Associates can potentially be the door that opens to higher ups (and the good ones eventually become partners!), but if you can jump the chain successfully that’s always worthwhile.
The second step is adding value. What is the main problem that VCs are trying to solve? Early-career VCs are mostly trying to solve the problem of raising money at all, and on the off chance you know capital allocators who can become LPs in the fund, that’s a big value add… but usually that is a partner-level problem and not an entry-level problem. Once they’ve raised a fund, the next problem is finding companies to invest in, and the main sub-problem is the signal/noise ratio. Just as there are too many VCs, there are too many startups, almost all of which will lose money. They also don’t have that many hours in a day, and startups are desperate for attention. Your job is to cut through that noise and find the 1/100 or 1/1000 startup, and refer only that startup to your VC friends. (If you throw them everything you find you will soon find yourself relegated to the back of the line with everyone else.) If this results in an investment, and even better an exit, they will definitely remember your help. If you do this successfully, it demonstrates you have the main skill of being a VC: sorting through large amounts of startups, and picking the few right ones. That’s a skill that all VCs will find valuable.
In summary, you probably don’t want to be a VC, and if for some reason you’re compelled to do so, you will have a lot of work ahead of you. It’s a long process with few shortcuts, and there’s no clear pathway to success. But if you’re still insistent, try some of the above, and keep trying for a long time. If you’re good at it, eventually that talent will be noticed. Best of luck!
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