I have heard this from many people I have met “I really want to be a VC”. First, why are you asking me when I am not one and don’t have a desire to be one? Let me direct you to some people in the industry and a few who left it to get a good perspective on the business. So I went ahead and asked the question “do you think people should really become VC’s”. Surprisingly, many said no. Why? I will tell you.
The origins of this post were motivated by Seth Levine’s post today How to get a job in Venture Capital revisited his earlier post, How to become a VC and it seems to hit on the same advice that I got from my VC friends in the business.
The gist of it seems to revolve around either going to a top B-school, being a banker or consultant, working in a startup or starting one of your own.
So instead of telling you how to become a VC, let me take a different angle and tell you why you don’t want to be one.
Everyone acts like they want to be your friend but all they really want is your money
When you are an entrepreneur you go to networking events in the hope of meeting investors, you leverage VC networked lawyers and accounting firms to get you introductions. What are you there for? To get money. As a VC you are just on the other side of the table and now when you go to dinner parties you are faced with the “Doctor’s dilemma”. That is when they find out you are a doctor and then they tell you something hurts them and expect a free diagnosis and prescription write up. As a VC you might suffer through people with “hey, I have this business looking funding” or “I have a really great idea, would you fund it?” crap. Just tell them you sell insurance and they will stay away from you.
You get stuck in board meeting hell
As a VC you will sit on boards to meet with the company on a regular basis to see if they are meeting their milestones and vote on critical issues (i.e. stock options, new key hires). The only problem is that this most of your interaction with a company and as a former entrepreneur you will have a tendency to want to be more involved. You can’t. You must keep the deal flow coming through for the firm to make the investments that will create good exits for great payoff to the fund’s limited partners. Yeah, I think that kinda sucks too.
You only really work day-to-day with a startup when it is having trouble
As I mentioned above, you are really only working with them in a board capacity when things are going well. When things start to go bad you have to spend more time and usually have to be the bad guy. You might have to kick out the founder, recommend budget cutting strategies, etc. Yep, that sucks too.
You have to read the most insane business plans
The average VC firm sees about 2000, that’s right 2000 business plans a year. Do the math. If you are an associate you have read around 50-100 per week depending on the size of your firm as an associate. You have to filter the crap from the interesting and then further find the fundable in the interesting ones. Many people blindly send plans that don’t fit the investment size or focus of the firm so they are immediately tossed. Still, you have to find the ones that are good and then have a phone conversation with them. If the chat goes well, they will come and pitch you so can report to the partners about the ones that they should really sit in on. If they end up sucking it reflects badly on you.
Do you like Excel?
When you join a firm as an associate you are analyzing deals from every perspective tearing apart an entrepreneur’s business model to see if it is actually not full of shit. You are also looking at it from various bad-to-great scenarios to understand the risk exposure the firm would be taking in the deal. I hate excel and the thought of living in it just makes me shudder.
You have to work insane hours to close a deal
You work insane hours as an entrepreneur but there is a long term payoff that can be huge. To get a deal done especially if it is syndicated or there is competition from other firms means you have to work insane hours to get it closed. If you don’t you risk losing the opportunity and looking like a lazy idiot to the partners. What is the upside? Maybe a bonus when the fund exits? Maybe. At least as an entrepreneur you can have a little more control over getting a big pay day.
Limited Partners are worse than investors
Investors in a startup expect risk and are betting on you to succeed. They hedge their bets and usually 7 out of 10 deals funded crash and burn. The remaining 2 get a good exit and the remaining one you hope will be the next google. Limited Partners have a long term outlook (7-10 years) for a fund to complete. But boy do they expect results. You might return a solid 20-30% return which is fantastic for any other investments but they might just bitch. Especially if the previous fund had better returns. Yeah…I would love to have that to deal with.
Are there any VC’s in the house?
Many people read the blog and hopefully there are some who are VC’s and could comment. It would be especially great if there are a few out there that have been in the business and left it.