It's far harder to make money as a VC than you might think
You just have to invest in so many big winners
Here's the math … and why they act the way they do: pic.twitter.com/PFvTBAwxir
— Jason ✨Be Kind✨ Lemkin (@jasonlk) May 19, 2023
Dear SaaStr: Is it hard to become a venture capitalist?
- First, there aren’t that many VC firms. There are probably only 150 firms with > $250m. These are the ones that can train you and provide entry-level positions:
- Second, most VC firms only have a few non-partner opportunities. So that’s maybe only a few hundreds jobs per year.
- Third, tiny / micro VC funds don’t pay that well. Yes, there are 100s and even 1000s of new “micro VC” funds of $2m-$20m in size. But there are only so many fees to go around at these tiny funds. Barely enough, often, to just pay the 1-2 core partners a base salary.
- Fourth, most of the “carry” (or profits from investments) is reserved for partners — and it can take 5–10 years to make partner. That’s not the end of the world, but it takes time.
- Fifth, very few non-partners get “promoted” to general partner. Most firms have enough partners already, absent generational change. It’s not a growth business. Many firms might hire a few associates every year or two — but only add a partner once every 5–10 years. Or maybe not ever.
- Sixth, it’s a hits-driven business and you have to deliver. You have to hunt, find, convince, win and close unicorns-to-be. Can you do that? If not, you won’t make it. Most VC funds underperform, and the main reason is partners that can’t source and close a unicorn … every single year. Every year.
So there are probably only a few thousand entry-level positions, probably less, and only a portion of those slots are open each year. Not that many. And maybe 5% of non-partner VCs make it to general partner, one way or another. Perhaps less.
Will it be you? How badly do you want it?
A $500m fund with a $1B IPO owning 15% = only 0.3x of fund. Your job is 3x.
A $50m fund with a $1B IPO owning 5% = 1x of fund. Great, still, your job is 4x.
A $10m fund with a $1B IPO owning 1% = 1x of fund. Great, still your job is 6x.
— Jason ✨Be Kind✨ Lemkin (@jasonlk) March 26, 2021