Venture Capital

So You Think Investing Looks Fun?

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Jason Lemkin

I meet with founders and executives all the time who look at venture investing just a little wistfully.  That it’s the easier path.

And so it is in many ways.  Sitting in a fancy office in South Park or Sand Hill and writing checks is much easier on almost every level than founding a company from scratch.  You will never run out of money as a VC.   Your “zero cash date” is measured in decades, if it’s measured at all (VC funds last 10+ years).  You can take a vacation for real.  It’s OK if one or two or even four of your portfolio companies fail.

But in an effort to at least be cathartic, let me at least explain why for 99 out of 100 folks, it’s a terrible career path:

  • All that matters is if you can get into winnersNothing else matters. It does not matter if you help. If you add value. If you are there for your colleagues and founders. If you are a good person. If your associate really sourced the deal. All that matters is you got into Facebook early.
  • Power is concentrated in the hands of a very few managing partners, who have little incentive to cede control. Why share any more of the fees and the profits (carry) than you have to?
  • It takes years and years to prove yourself. If you invest early, it can take 10+ years to prove yourself. And often, you won’t be given even a small checkbook to do deals for years in the beginning.
  • There is no career path at most firms. Not really. There is no reason to “promote” folks to general partner, because usually there is no need for more general partners. If 3 general partners can deploy all the capital themselves — why add a 4th? The only reason is if she’s highly accretive, one way or another.
  • You won’t get into most of the good deals. Why would Mark Zuckerberg pick you? If you can’t answer this question, you will fail. Having an investment thesis or strategy is necessary, but not sufficient.
  • You have to hustle. Really hustle. Related to prior point. If you think it’s a “they’ll come to me and then I’ll pick” kind of gig, you will never source any good ones. There are 1000s of startups. But only a handful matter. You’ll have to hustle, one way or another, like crazy to get into them.
  • You probably won’t make any money in a tiny fund. Hooray, you joined a $20m seed fund! Well, with only $400k to pay everyone’s salaries and expenses (2% of $20m a year), that won’t go too far. Turn that $20m into $60m over 10 years (i.e, 3x — which is Top 15% results), and all the partners get to keep 20% of the $40m gains. $8m is a lot, but over 10 years with say 3 partners, that’s really only $260k a year from carry each annualized IF you are a Top 15% Fund — and you won’t get most of that pay out for 10+ years!

Just a few cathartic thoughts in case it makes you feel better on one of those tough “look out the window, anything has to be easier than this” days.

 

Published on October 13, 2017
  • Silvan SCHMID

    Great read, always good to hear that the grass is not greener on the other side.

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