Why Do Some People Consider Venture Capital a “Young Person’s Game”?

Because it takes so, so long to make money from it. At least from very early-stage investing.  So while not a young person’s game per se, it really helps to start early.

It doesn’t take that long in venture to make a decent salary. You can start there on Day 1 in a big fund, or a few years in in a smaller fund that does well.

But it often takes so long for early-stage investors to make material “carry”, or a share of gains.

Let’s take a fun example of a simply awesome SaaS company that will IPO soon, doing hundreds of millions in ARR — Procore.

Procore was founded in 2003.

Imagine you were a seed VC:

  • Started as an angel, in say 2000
  • Start raising own fund in 2002
  • Finally close own fund in 2003, after 12 months
  • Invest in seed round of Procore in 2003
  • Finally, today, that investment is worth a lot. Say 5% of $3,000,000,000.
  • IPO in 2020/2021
  • 6 month lock-up
  • Initial distributions from lock-up in 2022, then through 2023.

So an incredible, hypothetical investment.

But … from a fund you started raising in 2002. That’s 19 years to a distribution (i.e., a profit check) in 2022.

Early-stage investing is often 14+ years to a material “profit” or carry check.

And the early checks are often small, because the fund sizes start off small. And yes, there are sometimes opportunities to sell earlier, etc. But you can’t count on it.

Can you wait 20 years to make a lot of money — and that’s assuming you are great at it and can find a Procore? Is that you?

So starting before 30 can help. That way, you peak around 45-50.

It’s not necessary. But it has been the Sequoia way for a reason.

Published on April 4, 2020

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