Why would you not work in a VC fund?
There may be times, maybe even many times, in the earlier days when you look at VCs and Venture Capital and think — that’s the easy way. They drop into a few board meetings, and take 10%, 15%, 20% or more of the start-up for seemingly relatively little work. They get to make multiple bets each year, and in each fund. And heli-ski and sleep soundly at night.
There is some truth to that, for sure. But VC is brutally competitive and hard to do well. A few thoughts on maybe why the grass isn’t quite as green on the other side as you might think:
- You likely will never be the boss — of anything. VC firms are generally run, at least informally, by 1 or 2 leaders for decades. You will likely always have to do what they say, and execute their strategy. This is also true in PE firms, hedge funds, and other adjacent entities. Yes, as a VP or SVP in a start-up you’ll also not be the boss per se … but you’ll likely be the boss of your functional area. You will likely be, and feel, less empowered than this in VC. You can be a true “General Partner” but still have very little say in how the firm is run. It’s more common these days to leave and start your own fund. But you often have to start with a small, starter fund — if you can pull this off at all. And you usually need a proven track record to do so, which takes years of promising investments.
- Team collaboration is weak & limited. Probably the most rewarding part of a startup is really being part of a team that is united in bringing a vision to market and scaling it. There is very little of this in a venture capital firm. It’s mostly a solo endeavor, with folks getting together a few times a week to sort of collaborate, but mostly simply to provide feedback on what everyone else is doing on their own. There’s a reason many VCs say they enjoy working with their co-investors (i.e., other VCs from other firms that have also invested in the same companies you have) more than their partners. There’s more teamwork with your co-investors in many cases than your partners.
- Spoils don’t go to the winners in many cases. You can do very well as a VC in the early and middle days but you may still have no or very little carry (i.e., profits in the early days) and spend years just making other people money. You may be paid reasonably well in salary, but how will you feel if you sourced Zoom or Datadog or Box, but someone else gets all the credit — and 99.9% of the gains? And even if you are well paid, often only 1 or 2 partners own the “management company” that keeps the fees and makes the vast majority of many financial decisions in a fund.
- It can take 10–15–20+ years to make any significant profits / carry. Late stage venture funds can get into “carry mode”, or profits, fairly quickly. But early stage funds these days often take 10–12 years to pay back their investors and get into profit mode. You have to pay back all the money you take in first, before any profits are taken on IPOs and acquisitions. And if you weren’t a partner in that fund, you may have to wait for another fund or two to get significant carry. That could mean 15+ years before you share in any meaningful profits on investments. A bit more on that here.
- Many are weak institutions. A handful of firms are really building something generational (e.g., Sequoia, Accel, etc.). But most of the 1000+ VC firms won’t span several generations, at least not successfully. What are you joining, if it won’t really last long enough for you to finally run it? Many older firms are quietly disappearing. But the 10-15 year lifespan of each fund makes it hard to see from the outside.
- Many firms have no real interest in adding additional general (i.e., real) partners, or not many. Related to the prior point, but in many firms, there is no real point in adding true general partners. Better to split the profits with fewer folks. Most firms will add the fewest new partners necessary to raise the next fund.
- Your operating skills deteriorate. If you go from operator to VC, it’s a very different set of skills. You may find it harder to get the job you want in a few years if you want to go back to an operating role.
But the #1 issue is this:
- It is brutally competitive, and very hard. Most importantly — VC is not just picking. It is finding, getting into, and winning the very, very, very best deals. This is very hard. Picking is hard, but really not that hard. Once you’ve been doing it a while, you’ll quickly know if a start-up stands head-and-shoulders above the rest. But can you find, source and close 1 unicorn a year? And a decacorn every few years? You have to, to really win in venture.
- You have to ask yourself: why will you win? Strategy is not enough. Niche or segment investing is not enough. How will you “get into” a $1b+ deal every year? Or at least every other year? Why will founders pick you instead of a very well established, branded VC? Why? Be brutal here. Can you hustle like crazy? Can you find and close the next Datadog, Zoom or Snowflake? Are you sure?
Finally, remember, while a mediocre VC probably makes a lot more than a mediocre founder — a truly great founder makes much more. Here’s the math on why:
If none of this discourages you and you still want to do it, though — find a way. It works out well for the Top 10%.