Technology

Those who dare: an adventure for entrepreneurs

The job:

What do venture capitalists do? Venture capitalists invest money in start-ups to help finance the development of new products or services. In return, they receive a stake in each company they help finance. If the start-up is successful, the venture capitalists backing it make a profit. So, very simply, a venture capitalist has four basic job functions:

* Find the deals: find good private start-ups to invest capital

* Winning the deals – Convincing entrepreneurs that venture capital money will bring the greatest added value to the startup.

* Work on the deal: collaborate with entrepreneurs so that the company is a great success.

* Capital Raising – Raising capital to invest in these companies

Unlike angel investors, who invest between $ 250,000 and $ 500,000 in companies to help them carry out business plans and conduct market research, venture capitalists typically invest between $ 5 million and $ 50 million. “So they have their skin in the game in terms of ownership,” explains Atul Kapadia, managing director of Infinity Capital, a Palo Alto, California-based venture capital firm. Therefore, the role of a venture capitalist goes much deeper than mere compounding. “Venture capitalists are active advisers to their portfolio companies on topics ranging from operations to strategy. They support entrepreneurs and management teams during the growth phase of a company through their own efforts and the extension of their network, “explains Anju Ahuja from Chicago. First firm of Risk Capital Analysis. Whether it’s finding and hiring the right talent on short notice, identifying the best bankers for an equipment lease line, or receiving a first key client introduction, venture capitalists have the ability to open the first doors for startups. your wallet.

The successful venture capitalist

Relatively few recruits for a venture capital career come straight from college. Of course, a BE, MBA, or CPA will provide a useful foundation for entrepreneurial work. “But if you understand emerging technologies and market fundamentals, if you are genuinely motivated to help other people succeed, and if you have an intellectual curiosity about new ideas, you are well prepared for a career in venture capital,” says Mhatre. . Historically, venture capitalists came from financial or operational backgrounds. More recently, people with a technical background and experience in corporate strategy and development have become active venture capitalists. Each of these backgrounds offers a unique and beneficial perspective, although “it is becoming more difficult for people with a purely financial background to differentiate themselves and provide the depth in strategic guidance and operational support that entrepreneurs seek,” says Ahuja. This is especially true for early stage venture capitalists because startups seek business and strategic advice. “People with financial engineering and investment banking are a good fit for later stage companies,” he adds.

Certain market sectors, such as manufacturing or telecommunications, that absolutely require technical knowledge. In these cases, an engineering degree or technical experience is invaluable. “Domain awareness is everything in these markets. I have spent the last two years of my life understanding the data communications market,” says Kapadia. For markets like e-commerce, non-technical training is fine as long as the venture capitalist is deeply connected within the industry. “But you also need to understand that a venture capitalist will never know as much as the entrepreneur they support, which is why business experience is very important. An MBA from a top-tier university or strong on-the-job training would be a huge asset to a venture capitalist, “adds Dev Purkayastha, a 19-year veteran venture capitalist from Southern California who is about to form his latest fund. “Some companies are attractive for their technology, but most live and die on sales and marketing strategies. Without a strong market focus and single points of differentiation, the best technologies will never reach their full potential,” says Ahuja. “While technical knowledge is quite useful, you need the ability to refine business models and solve corporate development problems,” he adds. But, says Mhatre, whether their background is technical or non-technical, “someone with start-up experience, marketing and operations experience, and an MBA would be a good candidate for a venture capital job.”

In this business, personality is as important as professional experience. “Above all, the most suitable traits for a VC are good interpersonal skills and a good network. You should be able to coexist and lead your entrepreneur while adding positive energy within your association,” Kapadia emphasizes. “You have to be passionate about what you do,” agrees Purkayastha. “At the same time, you need to have a bit of detachment to maintain a level of objectivity in monitoring your investments,” he adds.

“Ideally, venture capitalists should be extremely open-minded,” says Ahuja. They must balance playing a visionary role with identifying processes and methodologies that help young companies grow. “This is a people business. Venture capitalists don’t invest in business plans or concepts, they invest in teams with the visions and skills to make those visions come true,” he explains. As a result, venture capitalists must be able to work with diverse personality types.

However, before participating, prospective venture capitalists should be realistic about their expectations of this job. “People sometimes have a glamorous view of this industry,” says Mhatre. Spend some time with a venture capitalist and see what the rigors of day-to-day life are like. “There are some ups and downs in this profession, but you also work very hard without immediate feedback,” he adds. Like doctors, the notion of being “on call” is very real … except that venture capitalists are always on call and must always answer to their entrepreneurs. “Successful venture capitalists tend to be capable of multitasking and are generally intellectually curious. They also tend to have a lot of energy, whether or not this is veiled by more casual behavior,” concludes Ahuja.

Starting

Choose any major metropolitan newspaper; you’ll be lucky if you see a job listing for a venture capitalist. “This is a mentor-driven business,” explains Mhatre. The way to get a ticket is as non-traditional as the profession itself. Some venture capital firms like to hire technical staff like consultants and advisers, and that’s one way to learn the business. Other venture capital firms have something called an Entrepreneur Residency program. They invite directors, vice presidents, or CEOs of different companies to join their company under this program and use company resources to research and assess the market, build networks, and seize opportunities. If this proves to be a successful partnership, they often get the job of a venture capitalist. A third way to try to enter the industry is by earning an MBA from Stanford or Harvard University, since most venture capitalists are alumni of these two schools. “Work at a new company, get noticed, and go into venture capitalism,” says Mhatre.

Getting ahead

To get ahead in this game, “network, network, network,” Mhatre emphatically asserts. Focus on a specific domain and become an expert on it. “At least one area has to be a leading indicator for you,” says Mhatre. But whatever your path, once you get a ticket, you must learn by working closely with people who have had experience. Unlike other traditional careers such as engineering or high-tech marketing, this profession has a less defined career scale. Over time, a venture capitalist will progress in terms of level of credibility and responsibility. He or she can join the firm as an associate and eventually progress to becoming a general partner, managing director, vice president, president, or CEO.

The money in this business is good. “Money is never the problem; it’s about how much value you add and what companies you build,” says Kapadia. If you are good at what you do, there is no discrepancy as to what a person with a technical or non-technical background can earn in this profession. “Mike Meritz, a journalist by profession, is as successful in venture capital as Vinod Khosla, an engineer,” says Mhatre.

Typically, a venture capitalist gets 2 percent of the total fund to manage it. An associate with 2 or 3 years of experience in the market before or after an MBA can easily earn $ 100 to $ 200 thousand, a general partner can earn from $ 200 to $ 300 thousand and top leaders can earn more than $ 500 thousand. annually, “says Purkayastha, cautioning that this is just a general compensation estimate. Ahuja, Purkayastha and Mhatre suggest consulting the December 1998 issue of the Venture Capital Journal for compensation statistics. love of money,” says Mhatre. Ninety to ninety-five percent of compensation is tied to the return on investments your risk group makes.

Hot spots

In the US, Silicon Valley is still the best market for venture capitalists. New York, Boston, Seattle, Atlanta, and the Midwest have also begun to reach critical mass. “The markets are more conservative on the East Coast and things are not moving as fast as in Silicon Valley,” says Mhatre, but emphasizes that these areas also have good markets. According to the PriceWaterhouseCoopers Money Tree Survey for the second quarter of 1999, Silicon Valley led all regions in total venture investments, with 35 percent of all second-quarter dollars for Bay Area businesses. The highest growth rates by region between the second quarter of 1998 and 1999 were in the New York subway with growth of 322 percent, New England with 177 percent and Los Angeles / Orange County with growth of 167 percent. Only the Southeast followed Silicon Valley’s 115 percent growth with a 47 percent increase.

“These different geographic markets tend to have different approaches to the industry. As a result, venture firms in these markets tend to have a perspective that is unique to that region,” says Ahuja.

Like venture capital itself, venture capitalists will be in demand for a long time. “Many people debate the nature of market activity with the dramatic number of new companies, consolidations, mergers and acquisitions. But few will really dispute the amount of market activity to come,” says Ahuja. “We are so blessed with creativity in this country that as long as the entrepreneurial spirit is alive and well, the demand for venture capital will be insatiable,” says Purkayastha confidently. So if you’re smart, well-qualified, motivated, resourceful, people-oriented, have nerves of steel and a heart of gold, and can be passionate about success, this could be the career for you. Would you like to capitalize on this company?