To be frank, this is yet another “how to break into venture capital” blog. There are dozens of blogs by young venture capitalists that cover this topic and they all cover more or less the same advice. Instead of going through all the same points, I want to highlight two points that worked for me.
1. If you’re an engineer, leverage your engineering background
2. Build a personal portfolio of startups you would invest in
A quick shout out to the new CBS J-term students, welcome to Columbia Business School! If you’re interested in transitioning to venture capital, I hope you find this blog helpful.
If you’re an engineer, leverage your engineering background
I’m not your typical startup computer science engineer. In a nutshell, I used to design airplanes.
I worked at Boeing as an aerodynamics engineer for five years. I started off in product development where I did trade studies to size the 777X; there were times we worked consultant-like hours to keep up with rapidly changing customer demands. It was all worth it when Boeing launched the 777X with orders for 259 airplanes. After a couple years in product development, I moved to sales engineering where I performed aircraft operations analysis and provided technical expertise to the sales director. I worked for an inspiring sales leader who instilled a “must-win” mindset, which culminated to a $13.8bn contract with Singapore Airlines for 39 airplanes.
Plus to engineering: I had a cool job at Boeing but did it prepare me for venture capital? Not exactly, the job is very different. As an engineer, you won’t have the strategic problem-solving skills of a consultant or the financial modeling skills of an investment banker. But you have something they won’t have: a deeper understanding of the technology and how it works. Vast majority of venture capital funds invest in technology startups and I’ve found my engineering background invaluable when it comes to talking about the product. When I go to an event, I can connect with technical founders because we end up talking about the technical capability of their product. When I spoke with an engineer about their drone startup, we could discuss the pros and cons of using LIDAR sensors. When my boss and I discuss a company we just met with, I understand what he’s talking about when he says neural networks, additive manufacturing, or telematics. Warren Buffet once said, “Never invest in a business you cannot understand.” Leverage your engineering background to help you understand the technology company that you may invest in.
Minus to engineering: You won’t get any slack on the business skills just because you’re an engineer. If you want a job in VC, you’ll be expected to know how to size a market, generate a financial model, calculate unit economics, etc. What does this mean for you? Quite frankly, it means putting in the time to self-learn these skills. Find a friend who is a consultant or is recruiting for consultant and practice case interviews with them. First, I read Victor Cheng’s Case Interview Secrets book, then I did over 20 case interviews with my brother when he was recruiting for consulting out of undergrad. I probably learned as much as he did in that process. For financial modeling, I took a financial accounting and corporate finance course on Udemy. Afterwards, I used Google, Apple, and Amazon’s annual report to practice forecasting future financials. I did all this 6 months before matriculating at Columbia Business School. The preparation helped me succeed at a pre-MBA VC internship and it went a long way at helping me land my current VC role.
Your engineering background is an asset, leverage it to build domain expertise. But engineering knowhow alone won’t cut it, put in the time to learn the consulting frameworks and financial modeling skills. It was challenging but not as bad as fluid dynamics.
Build a personal portfolio of startups you would invest in
If you’re looking to get into IB, my friends recruiting for IB tell me 60% of MBA applicants get IB offers. Unfortunately, the stats for VC is closer to <1%. An associate in Hong Kong once told me they spent 6 months going through 200 applicants and still hadn’t hired an analyst. I share these stats to stress one point:
VC funds have the luxury of hiring anyone they want, which means they can expect you to operate like an investor before hiring you.
Know what the job entails: For many industries, it’s common for MBA students to ask professionals about what the job is like. My IB and consultant friends were having coffee chat after coffee chat, often going through the same questions. I was lucky to have a mentor tell me early on to not do that in venture. VC funds run very lean and don’t have the time to speak with every VC-aspiring MBA student about the job. You’re expected to know the basics of the job so the conversation can be more substantive. If you’re an MBA student, find the second years who interned in venture to get you up to speed. In my first month in New York, I met with an investor from Tenfore Holdings. He shared the following framework for VC responsibilities that I continue to use today.
Learn to operate like an investor: How did I do this? I decided I wanted to make a $15K angel investment and started there. Founders are typically advised to accept no less than $25K in the angel round, otherwise the cap table gets crowded, but everything is negotiable. I went in with $15K because that’s what I felt I could financially afford. I was serious about this and it guided my actions. Now, I’m not saying you need to invest ten thousand dollars to be a venture capitalist, far from it. The point is to motivate yourself to begin doing the job so when you meet with a fund, they’ll feel like they’re speaking with a peer.
Instead of going to school events, I went to tech events in the city. I figured tech events is where I’m most likely going to meet founders and investors. Meetup and Garys Guide are valuable resources. Once I started scheduling meetings with founders, I realized I needed to prepare questions. So, I created a framework of questions to guide my conversation. With each phone call, I refined my framework. After talking to a handful of founders, I started to understand how these conversations flowed. Following each phone call, I conducted my own due diligence and wrote investment memos for practice. The case interview prep I did with my brother helped me figure out market sizing questions and the online corporate finance class helped me build financial models.
Final thoughts: Throughout this process, I built a portfolio of four startups I would’ve invested in. And it turns out the investment memos proved useful in my interviews. At the interview, I presented my work and explained how I thought about evaluating that company. Spend the time to do your research. I know it’s not as fun as meeting people but it allows each conversation to be more substantive. I would spend hours preparing for each coffee chat and you should too. If I was meeting with a fund, I would go through their entire portfolio and form a structured opinion on a handful of companies.
As always, if you have any questions or thoughts, please comment. Or if you are working on anything in supply chain, manufacturing, or transportation, shoot me a note at alex@schematicventures.com
