What does it take to break into VC: How to do it and what to expect
By Elnaz Giboulot & Saish Rane based on interviews with Benoit Georis, Armelle De Tinguy, Sofia Dahoune and Sebastien Lefebvre
Venture Capital: A complicated entryway?
Entering venture capital has always felt like a bit of an enigma wrapped in mystery, and most people you ask in VC will tell you they got there incidentally. But today, the VC landscape has changed and so has the recruitment process. Unlike most careers, VC doesn’t come with a clear, drawn out pathway, neither through your education (there’s no VC degree) nor by “working your way up” (most people don’t know where to start). Furthermore, VC has often felt like a secret entrance hidden amongst financial careers, with a code needed to enter. We’re here to remove the veil shrouded in mystery and help guide those interested in a VC career.
It should be said however, that each VC firm operates differently depending on their investment thesis, location, policies, etc., but they also have some common features.
VC, Venture Capital
Before we begin, let’s quickly go through the terms Private Equity, Mergers & Acquisitions, Venture Capital, and find out what really differentiates VC from it all. Venture Capital is the riskiest sub-sector of Private Equity since it implies investing in young startups that sometimes have little to no clients, no fixed business model, etc. rather than fast-growing & mature companies with predictable growth & business models as is the case with Private Equity.
VC is somewhat similar to PE in that both of them require a deep understanding of the business, the markets and an analytical process to aid in determining investment decisions. Not only that, but they also both involve a team of experienced individuals that make investments in high potential companies on behalf of LPs based on comprehensive research and due diligence in order to make a profit for the LPs and for the fund as well. Each VC firm has its own investment thesis which is built on what they believe will bring financial performance to their investors. The day-to-day responsibility of the team is adding value to the startups to ensure as much success as possible in order to de-risk the investments made, to continually source startup dealflow and investors for future funds as well as raise funds and finally, manage the investments made (we call it Portfolio Management)!
In essence, VCs deploy the capital invested by the Limited Partners of the fund in high-risk high-reward ventures with a solid decision making process expecting the company to find a product market fit and scale rapidly to take over the market it is in and finally exit (either through mergers, acquisitions, IPOs, buyouts, etc.) in order to provide liquidity to the investments made and provide a return on investment for the LPs.
How does this differ from Private Equity or M&A? Well, it definitely feels like it comes down to the older and younger sibling dynamic.
PE deals with investing in private companies that are not listed on the stock market whereas M&A is concerned with organizing the merging or acquisition of two or more different entities, either private or public with the intention of assuming full control over the equity of the final company.
Both differ from VC in the fact that it is more selective about investing in early-stage companies showing a potential for high growth whereas PE has a much larger time frame of investment and the sole condition being privately held companies. It also differs from M&A from the fact that VC does not (ideally) hold a controlling part in the company whereas M&A looks to organize the integration of two or more parties into one and hence has a more organizational role.
Working in VC requires a unique skill set that provides deep insight alongside providing analytical and operational value to startups while also performing a fiduciary duty towards the LPs (Limited Partners) to provide a financial return on their investment. Do all the roads lead to VC, not so sure, but there are some commonalities, so, let’s explore the current common paths that exist that lead to a career in VC.
Common routes and profiles entering VC investment teams
The Recent Grad: While there may not be a course or diploma dedicated to VC, more and more students are actively searching for internships in order to discover this universe. This is the smoothest path to entering VC, but also the longest in terms of career evolution because you’re essentially starting from the bottom of the totem pole. That being said, a junior in VC can possibly gain independence and responsibility early depending on the firm and how a partner manages their team. Managers love this profile because hiring an intern reduces risks as you already know how they operate and interns can then be molded into the perfect model as they will know the functioning inside-out. It’s a win-win situation for both the VC and the intern as they both get to know each other before committing to a full-time position. As an example, at Elaia, out of our 10 analysts hired, 8 were former interns.
The Expert: (especially for deep tech and life sciences VCs): PhD is the new MBA, and it may even be more valuable as an asset in VC. The expert often has a PhD or years of proven experience and deep knowledge of a subject. The expert almost always comes to VC slightly later on in their career after completing some time as a researcher or scientist. This profile is valuable to a VC because they bring unmatched knowledge that allows VCs to accurately assess the viability of tech, deep tech and/or life science startups because they know the market and have the network required, and they understand the restrictions, challenges, the regulations and need for such startups.
The Seasoned Entrepreneur: This profile can sometimes lead straight into a role as a VC. They have experience working with VCs and growing startups and perhaps most importantly, they know and understand the operational challenges a startup faces, and they can advise them on how to avoid unnecessary pitfalls and create success, especially in the scale up phase. This operational insight has immense value for VCs and the founders. These seasoned entrepreneurs sometimes decide to create their own funds or join other funds to have a more comprehensive value for startups.
The Networker: This profile is kind of a wild card, the networker knows the ecosystem inside out and tries to establish themselves as someone involved and in-the-know, furthermore, their network can bring qualified dealflow through events, participation and of course, networking. This may be the most non-linear path to VC, and the success of this candidate depends on the added value they and their network can bring to the VC. This profile should highlight their added value as well as their access to dealflow to entice VCs.
It should be said that for any role, networking is always an advantage when you’re on a job hunt. Strong relationships will always provide value to a job seeker. In essence, network is your net worth if you are to navigate the seas of VC investing.
Those roles aside, VCs also need to fulfill other positions such as Investor Relations, Marketing and Communications, Human Resources and Finance so if the definitions above don’t apply to you, there are still plenty of other opportunities to enter. As with any role, it’s important to know about the ecosystem and the fund itself. When going for an interview, show that you’ve done your research, that you know how to enhance the operations and the value you’ll be providing to the fund.
Working in Venture Capital is like a marriage: it requires a lot of love.
Inexperienced profiles often think VC is something they can dabble in for a bit and see returns in a few years, but a career in VC is, more often than not, a minimum 10-year marriage so if you have commitment issues, this may not be for you. It takes a fund’s lifetime (i.e more or less 10 years) to know if the investment was a good one or not. Seeing the entire life cycle of a fund (fundraising, investing & exits) is key to understanding the VC world. There are little to no overnight successes in VC.
The fruits of your labor can take ages to appear. Your job is to ensure the success of the startups in your portfolio in order for it to bring financial performance to the fund. This also means that your days can be quite different. Some days are full of research, due diligence and calls, and other days are back-to-back meetings where everyone is on the run to close a deal.
In any case, every day requires your full attention and success in VC requires resilience, patience and above all, curiosity.
So, as a VC investor, your job can be boiled down to 4 essential elements:
- Raise funds
In order to raise funds you will have to have a good relationship with different types of LPs for them to be able to confide a part of their assets to your management and be confident about receiving a healthy return on their investment in a set duration of time.
In order to invest, you will need a good quality deal flow which means time spent sourcing companies, understanding markets, meeting founders, creating long-term relationships and then making sure about their capacity to return your investment through due diligence. Choosing the right investment and recognizing patterns is a skill that can be acquired through spending time investing, sourcing and understanding different markets and industries as rapidly as you can to then deploy capital into fast-moving companies.
- Manage your Portfolio
Portfolio management can be seen as everything related to maximizing your chances of success and sometimes minimizing losses through providing support to your startups, helping them raise their next round, finding key hires through your network, help in crafting a solid strategy for the future, etc.
- Divest/Sell your positions
Knowing when to divest from certain assets is also a skill that needs to be learned as with investment cycles, there is a certain expectation from LPs to deliver returns on their investments at the end of a cycle and hence, there is a minority of high achievers that end up being fund returners as they provide triple digit returns on your investment whereas there will be others that will have performed much less, this is quite normal in the world of VC as we play by the power law.
In the end, the ability to create trust-based and long-term relationships with the entrepreneurs you are willing to invest in is a must, since the basis for a fruitful deal is a strong passion for their work and projects. The field is competitive, so you must want to research, learn and have the motivation and curiosity to consistently be ahead of the curve. In fact, in the process of interviewing several different VC profiles for this article, the one word that came up again and again was curiosity. Another particularity about VC is that it requires both precision and speed simultaneously. You need to be faster than your competitor, but you can’t afford mistakes because one mistake could cost millions of dollars, literally.
Lastly, working in a VC is almost always collaborative work. Decisions are made together and discussed on a regular basis, so if teamwork is not your cup of tea, VC won’t be the right choice for a career. At Elaia, feedback from all departments is accepted as some can bring in a perspective or details that may have otherwise been ignored during the investment committee.
All of this sounds a bit intense, so why choose VC?
In VC, the rewards take time and experience, but they’re incredibly rich and fulfilling. Very few careers offer the possibility to deep dive into so many subjects on a regular basis, so few jobs challenge your analytical brain and creativity regularly, and even less allow you to meet the creators of the future and work with entrepreneurs and watch your investments grow and stay by their side as they evolve from early stage startups with potential into large, mature and successful companies.
There is a pay-off in VC that is difficult to replicate elsewhere. Your choice can provide the necessary resources for a startup to have success, and they can go on to have greater impacts regionally and worldwide. You’re not only investing in companies that might become market leaders, but you’re helping employ hundreds if not thousands of people (currently, our startups employ over 3500 people), and you’re providing a path and an opportunity to change the lives of people for the better (see our article on Pherecydes Pharma and how they were able to bypass typical health funding constraints to continue supporting their mission to improve patient outcomes). You’re helping to disrupt the traditional models of work and life, and you’re bringing forth innovation and progress, and that is a feeling that can’t be bought.
Who should consider VC?
If you’re resilient and curious about the world and what the future of the world will be, and you want to discover new businesses and technologies that can impact the future, then VC is a great fit. Not a lot of people realize that this is the experience that VC offers. If you’re comfortable articulating problems that exist and enjoy finding better, more refined solutions to solve them, then VC could be for you. There’s so much discovery involved that the job can always feel new and when your startup does achieve success against all odds, there are few who will be happier than you. Moreover, if you love people and disrupting the present to improve the way we live and work in the future sounds interesting to you, then VC could be a perfect fit, if you’re willing to put in the work.