VC versus MC: the ten major differences between venture capital and management consulting

In some ways, the venture capital and management consulting industries are more alike than they are different; but in other ways, it’s night and day. Take it from someone who’s done both.

Background on my perspective

Earlier this year, I made a career transition from management consulting to venture capital. The move was the result of my quarter life crisis (as I affectionately refer to it), during which I turned down job and graduate program offers that made me stressed and unhappy, and redirected myself toward things I found exciting and fulfilling.

Through a startup that I briefly consulted for, I was introduced to the General Partners at Indicator Ventures, who brought me on as an investment associate. Because most junior-level roles in venture are filled by ex-bankers, ex-entrepreneurs, or MBA grads, my perspective as an ex-consultant is fairly unique — in fact, less than 5% of PE/VC hires come from consulting or accounting firms.

This post is a generalized comparison of venture capital (VC) and management consulting (MC). I will strive to make it as unbiased as possible, but apologies if my observations are too specific to my experiences.

#1: 10⁶ versus 10³

MC firms are mostly hired by large, established Fortune 500 companies (think: Wal-Mart, McKesson, AT&T, etc.), while VCs usually deal with small, nascent startups. Of course, there are exceptions — e.g. many MCs are hired by private equity clients to work with $100M companies, and many VCs are invested in unicorns that balloon to become much larger than most Fortune 500s — but in general, the financial figures are orders of magnitude apart.

In addition to implying smaller transaction/partnership/activity volumes, this difference means that VCs deal with much less bureaucracy than MCs do; something I’ve found enormously refreshing. Everything happens more quickly because (a) fewer decision-makers have to be involved and (b) leadership is more accessible. However, the amount of complexity that exists remains the same, and, if anything, having less dilution across a smaller organization can make the work more overwhelming — in other words, VC’s counterparts at startups are stretched more thinly than MC’s counterparts at large clients.

Commonly used emojis in VC Slack channels.

#2: Steering a dinghy versus the Titanic

In the VC world, everything is about disrupting, innovating, and growing. In the MC world, clients use those same words, but in reality, are simply trying to stop the bleeding.

Imagine trying to steer a dinghy boat versus the Titanic — it’s similar to a VC interacting with portfolio companies versus an MC dealing with clients. One has high potential to accelerate if properly engineered and fueled, while the other is un-agile and unlikely to truly change much. I don’t need to continue this analogy to make the point that dinghies are easily and frequently sunk but with smaller losses, whereas Titanics are harder to hit but definitely not “unsinkable”.

A dinghy versus the Titanic.

VCs generally work with growing companies (at least, that’s the goal) whereas MCs are brought in by stagnating or declining clients seeking a turnaround. Moving from MC to VC, I’ve had to shift my mentality from “let’s clean up this mess” to “let’s make waves”.

#3: Client-is-always-right mentality

Not only are the size and growth trajectories of the counterpart companies very different, but the working relationship power dynamics are opposite. While a VC is an investor in a startup, and sometimes even holds a board seat, an MC is hired by the client, and therefore answers to their direction.

It can be enormously challenging to work in a client-facing environment. Personally, while I was in MC, if I had direct control of a project, I would manage expectations upwardly to my project leadership as well as laterally to my client stakeholders. However, many MCs are far too ingratiating to the client, and if unchecked, will lead to high burnout (which it often does).

#4: Value to whom?

Both VCs and MCs offer strategy and operations support to their counterparts, however, the incentives are much more aligned in VC.

A VC partners with investors to find startup investment opportunities with high upside; generally, the better the startup performs, the more money the VC and its investors make. An MC partners with clients to solve strategic problems and implement solutions, and while I never witnessed overt sabotage, there is some perverse incentive to allow some issues to remain unresolved, i.e. so as to continue selling project work.

#5: Relationships always matter, but more so in VC

Sales is a people-driven world (I have yet to finish Mad Men, but I still surmised as much), and VCs selling to investors and MCs selling to clients are no exception. Relationships always matter, but I would argue that they matter more in VC.

Think of supply and demand economics. A VC must network to find investors to participate in their funds (creating their demand for asset management services) and to find attractive startups to invest in (creating their supply of deals). An MC must network to find clients to hire them (creating their demand for consulting services), but receives inbound interest from people like me who want to be hired (creating their supply of consultants).

In other words, VCs must constantly be scouring their network for the supply and demand sides of their business, whereas MCs must only do so for the demand side. This could potentially be a factor in why people in VC tend to be more extroverted than people in MC.

The demand and supply for VC and MC. Note: The orange stars indicate my assessment of where relationships are imperative.

Another topical difference is the type of people targeted for networking. VCs focus on potential much more, whereas MCs are looking for connections with existing impressive resumes of big-name accomplishments. Don’t get me wrong, both industries will turn heads for an Ivy League degree or CEO-level role, but VCs want to know Elon Musk circa 1996 while MCs care more for him now (or…maybe a few months ago).

Elon Musk in the 1990s versus Elon Musk in 2017.

#6: Inverted org structures

An MC makes money by sending armies of consulting teams out to clients for project work, and bills clients based on the time and peoplepower required. A VC, in contrast, makes money by finding the best deals (or startups) to back, and charges fees to investors based on assets under management (AUM) and asset returns.

In terms of the bulk of value-added work being done, MCs require a lot of analytical and execution support whereas VCs require a lot of check-writing and investment decision-making. In other words, their decision-making-to-executing ratios are inverted.

This, I believe, is why the typical organizational structures of the two industries are opposite (see below). As an Analyst consultant, you will probably work with many other juniors supporting one Partner on a single project, but as an Analyst investor, you will probably support multiple Partners on various deals.

Note: Diagrams only include investors and consultants, and omit operations and support staff teams.

#7: Hiring within or without a recruiting program

These structures yield very different recruiting strategies. Having either VC or MC experience is coveted, and as such, landing a full-time role in either industry can be pretty tough. But, where recruiting programs for MC are story-booked and rigid, for VC they are…nonexistent.

MC firms hire the majority of junior consultants straight from undergrad or MBA, and usually only deviate to fill specialty roles (e.g. with a particular industry focus) or when selling has outpaced staffing (i.e. bodies are desperately needed) — finagling your way in as an “experienced hire” is much harder and more uncommon. VC firms, in comparison, tend to hire very opportunistically — when the Partners decide to hire an Analyst, they simply look within their existing networks for candidates.

I am a great example for both industries: A.T. Kearney hired me through on-campus recruiting at a core undergrad school, and Indicator Ventures hired me (first as a contractor, then as a salaried employee) through an entrepreneur’s recommendation.

A small percentage (~5%) of PE/VC new hires came from school. Source: Thelander-PitchBook 2017 and 2018 investment firm surveys

Despite the different org structures, both industries grapple with confidential, CEO-level material. As a young woman in her 20s, I have sat in countless meetings with Fortune 500 executives and startup founders, and am regularly privy to forecast data that shows headcount reductions before employees are notified. These unnerving experiences demand a fledging sense of professionalism from junior team members, and both VC and MC hire for this skillset.

#8: Both pay well, but VC is more of a gamble

If you receive an offer from a consulting or venture firm, you’re doing something right. Both industries offer competitive compensation, and while your friends in engineering or product management might initially get higher cash salaries, their trajectories likely plateau quickly whereas VCs and MCs will double a new grad’s compensation within 3–5 years.

But as you progress to senior ranks, VC compensation becomes more and more about the percentage of carry (i.e. a proportion of fund returns) you receive, which is a highly, highly variable dollar amount depending on fund performance and which gets paid out over many years. The same shift of fixed to variable compensation also happens in MC, as Partners are more concerned about performance-based bonuses than base salaries, but the timeline and expected payouts are more reliable.

The below graphs exclude carry and MC Partner bonuses, as that data is very variable and less reliable, and thus I have conveniently greyed out the bars for senior roles. Otherwise, you can see that compensation for junior team members are generally commensurate across the two industries.

Accounting for variability within firms, compensation for junior team members are generally commensurate across the two industries. Note: Principal/VP and Partner compensation is largely driven by highly variable factors — by bonus in MC ($1-$5 million) and by carry in VC (average 25.4%). Sources: Charles Aris 2018 Strategy Consulting Compensation Study (n=779) and VC Comp Survey Data (n=243)

#9: Neither is a 9-to-5, but VC is more conducive to a healthy lifestyle

I’m a millennial and as such, I have a “self-righteous” expectation to love my job and to have great work-life balance. Turns out, MC was not a great fit for those diva needs, and I have since drifted to VC. While neither is a typical 9-to-5 and both can be demanding at times, the subtle and structural differences are hugely important.

VC operates in a world where people tend to be more passionate about their ideas. I’m not naïve, and I understand that most startups flop into dead weight and that many MCs love their industries, but on average, VCs complain a lot less about the work they do. I’ve found that MCs are much more wistful and regretful that they are throwing away their youth or missing time with family, while VCs are more eager about their day-to-day and adopt a more lifestyle-friendly working mentality. These things trickle down to the junior ranks, who mirror their Partners’ levels of work-life balance.

A huge part of this difference is travel. In MC, I was expected to travel four days a week, 50 weeks a year — I wasn’t necessarily always traveling that much, but I had to plan my life as if it were the case. In VC, there is still some travel, but not more than most professional industries demand.

My life for 3.5 years.

#10: Both have a lack of leadership diversity, but MC has a clearer path to Partner

For females and minorities, most industries will be uphill battles until we start seeing better representation at the senior ranks. This is no exception in finance and consulting, where the lack of leadership diversity is startling.

The Partner gender gap is jarring for both industries (see below; even slightly worse than that of Congress), but less abysmal in MC. I attribute this to two factors: intake and uptake. In MC, the main intake is from MBA programs, and there is a clear pathway to Partner. In VC, however, the main intake for Partner is entrepreneurs, and so most VCs tell their junior team members to expect a two-year rotation — that’s it.

MC’s applicant pool has a greater proportion of women for intake, and is working harder to retain and internally promote women for uptake. VC is slowly starting to follow suit. Over the last two years, the percentage of women working in venture capital has increased from 11% to 18%, reflecting a meaningful trend in the right direction.

Sources: TechCrunch (similar to data by Fortune/Pitchbook), Financial Times, CrunchBase 2017 Women in Venture Report, Forbes, and Workplace Gender Equality Agency (WGEA) data

The story is not much different from a racial diversity perspective (see below). While the data is frustrating (and again, doesn’t look much different from Congress), the outlook is improving and the right conversations are happening. To all my fellow women and POCs pioneering in these fields, hats off to you!

Note: MC only includes data from Accenture, one of the largest global consulting firms. Sources: Noteworthy and Fortune

Conclusion: Both are great, but long-term career paths differ

I like to think that I’ve survived my quarter life crisis, but I can’t say with complete confidence that it’s actually over yet. For so long, my career aspiration was to be the CEO of REI — last year I even cold-call messaged him on LinkedIn, and he responded! — but MC offers a clearer career path toward that goal than VC, and yet here I am.

My overall opinion is that MC offers a safer, more traveled experience for people looking to become a Partner at a firm or an executive in industry. The VC track offers team members the same thing it offers investors: high risk, high reward.

About the author

Michelle grew up in Northern California as the second oldest of seven kids in an immigrant household (🇱🇧). At UC Berkeley, she studied Environmental Sciences & Economics and was the President of a $10M housing nonprofit. After graduating she moved to New York City, where she worked as a management consultant for A.T. Kearney and now as an investment associate at Indicator Ventures. Her icebreaker fun facts are that she’s run the two oldest races in America, and that she can’t touch her toes.