My internship in Venture Capital
How I got the job, how was it and what are the key takeaways.
My name is Rafael Barbalat and I am currently a second-year, full-time MBA student at Emory University’s Goizueta Business School.
Having spent three months (May/18 - Aug/18) as an intern in one of the most prestigious Venture Capital firms in Atlanta, I’m thrilled to share my experiences with the world and, eventually, help someone on his or her journey into this fantastic industry.
Before jumping to conclusions and lessons learned, I’d like to give a little bit of color on my background and my motivations to pursue an experience in VC:
1) Background and Motivations
Although I have graduated in Industrial Engineering from a top-notch university in Brazil, I never really worked as an engineer full-time. A year or so before graduation I realized my real professional interests laid not in production lines, but in the financial markets instead.
More specifically, the idea that I could get paid to analyze and understand businesses blew my mind and since then every step I took in my career was intended to get better at it.
I started straight out of college as an investment analyst at a family office in my hometown (Curitiba, Brazil), then moved to São Paulo, to work for BTG Pactual, Latin America’s largest investment bank. After a year and a half as a back-office analyst, I made my way into the proprietary corporate lending desk, becoming one of the youngest analysts in the front office.
There I structured all sort of products, from plain vanilla loans to sophisticated bonds, to some of Brazil’s largest real estate and construction companies. Working in an intense and meritocratic environment gave me an incredible understanding about the gears that move the economy and how to get things done quickly, with little information.
Also, part of my time was dedicated to managing a portfolio of loans extended to companies (medium and small) owned by wealth management clients. After a while, I figured out that I was spending too much time over those loans, which were super expensive to the companies and weren’t very profitable to the bank. It just didn’t make sense!
It was end of 2015 and I started to question whether there was a solution for that problem. One day, it was browsing around the internet that I laid my eyes on the term FinTech for the first time. It was love at first sight, as I realized that a huge wave of startups was getting to the market to solve, among many others, the exact same problem that I had. Fantastic!
Time was passing by and I couldn’t stop thinking about the incredible speed at which the world and the way of doing business were changing. Although very fulfilled with my job (after all, I was getting paid to analyze businesses), day after day I felt that I was falling behind. Also, after a few years working with debt, I wanted to learn about how it is like to invest in equity.
After giving a lot of thought about how I could take advantage of my skillset to thrive in this new fast-paced-tech world, and, more importantly, how could I help SMB succeed, I figured out that working with Venture Capital would be a great fit (and so would be working with Private Equity or with Corporate Development, for example, each of them with their nuances and specificities). After all, I’d be doing what I liked the most (analyzing businesses and structuring deals) and would also be connected to this (not-so) new ecosystem.
With that in mind, in mid 2016 I finally decided to quit the bank in order to get an MBA in a top business school in the US. My preparation included not only essays, letters of recommendation and the GMAT but also a year of internships and freelances in startups and in a fintech innovation hub. I wanted to build the understanding of how a startup worked and see with my own eyes what I was digging into.
Fast forward to 2017 and I’m starting my MBA at Emory University, a world-class program. My idea was (and still is) to take advantage of all the resources provided by a top b-school, acquire new skills, meet new and smart people and practice a lot in a controlled environment to be well-prepared to face the transition into a new role. I’m 100% convinced that there were infinite other ways to make this transition, but getting an MBA is the one I chose and I’m very happy with it so far!
Now that you understand a little bit more of who I am and what I want for my future, it is time to dig into the steps I took to get an internship in Venture Capital.
2) How I got the job and how I prepared for it
“It is impossible to break into VC, especially for an international student”. Yes, I’ve heard that a lot, from colleagues to professors to professionals in the space. But, to be honest, I never took this statement to heart. I mean, I never thought it would be easy, but, come on, I was looking for an internship, not a managing partner position! Actually, I dare to say that what makes the pursue of a position into VC so hard is this stigma.
Opinions aside, I now visualize that I could break into VC by taking 5 steps:
Step 1: focusing
Well, so the first step (and that will be the first step in every single track that is not usual) is to be comfortable swimming against the stream. Once you are ok with that, the search can start. Please note that I’m going to talk about how I searched and how that worked for me.
Step 2: talking to people
About 6 months before starting my MBA, while I was still in Brazil, I started to talk to people involved with Venture Capital. I set meetings with partners of VC shops and founders of startups to ask for advice on how to make the best out of the MBA to succeed as a venture capitalist. Opinions ranged from “MBA is not that useful in our industry” to “start something yourself” to “leverage on the faculty”. I confess that most of the meetings weren’t very stimulating.
But, although the advices weren’t very encouraging, it was consensus among all the people I talked to that an internship would be a great experience and I’d learn a lot! And that’s what I needed, actually. My thesis that getting an internship would be the best next step was 100% validated.
Step 3: knowing my audience
The next step was to get familiarized with the “startup ecosystem” in Atlanta. In an industry that encourages networking and values the power of contacts, it is mandatory that you find a way to get noticed and understand the peculiarities of your destination. So, I started my research about the funds headquartered in the city, the industries they were focusing on and, more importantly, who their partners were. Plus, I spent a lot of time studying the startups in Atlanta and who funded them — that second part helps a lot to get to know funds that are more low profile. It is only by figuring out “who is who” that you can find a way to get introduced to those people.
The tools I used to do that research were, mainly, Crunchbase, CB Insights, LinkedIn, YouTube and, of course, Google. Some newsletters were very useful: Atlanta Inno, Atlanta Business Chronicle (especially if you’re in Atlanta), Strictly VC, Fortune Term Sheet, John Gannon (Yet another VC blog) and Crunchbase News.
Also, I used the directory of alumni and the library of my Business School, and reading local publications helps a lot to be informed about minor deals that didn’t receive national coverage.
Step 4: leveraging my resources
After I had gathered enough information to consider myself able to join a discussion about Atlanta’s startup ecosystem, I could then jump to the next step: finding means to get introduced to people. This is always the hardest part in my opinion, as sometimes you just won’t have someone to introduce you to whomever you want to talk to and your only option is the cold LinkedIn invitation (which works well, by the way).
Following an advice given by a startup founder, the very first move I made when I started the program was reaching out to Emory’s faculty. Letting professors know what you want out of life and that you could really benefit from their network and knowledge is the best signal of appreciation you can give them.
I was lucky enough to have a professor who is very tangled with Atlanta’s venture capital and private equity community, and it was through him that I got the internship. After explaining to him my goals, I asked whether he had an edge on introducing me to someone in a certain VC. It happened that he would have one of the founding partners of the VC in a seminar he was giving that weekend and was kind enough to invite me to join and introduce myself. I did so and 3 weeks later I was getting coffee with this partner and discussing the possibility of spending my summer with them. I then talked to another partner of the firm and that was it. This “coincidence” was only possible, though, because I knew he could help me beforehand and when you know what you want and share that with people, everything gets easier.
Further from talking to faculty, an incredible resource, especially if you’re an international student in an MBA program, is your class mates. Many of them will have connections in the industry you want and some of them might have actually worked in that field. Don’t miss the chance of talking to them!
Also, stay tuned on events focused on the startup community. A nice tip to get a heads up every time something is going on is to subscribe to newsletters from local startup accelerators and incubators. Attending such events is a great way to meet people and improve your network!
Step 5 (optional): building a thesis
I’ve read a lot about the importance of having an investment thesis before applying to a job in VC. Personally, I had a particular interest for fintech and that’s why I had done a lot of research about that industry, but, to be honest, I don’t think this is absolutely necessary.
Of course, it is always remarkable when you get something to aggregate, so if you are passionate or have a unique understanding about a specific industry, go for it!
3) Setting goals and defining outcomes
After receiving the offer, it was time to think about what I wanted to take away from the experience. I remembered all that I heard from the people I talked to in 2.2, filtered a little bit and always kept in mind the big picture. After all, it is impossible to learn how to become a venture capitalist in a 3-months internship. So, I picked a few things and sticked to them.
For me, the most important thing I wanted to learn from my internship was how to think as a venture capitalist. In other words, I wanted to learn to ask the right questions, to spot red flags, to build useful frameworks and to differentiate a good pitch from a bad one.
I wanted also to observe how the day to day of a VC looks like, how information flows and how knowledge is created. Those are more subjective goals, but they were important to me to see if I’d fit the job.
Hard skills are important? Yes, they are. But you can get hard skills anywhere. For example: I had to learn how to build cap tables and I did so by getting a $10 course on Udemy.
Finally, I wanted to show proactivity and demonstrate my interest in learning and adding value every day. I believe this was the best way to pay back for the opportunity given.
4) Understanding how to add value without experience
The internship is quick and goes by pretty fast, therefore, it’s important to be prepared to add value from day one. This may be hard, since it might be a whole new world (as it was for me) but, I made sure to write down some skills that I had that I believed might be useful for the VC (for example: financial modeling, building PowerPoint presentations, etc).
Also, talking to people who went down this road before (even blogposts help), choosing classes carefully (if you’re an MBA like me) and understanding what you’re going to do beforehand (don’t be afraid to ask) definitely were actions that helped me a lot.
Like I said on “Setting goals and defining outcomes”, I knew I was going to work with cap tables and I had never worked with that before. To close the gap, I took a Udemy course on that matter and it was incredibly helpful.
Lastly, I believe you can use these advices for anything: be proactive. Ask for things to do. Demonstrate interest. Do research. Connect what’s going on in the world with your tasks. Ask for insights. It is always rewarding to hear from decision makers.
5) How does the “day-to-day” look like
Different from structured programs, like the ones offered at consulting firms and investment banks, an internship in Venture Capital is probably a unique experience for everyone that goes through it. Many factors influence on the job, such as deal flow, availability of the partners, news and events going on, only to name a few.
Therefore, the “day-to-day” actually varies considerably. In my case, there was no defined routine or final project to deliver, moreover the type of work changed a lot. Intensity also isn’t something constant, as there were days in which I was pretty busy and others that I didn’t really have much to do. Also, the firm I spent my summer at is small (in terms of people) and most of the time I was working by myself. On the other hand, I had very meaningful conversations and discussions with the partners.
Although I enjoy being surrounded by people, this dynamic worked out pretty well for me as I consider myself as someone very disciplined and who can easily be self-motivated. Also, I always kept in mind that it depended on me to go after things to do, after all, the more I did, the more I learned.
That said, below are the activities which I spent the most time on during my internship (not in that exact order):
- Writing investment memos:
A lot of effort is put into every investment decision. There’s a lot of things to analyze before writing a check: the market (who the customers are, competitors, numbers), the product (how it works, what problem it solves, what’s unique about it, possible red flags), the management (who the founders are, what are their accomplishments, what type of team is in charge), the structure of the deal (amount invested, instrument, liquidation preference, valuation), among others. Having talked to other friends in the industry, I found that this is actually a common practice (why wouldn’t, right?).
All this research is relevant, of course, but, at the firm I was, though, the most important part of the memo is something called “Risks and Mitigations”. It is a section where we list every single threat to that company and then think together about how to deal with those risks. It is such a rich exercise, since sometimes the excitement of making a new investment creates blind spots and being forced to think about problems definitely brings everybody down to Earth again! See? The very step of thinking about Risks and Mitigations is already a way to mitigate a risk. Inception.
All in all, I’ve learned that in the world of Venture Capital, many ideas and solutions overlap. Therefore, it is super important to document every step taken on the process of analyzing an opportunity, as well as all the knowledge acquired, as they both might become the basis for another deal in the future. But don’t take my words on that. Ray Dalio, founder of Bridgewater, talks extensively about the importance of registering the decision-making process to improve the decision-making process in the future.
My contribution here, besides the 8 memos I wrote with every detail of the companies and the deals, was a framework that I created to standardize the structure of the document.
In practical terms: building a word document with all the details of the deal. This activity demanded a lot of research and effort to understand the details and the rationale behind the transactions.
- Modeling cap tables and liquidation waterfalls:
Having worked for an investment bank, I was really used to build and base decisions on financial models. Mainly cash flow models, where we could observe the capacity/ability of the company to generate cash.
In the VC world, though, it is really hard to translate a startup to an Excel spreadsheet (to be honest, I believe it is impossible) as the companies, generally speaking, are too young to provide any sort of predictability.
That said, the most important model for VC is, actually, the liquidation waterfall model. It is a tool that determines how much money each of the investors (and the founders) are going to make in case of a liquidation event.
I have to tell that I had a blast creating those models. Especially because they change based on the structure proposed (valuation, type of share, liquidation preference, option pool, etc.) and it makes the challenge of modeling even harder. Also, new investment rounds change everything, and one must include different scenarios in the model.
The coolest part here is that a lot of numbers generated by the model are used to build the term sheet offered to a company. I’m talking about number of shares to be acquired, pre and post-money valuation and option pool, for example. Building cap tables and waterfalls is the best exercise to understand, once and for all, how important it is to structure a deal well. It is definitely not always about valuation.
In practical terms: understanding a term-sheet and the current capital structure of the firm and translating that understanding into Excel models. For those who love playing with Excel like me, it is really fun.
- Writing term-sheets:
After evaluating the pitch and reviewing the business plan, if the partners agree on extending funding to a certain company, this is done through a term-sheet. This document details all the characteristics of the deal: valuation, number of shares to be bought, liquidation preference, class of shares, among many other things. This document is not binding and hardly ever accepted at once and in full. Generally, the company doesn’t accept a few terms and the fund negotiates others in exchange.
After going back and forth, if and when consensus is achieved, the deal actually begins. A stronger and more complete due diligence starts and, after everything about the company is confirmed, then the actual terms of the purchase are translated into contracts and the money is disbursed.
In practical terms: creating a word document (in general based on existing ones) with all the terms of a deal. The terms were in most part standard, but every term-sheet is unique, so it was important to review every word of it.
- Performing market research:
In order to evaluate an investment in a company, it is important to understand the context in which the company operates. Therefore, more than having a good product and an outstanding team, the market must be attractive for the startup too (even if it is one of those cases that “the market still doesn’t exist”).
Market research encompasses understanding the competitors and their solutions, discovering who the customers are and unravelling possible threats and opportunities, just to name a few. Believe it or not, the good old tools of Porter’s 5 forces and SWOT Analysis are extremely useful to build a thorough analysis.
An important thing that I learned here, though, is the danger of “confirmation bias”. It is easy to find information to sustain your views on certain issues, thus being impartial and relying in trustworthy sources (check section “List of Resources”) are primordial steps.
In practical terms: reading a lot of reports, research and articles about the technology and the space the company plays. Also, delving deep into competitors’ solutions is a must. Being tech-savvy is s plus.
- Evaluating pitches and reviewing business plans:
These two activities are definitely very important for a VC firm. After all, they are the very first steps towards making an investment that can make the GPs and LPs a lot of money. But, on the other hand, one can be stuck into that and, given the plethora of new ideas seeking funding that pop out every day. That’s why it is important to have an effective way of screening and organizing the deal flow.
I’ve realized that, just when you’re hiring someone, recommendations are the best way to land a call or a meeting with VCs and to have your business plan or pitch analyzed. But there’s a whole lot of articles on the web telling about it, and that’s not the point of the post.
As an intern, my goal was to learn the most as I could about how to think as a venture capitalist. Yes, I had heard lots of pitches and had analyzed some business plans before. But I didn’t have the ability to ask the right questions or to quickly spot red flags (see the section “Setting goals and defining outcomes”). After going along with experts on the industry to pitch sessions, I’ve definitely developed a better sense of what’s a good and a bad pitch.
In practical terms: the job here was basically looking at a bunch of power point decks, listening to a lot of energetic founders explaining about their companies (either in person or through the phone) and, of course, watching a lot of demos. Can’t complain, I really liked this part.
- Attending board meetings:
Going to board meetings is really cool. You get to hear the management of the company talking about goals, targets and achievements. More important, you hear smart questions asked from the board and get a chance to observe how these people see the world.
I didn’t do much on these meetings except from listening and taking notes. It was of great learning, though.
In practical terms: I went to meetings, learned a lot and took a lot of notes.
6) Lessons learned
Spending my summer at a Venture Capital was awesome. I really wanted to have that experience and couldn’t be more satisfied with the result of it. I believe I achieved all the goals I set for this period (see “Setting goals and defining outcomes”): thinking as a venture capitalist and getting a taste of how the life as one looks like.
As a bonus, here are some other things that I learned over the past 3 months:
- Structuring is king: more than understanding about new technologies, a venture capitalist must be someone who understands about deal structure, as it is by structuring the deals correctly that the fund makes money.
- A lot is recurrent: like I said before, many solutions or companies overlap. Therefore, being able to revisit notes and old thoughts is very helpful and so it is being organized. Plus, experience definitely makes you a better investor.
- Getting things done: generally speaking, neither the VC nor the startup have big teams of people. Therefore, working in VC means that one must be really hands-on and wear different hats to make deals happen and to help the company grows.
- Revenue matters and projections must be questioned: it is a very good sign that someone is paying for the service or product offered by the startup, but it’s important to understand if the projections are actually achievable.
- Dealing with uncertainty: the reality is that early stage valuations are extremely subjective and a little bit questionable sometimes. Embracing that uncertainty and trusting your decision-making process to harvest the upside in the future is mandatory.
- Most of the investments are not going to be a home run: in many times, the fund invests in a startup already knowing that it won’t turn into a billion-dollar company. And that is ok.
- Separate the wheat from the chaff: time is everyone’s most limited resource. Therefore, identifying that one should spend more time promoting the good companies, instead of trying to save bad ones is a very important thing.
Those are high level lessons I learned with the internship. However, there are some more sprinkled over the post (especially in Section 5)! Another thing that I learned is that there are other job alternatives as cool as VC for people like me who enjoy analyzing businesses! Corporate development, Private Equity and Corporate Venture Capital, for example, have lots of points in common with VC (with a slightly different focus, of course).
Please don't hesitate to reach out if you want to talk more about it! I'm always available for a good chat. Also, if you've read this far, send me an invitation on LinkedIn and let's connect.
7) List of resources
CB Insights: awesome insights and source of information.
Crunchbase: everything about deals, investments and people in the industry.
Yet Another VC Blog: tons of jobs and an endless list of resources.
Atlanta Inno: if you’re in Atlanta, this is an incredible newsletter talking about what’s going on in the city.
Strictly VC: daily newsletter with deals, moves and news.
Fortune Term Sheet: daily newsletter with deals, moves and news. Very well written!
TechCrunch: portal of tech news.
AngelList: best place to search for jobs and people in the industry.
VCdium: a Medium publication with useful posts about VC.
LinkedIn: fantastic tool to find people and connect with whoever you want. If you don’t use it every day, odds are you’re wasting time.
Twitter: follow everybody you want. I created my account a few months ago mainly to follow news of the VC industry and don’t regret.
Podcasts: there’s a lot of good ones, but my favorite is by far The 20 Minutes VC. Harry Stebbings interviews the best venture capitalists and founders of the world. It is really incredible.
Mergers and Inquisitions: some cool articles about corpdev.
