What Is a Venture Capitalist? How to Start in Venture Capital

Venture capitalists (or VCs) invest in early-stage companies with high growth potential because of the possible return on investment. By providing cash flow, liquidity, and other types of funding to these startup companies, VCs take a high risk with the potentiality of a very high reward. While some of these professionals might work alone, many work together as limited partners—you can almost think of venture capital as a more tight-knit form of crowdfunding.

Venture capitalists differ from other institutional investors and money lenders in that they possess an aggressive, risky style of investment and a unique overall strategy. Unlike traditional equity investors, VCs seek out investment opportunities that may have a high likelihood of failure. Their goal is to balance out their portfolio companies so a few giant successes will compensate for the many losses along the way.

A VC job can open a lot of doors and grant you wealth and opportunities. Here are four benefits to entering the venture capital industry:

1. 1. High salary: Many people who work for VC funds for even a short period of time accrue a very high net worth. Leaving aside their equity stakes in the companies they manage, VC firms are often able to pay their employees salaries totaling a million dollars or higher.
2. 2. Industry clout: Success in this realm of the financial world has a snowball effect—the more your fundraising and VC investment efforts pay off, the more clout you gain in your industry as a whole. This opens the doors to more and more new business ventures and investment opportunities.
3. 3. Exit fees: At later stages of the startup lifecycle, many private companies decide to go on to the public market. Venture capitalists have a built-in exit strategy in the event of a buyout, initial public offering (or IPO), or merger with another publicly traded company. They often will receive a huge chunk of the company’s valuation once they move away from private funding and can hold on to plenty of stock.
4. 4. Private equity stakes: As a contributor to the stability and liquidity of a firm, you’re granted many financial perks. After providing Series A (or initial) funding for startups, you can charge management fees and carried interest from your venture capital investments.

Becoming a venture capitalist comes with challenges, but it can also be very rewarding. Follow these eight steps if you hope to work for a venture capitalist firm:

1. 1. Acquire capital. You’ll need a large amount of money to become a venture capitalist. If you plan to work for a venture firm, this means managing endowments, pension funds, contributions from wealthy individuals, and other forms of capital. If you hope to make it as an individual angel investor and entrepreneur, you’ll need to build up hundreds of thousands, if not millions, of your own money.
2. 2. Ask yourself if this is the right move. Working for a VC firm or going into angel investing can take a lot out of a person. Successful venture capitalists and angel investors often work sixty to eighty hour weeks. Your investment decisions will be the primary focal point of your life, and this can lead to imbalance in work and life for many people. Think about whether this is the sort of lifestyle in which you will thrive.
3. 3. Develop people skills. As a venture capitalist, you’ll need to know how to put business owners, investment banks, and others at ease in relation to huge sums of funding. Since many venture firms also operate as limited partnerships, you might be working for twelve hours a day with the same small group of people, too. You need to know just as much, if not more, about human behavior as you do about money to succeed in this industry.
4. 4. Enter the financial industry. There aren’t many entry-level jobs in VC funding, so you’ll need to get experience in this general field some other way. Consider a career as a more traditional investment banker or financial analyst before moving into the venture capital field. Along the way, you’ll learn what allows some small business plans to turn into giant moneymakers with the right funding.
5. 5. Get educated. It’s very helpful to attend business school if you intend to pursue a career in the venture fund world. Gaining a master’s in business administration (or MBA) will help you learn about entrepreneurship, investment banking, and all aspects of the business and financial world.
6. 6. Know your specific field. As a venture fund manager, it’s likely you’ll need to develop a specific field of focus for your investments. While diversification is also common in venture portfolios, becoming an expert on one corner of the market—such as biotech, cryptocurrency, or another field that’s on the rise—will allow your venture partners to cede to your authority on certain deals.
7. 7. Network regularly. Meet people from the capital market ecosystem and up-and-coming small companies as often as you possibly can. You might even find someone to mentor you as you work your way toward becoming a general partner at a Silicon Valley VC firm. While VC funding happens all over, the present-day epicenter is in the San Francisco Bay Area, so moving there could really help your networking potential.
8. 8. Research often. Spend plenty of time researching different business models, market trends, and new technologies. Voraciously reading trade journals and financial newspapers is crucial to doing your due diligence as part of a venture capital firm management team. This sort of know-how will help you establish a steady and impressive track record for your investment success as a venture capitalist.

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