If it were easy to be a venture capitalist, it would be a much more common resume listing. Being able to identify new and innovative technologies and then generate a high commercial return, at an early stage, is not something you are born with. And then taking a role to assist in the management of those entrepreneurial companies requires a lot of background in usually operations or finance. In fact, according to Forbes there are about as many venture capitalists out there as there are professional baseball players. And like professional baseball, there are major and minor leagues. The road to becoming a venture capitalist is a long one.
“A college degree is not required, but most venture capitalists have a degree in business, many have their MBAs. Investing money in a business or project in hopes of making a lot of money is, for the most part, a crapshoot. You may lose a lot of money before you make a dime. Or you may hit it big with the first company you invest in. Research, research, research can make the difference”1.
Before digital startups became the focus of the investing world, there was an even split of which career paths one could take to make it into the VC world. The first, and now the most common, was serial entrepreneurship. The second, which is now rare, was investment banking. Though today you may see a few venture capitalists with backgrounds in tech-oriented investment banking, the vast majority of VCs fall into the first category. It’s not too surprising. Serial entrepreneurs enter the system with the operational experiences required to turn a startup into a fully-functional, profitable company. They know how to make a successful exit, and they’ve witnessed firsthand all the potential roadblocks to that grand finale.
Perhaps most important in serial entrepreneurs are their brushes (or collisions) with failure. They’ve made mistakes in everything from neglecting the company while negotiating with other VCs to misreading term sheets and agreeing too quickly. Their interactions with VCs prime them to one day join their ranks—it does take knowing one to become one. In essence, serial entrepreneurs are perfect future VCs, but as you may deduce from some of our former blog posts becoming an entrepreneur is not an easy task. If you want to become a venture capitalist, you would be wise to take this route. But be aware that if you’re not completely invested in the startup game, you’re probably not the best venture capital investor.
It is, of course, not as simple as that. If you have certain VC firms in mind, or even if you just want the best options, you’ll need some help along the way. These tips can help you reach that goal more efficiently:
1.) Become an active member of your local startup scene. Familiarize yourself with the big players, and offer free help to accelerators and incubators. While you’re at it, develop relationships with accountants, bankers, lawyers, investors, and anyone that can help you know who to invest in. These connections are priceless, although they might not lead directly to a job as a venture capitalist they will definitely clue you in on what it’s like to be one.
2.) Get venture backing for your startup. It’s almost implied that as a serial entrepreneur you’ll one day make it to this level, but it’s worth mentioning anyway. If you’re a star player who clearly knows how to work with investments, your likeliness of being invited to join a firm increases significantly.
3.) Spend some time with venture capitalists. Offer them free help to augment their deal flow, expand their network, or just anything you think your skills make you prime for.
4.) Become an angel—who knows, you might even like it better! As an angel investor you’ll be, in a way, running your own small-scale VC firm. For aspiring venture capitalists this is like a flight simulator—you need practice before you can really take off. Being an angel requires all the abilities of a venture capitalist—the ability to identify and evaluate opportunities and to add value to startups beyond simple funding.
5.) If you have enough capital as an individual, try to start your own fund. Every year venture capitalists manage to accomplish this—it’s not an impossible goal.
One of the most important things you can do while following these steps is keep track of every interaction you make. Even if you just ran into a venture capitalist in a bar, that single connection can pave the way for future collaboration. Know who you’re talking to, and make sure you remember where and when you spoke—that way when you next reach out to them you’ll be able to trigger their memory. The same goes for lawyers, entrepreneurs, and the like—if you’ve had contact with someone in the world of venture capital, record it (and yes, our software can simplify the process of sorting it all out).
With that, you’ll be able to continue down your path to becoming a venture capitalist. But know that it’s not easy. There are going to be more challenges and more competition than you’ve ever seen from the comfort of a stable job. Becoming a venture capitalist is like climbing Everest—if you’re not ready to work hard and train yourself, you will not make it to the top. But every venture capitalist out there today faced the same odds you’re facing.