Last time, we looked at mid-range, senior-level positions in private equity, the dealmakers who are involved in identifying and completing transactions for the firm. Today, we’ll look at similar jobs within the venture capital industry.
The U.S. venture capital industry provides the capital to launch some of the most innovative and successful companies in America. Funds raised by VC firms tend to be much smaller than the multi-billion dollar funds raised by the big private equity and LBO firms. These investments take place in the early stages of a company’s life cycle (known as the “seed round”), or in later stages as a company focuses less on launch mode and more on market expansion.
But venture capital is more than pouring cash into a start-up. Venture capital partners often become actively engaged with a company, sometimes taking a seat on the board and interacting frequently with the management team. They lend their business expertise and guidance. This of course limits the number of start-ups that a fund can invest in.
The pile of 100 business plans that cross the desk of a venture capitalist gets whittled down to roughly 10 or so that get a serious look. The venture capital professional who would look at and evaluate deals that have been vetted by more junior members of the firm (such as research analysts and associates), might have the job title of “principal.” A principal is one route on the path to becoming a partner in the firm.
The VC principal would evaluate the management team at the potential investment company, the concept, the marketplace, the fit to the fund’s objectives, the value-added potential for the investment, and how much capital is needed.
Finding a Job as a VC Principal
The venture capital industry is relatively small, with only a few hundred firms consisting of between two to 50 people. Networking is crucial in this industry. While the “Old Boy’s” network is still in active and many principals having degrees from Ivy League or other top business schools, your industry experience in a particular niche may give you an edge.
In fact, one legendary venture capitalist, Guy Kawaski, an early backer of Apple and other high tech startups, goes so far as to suggest traditional background experience such as management consulting, investment banking and accounting may work against you in moving up in the ranks of venture capital.
Instead, those with engineering or sales backgrounds may be preferred. Engineering, because it helps a venture capitalist understand the complex technologies they are often investing in. Sales, because it’s a key driver for the success of the new start-up.
Many principals in venture capital firms also come from science backgrounds. Ph.D’s working with prominent research laboratories can often parlay their experience into a venture capital position. They are also often the ones bringing exciting new ideas for start-ups to the venture capital industry.
References:
www.vault.com
www.wsj.com
The National Venture Capital Association www.nvca.org
www.network.nature.com
http://blog.guykawasaki.com
Raising capital and finding outstanding companies in which to invest is the lifeblood of the private equity business. Dealmakers are the ones who make it all happen.
Dealmakers have the extensive personal network that connects them to sources of capital. They meet with sources of funding including major institutional investors, investment banks and hedge funds. Once that’s secured, the dealmakers try to buy private companies at the best possible price and terms. Their goals is to obtain enough capital and leverage at a low enough rate to make the deal profitable.
In many private equity firms, the dealmakers are the founding partners in the firm. So clearly, nothing gets done until the top guys sign off on it. They may not be sitting at the table on a day-to-day basis, through lengthy negotiations (unless it’s an extremely large deal), but they will make sure that the transaction aligns with the firm’s overall objectives.
Good connections have their rewards
Some dealmakers may have started in an entry-level position at a private equity firm, such as at the analyst or associate level. But many other dealmakers started their own firms after years of working elsewhere. Generally speaking, a dealmaker position at a private equity firm is generally created or filled by a senior professional who brings 10 or more years of experience at a big investment bank, or brings significant clients and potential deals to the new firm.
It also helps to have a great network of contacts and to go to the right schools. Approximately 11% of the class of 2006 at Harvard secured positions in private equity, according to school officials. The Ivy League schools have long been the schools of choice for those in private equity. Stephen Schwarzman, founder of the Blackstone Group, for example, is a Harvard Business School grad. Henry Kravis of Kohlberg Kravis Roberts went to Columbia Business School. In fact, the head of MBA admissions at Harvard is quoted as saying more than 27% of the senior leadership of private equity firms are graduates of Harvard Business School.
Senior bankers who work together on major deals at investment banks often form their own private equity firms, as well. The founders of Kohlberg Kravis Roberts & Co. all worked together at Bear Stearns, where they worked on some of the earliest leveraged buyout transactions. The two founders of The Blackstone Group, L.P., Peter G. Peterson and Stephen Schwarzman, previously worked together at Lehman Brothers.
Skills Needed
What type of skills are required for a dealmaker-level position? In looking at some senior-level private equity jobs listed on JobSearchDigest.com, we see a firm looking for a Vice President of private equity. This person would evaluate potential deals, analyze cash flows and returns, write investment recommendations and discuss all this with the General Partners of the firm. This position requires strong writing, communication and analytical skills, 5 or more years of related experience (in this case, in the Asian private equity markets), and an ability to work well within a team environment.
In another example, a London-based private equity firm is looking for a senior professional to head up their private equity team. This individual would lead the search for investment opportunities, originating deal flow. He or she would need a solid understanding of how to structure private equity funds, plus a stellar track record in private equity. This person would be part of the investment committee for a global asset manager.
As you can see, when it comes to a senior position in private equity, you will know when you are ready. Chances are, you will have been working in the industry for five or more years and have developed an extensive network of connections and prospects.
Next time, we’ll look at the dealmaker jobs in the venture capital industry, a subset of private equity.
Last time we looked at some of the more familiar entry-level starting points for a career in private equity or venture capital. Now we’ll take a look at what you might be doing on the job.
Landing a private equity associate’s job requires outstanding analytical and personal communication skills. A background in M&A or leveraged finance with one of the top investment banks can be a big help, too.
As we noted before, associates will often focus in great depth in a particular industry that relates to the private equity firm’s area of investment. For example, a rare “pre-MBA” associate position in the Northeast U.S. focuses on the energy sector. This job would involve identifying up-and-coming energy companies, assisting the PE firm’s partners in evaluating their potential, conducing due diligence on potential investments, and doing extensive industry research on the market. The PE firm may even partner with their investment companies, providing operational and management expertise. For a job like this, prior energy industry or strategic consulting experience is a must.
When it comes to senior associates, members of the private equity firms are really looking for professionals who have the personality and motivation to develop into a VP, Director, Principal or Partner, depending on the titles used at the firm. This person will need work experience that includes all aspects of deal execution. He or she would likely have an MBA from a top business school, several years of investment banking training or experience working at another private equity firm.
At a venture capital firm, an associate would be involved in identifying attractive industry sectors, and specific companies within those sectors, for possible investments. You would attend trade shows, review industry journals, develop your own database of private companies, and speak with dozens, if not hundreds, of entrepreneurs each year. All this would be to identify perhaps two or three stellar companies that merit investment by your firm. Before that investment takes place, of course, you would be involved in due diligence on the firm, quantitative analyses of the industry in which it operates, and you would be working closely with senior management of the start-up firm.
A senior associate in venture capital would have an MBA from a top-tier school or perhaps a MS or Ph.D. in a field related to the VC firm’s specialty, such as engineering, computer science, biology or chemistry. Experience in the VC firm’s industry sector, such as at a leading research institution, consultancy or government agency, is often more relevant than previous venture capital work. Senior associates must also possess outstanding networking and communication skills (both written and verbal presentation skills), and have the ability to articulate insightful judgments about people, technology and markets.
Ultimately, the top management of most private equity firms will come from those who can identify potential deals and close those deals. An associate at a private equity firm who can develop these skills is on track to earn huge income, with the average compensation package for experienced team members climbing well over $230,000 and many partners earning millions of dollars annually.
References:
UCLA Anderson School of Business http://www.anderson.ucla.edu
www.vault.com
Tuck School of Business, Dartmouth Unversity
http://mba.tuck.dartmouth.edu
