To get a quick snapshot of the venture capital sector right now, check out “Business Exits in the Current Economic Environment.” It’s a summary of a panel discussion sponsored recently by the Wharton Entrepreneurial Program.

Wharton management professor Raphael (Raffi) Amit highlighted the major shifts in the sector. No surprise in the steep decline in the number of IPOs by venture-backed companies in the U.S. The number of IPOs plummeted from 260 in 2000 to 13 in 2009, and VC-backed M&A transactions dropped to 260 deals worth $12 billion (as compared to 462 deals worth $99 billion in 1999). Amit also said that investors have reduced their commitment to the industry, from $41 billion in 2007 to $15 billion in 2009 in the U.S.

This crash has been deeper, broader, and much more global than the dot.com debacle of 2000 to 2003, according to Frank Quattrone, co-founder and CEO of Qatalyst Partners, a technology-focused investment bank in San Francisco. And the near-disappearance of credit is putting a further damper on IPOs, particularly for mid-size and smaller cap start-ups. “It’s going to take a longer time to come back…. We’re going to need to get the credit flowing in the economy again before things really open up,” Quattrone said.

The playing field among banks has changed dramatically, too. In the 1980s and 1990s, big investment banks such as Morgan Stanley and Goldman Sachs handled between 5% and 10% of the key technology IPOs. The remainder, including what turned out to be high-profile IPOs for firms such as Sun Microsystems and Adobe, was handled by smaller boutique firms.

“Today, it seems like the feeling is if Morgan and Goldman won’t take your company public, it’s not worth it. It’s like saying, if you can’t get your kids into Wharton or Stanford, they might as well work in the coal mines,” said Quattrone.

What do you think? Is the VC industry “broken” or on the mend? Add your comments below.

What is carried interest? And who earns it? Carried interest, also known as “incentive allocation” or simply “carry,” is the percentage of fund profits charged to the investors as an incentive fee (on top of management fees). Carried interest is the proverbial “carrot” that keeps PE fund general partners striving for better performance.

Most funds typically allocate around 20 percent of the funds profits for carried interest. But the recent turmoil in the markets and less-than-stellar performance figures have put downward pressure on this benchmark over the past two years.

How is carried interest distributed among PE fund professionals? Unlike the hedge fund industry, where 70 percent of a fund’s staff may not receive any upside on performance, 52 percent of private equity professionals reported that they received some level of carry. That’s according to the 2010 Private Equity Compensation Report, published by JobSearchDigest.com

How is carry shared?

27 percent of Associates and 48 percent of Senior Associates reported receiving some carry, although typically at a level of 2 percent or less. Those with carry reported having a holding period of roughly 4 years before they were fully vested in their carried interest. 

Perhaps the greatest indicator of whether you will receive carry at a PE firm is how much work experience you have. More experience translates into more senior positions, thus greater carry. The majority of private equity professionals with 10 years or more of work experience have some level of carry as part of their compensation package.

You can read the full 2010 Private Equity Compensation Report at
www.PrivateEquityCompensation.com

Concerns about their job security are almost evenly split among venture capitalists, between “somewhat concerned” at 40 percent and “not concerned” at 47 percent, according to the recently-released 2010 JobSearchDigest PEVC Compensation Report.

Those who were somewhat concerned mentioned fund raising concerns, the risk of being downsized, and the future of the VC industry overall as topping their list of worries. Many worried about their firm’s ability to raise the next fund and the lack of deal flow.

Those who were less concerned often noted that their firm had secured the next round of funding. Others mentioned that they were in the right market (often reported as Asia), could easily find a new job if necessary, or that they were a key to running a particular fund. Managing Partners take note: in good markets and bad, top talent knows they can make a move anytime.

The PEVC Compensation Report is based on a survey conducted in October and November 2009. The date comes from hundreds of private equity and venture capital partners and employees from firms, both large and small. The PEVC Compensation Report is a useful tool to help job seekers better manage their pay expectations and fund managers better establish compensation package benchmarks. You can find the full report at www.PrivateEquityCompensation.com

Specialists and those with experience in emerging markets are among the most sought-after candidates for the few private equity jobs opening up this year. That’s the word from the Wharton Private Equity Conference which kicked off this past week.

Aditya Joshi, co-chair of this year’s conference, will be heading back to his home country (India) after earning a Wharton MBA this May, according to an article in the Wall Street Journal online. Joshi said he’s seeing a continuing trend of students gaining PE training here in the U.S., and bringing that expertise back to Brazil, India, China, or Eastern Europe. Nearly half of Wharton’s students are international students.

“We’re seeing more interest from emerging markets private equity firms to bring people who have strong private equity and financial experience to those regions,” said Jonathan Goldstein, a partner with the recruitment firm Korn/Ferry International.

In addition, specialists with backgrounds in alternative energy and growth equity deal origination are in demand.

Chris Dixon, co-founder of Hunch.com and a personal investor in early-stage tech companies such as Skype, TrialPay and others, offered an enlightening take on VC ethics in a column for businessinsider.com. Namely, is it okay for a VC to back out of a term sheet?

A term sheet kicks off the negotiations between a venture capital firm and potential portfolio company. It summarizes the terms that the proposer (issuer or investor) is prepared to accept. It’s similar to a letter of intent, a nonbinding outline of the principle points which formal legal documents will cover in detail, according to the website, vcexperts.com

Although it’s not legally binding, a VC with integrity rarely backs out of a term sheet, Dixon says, unless they discover something truly awful, such as criminal fraud. As a further example, he mentions that Sequoia Capital, the highly successful Menlo Park, CA-based VC firm whose companies account for an astonishing 10 percent of NASDAQ’s market cap, has only backed out on one term sheet in the past 10 years.

Less scrupulous firms, however, may give a company a quick, high-valuation term sheet just to prevent the company from talking to other investors while they then perform in-depth due diligence. When they find something they don’t like, they use it to beat the price down or simply walk away from the deal. This can leave the impression in the marketplace that the company is “damaged goods,” Dixon says. This whole approach gives investors an unfair advantage in the negotiating process.

But taking the more ethical approach and sticking to a legitimate term sheet pays off. The early-stage community, particularly the tech community, is very small and your reputation matters. “Word travels fast when firms trick entrepreneurs. It will come back to haunt you and your firm,” Dixon says.

Keeping in touch with recruiters who specialize in private equity can be an important part of your job search, but the relationship has to be a two-way street says Jason Hersh, managing partner at the recruitment firm Klein Hersh International. Hersh was interviewed recently for the Wall Street Journal’s popular and ongoing series, Laid Off and Looking.

Creating a “win-win” relationship for both recruiter and candidate starts with a little common courtesy. Don’t blindly send your resume out to recruiters shotgun style. Recruiters often share information with their peers, so such a sloppy and unfocused approach will come back to haunt you. And don’t contact a recruiter “just to stay in touch” without having something specific to contribute to their business, too.

For example, if you hear about an opportunity in the market, let your 1-2 key recruiters know. They are likely to have a relationship with the company. So this gives the search consultant a chance to get more detailed information about the opportunity which they may in turn share with you. A change in your career status, a promotion or award, for instance, is another viable reason to contact your search reslationships.

One added benefit of carefully cultivating these relationships is that you may be able to draw on their expertise for advice in a pinch. A recruiter may be able to help you develop a better rationale for handling tough subjects, like why you were laid off, or had an extended period of unemployment.

You can find a complete database of private equity recruiters in the Premium Member section of Job Search Digest’s Private Equity Jobs Digest.

Overall 2009 was a dismal year for venture capital investment, with a 31 percent drop, from $31 billion down to $21.4 billion, worth of deals completed. That’s according to reports that track venture capital funding from the MoneyTree Survey from the National Venture Capital Association and Pricewaterhouse Coopers.

However, the industry saw a bit of a blip in venture capital funding in the fourth quarter of the year, spurred on by investments in biotechnology and life sciences companies, reports the San Diego News.

What’s more, biotech edged out software as the single largest industry category for VC investment, the first time that’s happened since NVCA and PWC began tracking the industry in 1995 for their MoneyTree survey.

According to William Malloie, a partner with PricewaterhouseCoopers, the data shows that venture capitalists aren’t merely retrenching and focusing on the mature companies in their portfolio. Many are seeking out start-up companies in these hotter sectors.

On the other hand, investment in clean tech lags. Clean tech saw dollar investments drop by 52 percent and the number of deals fall by 31 percent in 2009. Advice to venture capital job hunters: focus on VC firms that specialize in biotech and life science.

You probably know that writing about private equity, either in a blog or by writing articles, is an outstanding way of learning the business and demonstrating your knowledge to prospective employers. But what if the basics have been covered and you’re not sure what to write about?

One ambitious business school student solved that problem by combining an informational interview with a blog article. Nicole J. Williams, a 2010 MBA candidate at Pepperdine University, interviewed one of the principals of Marlin Equity Partners, a leading Los Angeles based firm, for her recent Private Equity Insider blog.

The strategy is brilliant for both bringing useful insights to the private equity world, and positioning yourselff as an expert, even before landing a private equity job. As she put it: ” I had the pleasure of speaking with one of the principals of the firm, Mr. Peter Spasov, who so graciously shared his thoughts on where the private equity industry is going and how an ambitious graduate student should look to position himself/herself to take hold of future opportunities.”

Among the insights gleaned from Mr. Spasov: “This is a relationship-driven industry, so your ability to build your network will be critical to your success. Reach out to professionals in the industry, meet with them, wow them with your intellect and assertiveness…”  Precisely what Ms. Williams is doing. We can’t think of a better way to build your network and reach out to professionals who can help than to combine your informational interviews with article writing.

Venture capital firms staged a comeback in the fourth quarter of 2009, unloading some $7.3 billion in portfolio companies, mostly to corporate acquirers. Forty-four percent of 2009’s total liquidity was generated in the fourth quarter, according to data from Dow Jones VentureSource.

The bulk of this activity was generated by corporate mergers and acquisitions, with only $220 raised through initial public offerings (IPOs). Still, it represents a 49 percent increase in activity from the same period last year.

“The fourth quarter has set the stage for an active year in M&As in 2010,” said Jessica Canning, director of global research for Dow Jones VentureSource. “As the economy improves, acquirers are gaining confidence in their own financial situation and returning to strategic acquisitions. At the same time, the steady trickle of public offerings is teasing investors who expect the IPO window will re-open in the coming year.”

It remains to be seen whether this loosening of the taps will also spur an increase in hedge fund job hiring. One would think that improved liquidity and a shortening of the time it takes to find an exit through a merger or acquisition – or increasingly through an IPO – would encourage hedge fund partners to cautiously look for new talent.

The beginning of a new year is the perfect time to kick your job hunting activities into high gear. If you’ve been stuck in a rut, here are a few ways to get “unstuck” with your search.

From the Star Tribune in Minneapolis comes this tidbit: ask a half-dozen of the most successful people in your industry to send you a copy of their old resumes and cover letters. It’s a bit out of the ordinary, so it’ll get their attention. Chances are they’ll be flattered that you ask. You’ll get some useful ideas for setting up your own resume and experience. Plus, if they respond, it opens the door for future networking, giving you the opportunity to send your revised resume and cover letter back to them, later on, perhaps asking for their comments.

Another tip, this time from the Desmoines Register: get more focused and strategic, if you plan to attend any job fairs in 2010. Most people take the “shotgun” approach, bringing stacks of resumes and handing them out to anyone with a pulse. Instead, says career advisor Cassandra Halls, get rifle-shot focused. Find out which companies are going to be at the fair in advance. Then spend time doing in-depth research on the few companies you are most interested in working for. Your goal at the job fair shouldn’t be to talk to every single potential employer in the place. Instead, you want to start an intelligent conversation with those few, top-notch companies you want to interview with for a private equity job.

Finally, it may be time to ditch the general employment websites. These giant websites broadcast jobs to such a large audience that they attract tons of traffic. Your response is likely to get buried in the avalanche of other responses. Instead, think about a more targeted website that focuses on your particular industry or even a sub-set within your industry that interests you.