How to Become a Venture Capitalist

A venture capitalist is an investor or a company of investors who invest in and fund start-ups. New companies, in exchange for the funding, usually offer the investor[s] an agreed upon amount of control over the start-up and its operations. This type of funding relationship is not restricted to but typically takes place in the technology industry. 

What do venture capitalists do exactly?

Venture capitalists are after companies that can provide a larger return on investment; they are not interested in smaller companies. It's important for them to be particular about who they invest in, as the risk is great in this industry. In fact, less than .1 percent of businesses are given venture capital funding, according to the U.S. Small Business Administration.

Some well-known companies that have been backed by venture capital funding are Facebook, Starbucks, eBay, Microsoft, Apple and Google, to name a few. And two of the biggest names in venture capitalism are Jim Breyer, who was one of the initial investors in Facebook, and Peter Fenton, an early investor in beloved app Twitter. 

Aside from funding, venture capitalists provide support in the forms of advice, business connections, experience and more that help the new company get its start. Here is a list of common venture capitalist duties.

1. They discover the best companies to invest in.

Venture capitalists are responsible for finding the best companies in which to invest their money. They study the industry they are working in and stay up-to-date on new companies, their products and their current level of funding. They perform important research to not only discover up-and-coming companies but to determine whether or not they are worth the investment. 

2. They help with business development.

Venture capitalists also assist these companies with figuring out where to focus on corporate growth, as well as prioritizing funding and allocating it toward the aspects of the organization that will be the most beneficial financially.

3. They set company goals and develop a business model.

A venture capitalist also creates a plan to end its involvement with the company. After helping a company reach certain milestones and achieve a specific level of growth, they create a goal for an exit strategy. Most venture capitalists exit a company after five to seven years and an initial public offering (IPO).

4. They keep an eye on the competition.

As we mentioned before, venture capitalists stay well versed in the industry in which they are investing, and this includes staying up to date on a company’s competition. They ensure they are ahead of the game, hitting milestones before their competitors. 

What degree do you need?

First, venture capitalists normally obtain a business degree of some kind, whether that be in finance, entrepreneurship, business management or others. A lot of venture capitalists have also received their MBA which they use to understand business plans, the market, the industry they want to invest in and more. 

Venture capitalist career path

There is not one clear path to becoming a venture capitalist, but there are a few common career paths that people take to make it in this industry.

Gaining business experience is an important step to becoming a venture capitalist. Headhunters for venture capitalist companies search for employees with experience at large banks, at product development companies or as consultants for banks or credit unions. Serial entrepreneurs are also looked at by headhunters for their business expertise and knowledge on startups and the challenges they face.

It is also recommended that those who want to become a venture capitalist find a mentor in the field. A venture capitalist mentor can teach you the ins and outs of the industry and provide connections you may not make otherwise. Mentors can help teach you the things you will not learn in business school, like how to predict a successful new company and more. 

What are the different jobs within a venture capital firm?

There are mainly three different positions within a venture capital firm.

1. Associates

Associates are commonly the entry-level positions in a venture capital firm. They're usually hired based on their experience in consulting, finance or other investment fields. Their focus is on analytical work within the company, like breaking down business models, searching for trends in the industry and more. There are also levels of associates—junior associates can be promoted to senior associates, for example. 

2. Principals

Principals typically serve on the board of companies. These workers ensure the companies are running smoothly and monitor any potential problems. They also work to find new investment opportunities with start-ups and negotiate the entry contracts as well as the exit agreements. 

3. Partners

Principals can become partners within the firm, which is dependent on the success of the specific principal employee. Partners work on the different areas and businesses the firm can invest in. They also approve contracts regarding investments, exits and more, and they represent the firm when needed.

How do venture capitalists make their money?

Venture capital firms make their money through management fees and interest. Approximately 20 percent of the profits are given to the company in charge of the private equity fund, and the remainder of the money is given to the partners who invested their own money. Partners can also make an extra 2 percent fee. 

Generally, venture capital firms keep the profits generated at an exit, meaning an IPO or an acquisition. 

What is the average salary for venture capitalists?

The average salary for an associate at a venture capitalist firm is $92,618, according to Payscale, with the lower end making around $58,000 and the higher end $137,000. 

But in a career path that varies so much by position, experience, firm, etc., it can be hard to predict salary. The salary will vary based on location, years of experience and position within a firm. For example, the average venture capital analyst will make closer to $80,000 a year, while the average partner at a venture capital firm will be making around $196,000 a year. Experience is very influential in this field’s pay, as those considered to be late in their career are making 80 percent more than they were at the beginning of their time in the field. And some late-career venture capitalists are predicted to be making upwards of $1 million per year. 

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