Why Work (And Not To Work) In Venture Capital?

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For an industry with a lower average compensation than investment banking and consulting, why do people want to work so badly in venture capital? There are several reasons why, including:

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• Prestige
• Optionality & Great Exit Options
• Build A Career-Long Network
• Unrivaled Learning Experience
• World-Class Mentors & Teammates
• Vote On The Future

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Since all career choices have their pros and cons, we’ll also explore several reasons not to work in venture capital, including:

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• Average Compensation
• Long Feedback Cycles
• Non-Standard Career Progression
• Many Venture Capital Firms Are Fleeting

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Why Work In Venture Capital

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Prestige

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Venture capital firms build prestige from the halo effect of their investments. For example, Sequoia Capital, the most prestigious VC firm in the world, has a reputation anchored by a legacy of investing and helping influential companies like Apple, Instagram, DoorDash, Zoom, and Stripe.

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Working for a prestigious VC firm adds to the industry’s allure, but working in venture capital, regardless of the firm, is considered prestigious to outsiders for various reasons. One of the main reasons is the scarcity of venture capital positions. Capital scales very efficiently in venture capital, and it doesn’t take a meaningful amount of additional people to deploy a $1 billion fund compared to a $500 million fund. So each VC firm only hires a few decision-makers to allocate the fund. Another reason working in venture capital is prestigious is the external legibility of the interview process. The interview process can take over six months, and even some of the most qualified people for the job are rejected. People want to be part of things with competitive admission processes – that’s why top universities make you do in-person interviews and additional essays on top of common applications. Lastly, venture capital is considered prestigious because VCs are viewed as authority figures and gatekeepers of the future. People innately crave power. Venture capitalists get to vote on the future with money.

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Optionality & Great Exit Options

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It sounds counter-intuitive, but many people join venture capital because they don’t know what they want to do yet. By joining a VC firm, they preserve their career optionality. Investors at VC firms have gone on to continue investing in startups, start companies, and join top startups as operators. Here are some examples:

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• Luke Nosek left Founders Fund to create a new VC firm called Gigafund.
• Jay Kennedy left Floodgate to start a company to help people prepare for the end of life.
• Kyle Tibbitts left Paradox Capital to join a portfolio company, Wander, as their CMO. 

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VCs have great exit options because they can do anything and have an asymmetric information advantage over the general public to pick things that are likely to work. For example, many VCs join breakout portfolio companies in senior-level operating positions. They can choose who to join based on access to detailed investor updates from each company. On the other hand, the public must rely on scattered updates from funding announcements and press features that don’t reveal much about the company’s actual performance. This asymmetric information advantage allows VCs to make exit decisions based on lines rather than dots like the public.

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Build A Career-Long Network

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Venture capital is a team sport. You work with other investors to co-invest in deals, founders you back, lawyers to negotiate terms, teammates to support portfolio companies, and more. It’s part of the job to build a deep Rolodex of valuable contacts that ultimately may help you further your career in the future. For example, when Jay Kennedy left Floodgate, Floodgate invested in his startup. When Erik Torenberg started On Deck, he recruited investors he had met in venture capital to join, like Minn Kim, Shawn Xu, Sam Kirschner, and Anirudh Pai. Greylock helped former Partner Sarah Guo raise for her new fund, Conviction, and CRV helped former Analyst Ann Miura-Ko raise for Floodgate.

Unrivaled Learning Experience

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The learning experience in venture capital is unrivaled. Your job is to talk to some of the world’s most brilliant founders all day. You get to see first-hand how they problem-solve, weigh trade-offs, develop new business models, iterate on products, and create the vision of the world they want to see through brute force and strategies generated from customer insights and data. No MasterClass, Youtube video, or class can teach you that. You develop a deep understanding of the fundamentals and processes of company building. As you work closely with founders, the patterns you see may help you when you want to start your own company or better evaluate future companies for investments or to join. Andrew Chen, a General Partner at Andreessen Horowitz, describes working in venture capital as “the smartest people in the world sharing their best ideas with you.”

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World-Class Mentors & Teammates

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In venture capital, you may partner with some of the world’s most impressive founders, operators, and investors. For example, Reid Hoffman, the founder of LinkedIn, is a venture capitalist at Greylock, and Peter Thiel, the founder of PayPal, is a venture capitalist at Founders Fund. Talented operators like Roelof Botha, the former CFO of PayPal, is a venture capitalist at Sequoia Capital; and Sam Blond, the former CRO at Brex, is a venture capitalist at Founders Fund. You may work with legendary investors like Mary Meeker, a venture capitalist at BOND Capital and investor in Airbnb, Instacart, and Facebook, or Jenny Lee, a venture capitalist at GGV Capital and investor in hiSoft, 21Vianet, and SinoSun.

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Venture capital has a long history of a strong mentorship culture where established investors are willing to take new investors and team members under their wings. For example, Bessemer Venture Partners’ Jeremy Levine took Talia Goldberg on as an apprentice when she joined the firm as an Analyst. In 2019, Talia became the youngest Partner in the firm history.

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Vote On The Future

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Venture capitalists are positioned between the world’s most challenging problems and the founders capable of building solutions to solve them. Without venture capital, many startups wouldn’t be able to find other investors with enough risk tolerance to support them to continue. Additionally, some startups with large capital requirements upfront would never get their shot in the first place. As a result, venture capitalists can influence change by voting on the future with money.

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Why Not To Work In Venture Capital  

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Average Compensation

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If you want to make money, you’re better off joining an investment bank, a consulting firm, or taking a tech sales job. Most venture capitalists do not make a lot of money because unless they have a considerable size fund, they only have management fees to pay the salaries of the entire firm until the fund starts making profits. 

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According to a venture capital survey by John Gannon with 515 responses, the average salaries for analysts (0-2 years), associates (2-4 years), and senior associates (4+ years) in 2022 were $92K, $137K, and $154K. For comparison, an Account Manager at a mid-size tech company may make $250K+ by year four. 

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Long Feedback Cycles

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In most industries, you immediately learn whether something is working or not. For example, a founder may launch a new product and instantly see if customers are signing up and paying. A salesperson may send 100 cold emails and see within hours if prospects book calls. A marketer may launch an ad campaign on Facebook and immediately see how many clicks it gets. On the other hand, venture capital often takes decades before you get the feedback cycle on your investments. Even the hottest startups, which are getting marked up by other investors in future rounds, may fizzle out. Zenefits is an excellent example of this. In 2.5 years, they were valued at $4.5 billion before having to conduct three rounds of layoffs within a year and ultimately selling for much less to TriNet. Click here to read more about the story of Zenefits.

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Non-Standard Career Progression

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Career progression is transparent and standard in most industries based on years of experience. For example, an investment banker will start their career as an Analyst before getting promoted within 2-3 years to an Associate before being promoted after 4-5 more years to a Vice President. Meanwhile, the venture capital progression is non-standard and differs based on the firm. Some firms have 2-3 year progressions while others have 5+ years to make it to the next step on the ladder. In addition, becoming a Partner is rarely guaranteed. Making Partner depends on your ability to source and invest in deals that make the firm money.

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Most Venture Capital Firms Are Fleeting

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A handful of VC firms, like Sequoia Capital, Andreessen Horowitz, etc., are building something generational. Still, most VC firms won’t last more than a few decades or ever return a fund. So, is it worth working towards something that may not exist when it’s your turn to run it?

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