Venture capital (VC) is a subset of private equity capital that’s typically offered to early-stage, high potential growth companies in the hope that they will turn out to be the next Google or Yahoo. Venture capitalists make their fortune through various exit strategies, such as IPOs or strategic sales.
Venture capital firms are typically structured as small teams of professionals. The founding partners often have operational training or in-depth experience in a particular industry. A key skill for a venture capitalist would be the ability to identify new technologies that have the potential to become very successful at an early stage. In many cases, venture capitalists take an active role in assisting the management of their portfolio companies, as well as providing capital.
It’s clear that to have a successful career as a venture capital general partner, you must have extensive experience in a particular industry (one that matches the firm’s focus) and have a proven, successful track record. General partner positions are rare, highly sought after, and represent relatively few venture capital job opportunities to industry outsiders.
However, venture capital firms will often work with outside venture partners, which is an interesting VC role. These individuals are responsible for bringing new proposals to the table to be considered by the venture capital firm. Unlike the general partners who are compensated for every deal, venture partners are usually only paid for the deals they identify.
Venture capital firms are usually structured as limited liability companies or partnerships, where the general partners serve as managers of the firm and the investors are limited partners. These limited partners are generally high net worth individuals and institutions, such as state and private pension funds, university endowments, insurance companies, and foundations.
Operating experience within a particular industry is highly valued by venture capital firms. An associate within the firm will need to acquire or demonstrate operating experience in order to move up to a partner level position. This often requires leaving the firm for a period of time and taking on a management role in a portfolio company.
Many founding partners also have a background in technology or research within a particular industry (high tech or biotech, for example), which gives them unique insights into industry trends and opportunities. It is not unusual for serial entrepreneurs and successful industry players to move into these positions. Venture capital has been described as a business one enters into later in one’s career.
The sky is the limit when it comes to compensation for venture capital partners. The 2008 Private Equity Jobs Digest Compensation Survey shows average total compensation for private equity and venture capitalists, industry-wide, was $255,000 USD. Other well-known venture capitalists, of course, have earned much more.
Michael Moritz, for example, is a former journalist who parlayed a book about Apple Computer into a job with the Silicon Valley venture capital firm Sequoia Capital in 1986. He then persuaded his partners to invest in such little-known start-ups as Google, Yahoo, eToys and Flextronics. The Google investment alone turned $12.5 million into over $2 billion – 160 times the original bet – when Google went public in 2004. More recently, Moritz has scored big with deals such as an investment in PayPal, which was later purchased by eBay.
References:
Dartmouth College, Tuck School of Busienss http://mba.tuck.dartmouth.edu
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