Jan 09

Finding a VC Internship

The Career Development Office sent a number of students who are interested in finding an internship in VC to speak with me. I think I've gotten my spiel down pretty well by now, so I thought I'd put it up here. 

  • Figure out your story. Just like the process for getting into B-School you need to have a story arc that logically ends with you getting the position you want, in this case a job in VC. In my case the story revolves around the three startups I worked at, my changing interest from technology to business and markets, and from being an individual contributor to more of a mentor. Obviously your resume should be written to reflect your story.
  • Be an expert. If you're not already an expert in an area that receives venture investment find one that you can become an expert in. Recently many students have looked into clean tech and the energy fields, but there are plenty of technologies
  • Make a list of alumni. You're going to want to make a list of firms that are the size and style that interests you, then cross reference that with alumni lists. When I first started I only looked at Tuck alumni, but over time I've found that alumni from my college as well as general Dartmouth alumni have been very receptive as well. Start with the more junior people, early on you'll be asking basic questions and it's best to get those answered by people who won't mind helping to educate you. Also, don't start with your top firm, you'll get better at the phone calls as you go, so save the best for last.
  • Learn the land mines. Early on you'll discover common questions about your background and why you think you should be a VC. Start to determine which answers resonate with people, and how to cut off avenues that are not flattering to you. For instance, most early stage VC's want to see that you have some operating experience. If you started a successful startup then this is easy, but if not you'll want to tell them earlier (before they ask) about some relevant operating experience and how you believe it has given you the necessary skills. Getting out in front of tough questions can keep you from having to go on the defensive about some aspect of your skill set.
  • Cast a wide net. I ended up meeting the firm I worked for over the summer because I mentioned to a family friend what I was looking to do. She replied that "Oh, I know a person that works in venture, would you like to speak with him." That turned out to be the connection that finally did it. So tell everyone in your network what you're looking to do, you never know when it will pay off.
  • Do free work. Show how you can add value by doing some due diligence for free. Obviously you should  offer to do work in the area in which you are an expert.
  • Be prepared to wait. Everyone will tell you that VC's wait until the end of the process to make decisions. It is a simple selection filter for a VC firm, if you're not willing to wait then you're not dedicated enough; it is also a way of not having to say no. My advice, stay focused and don't apply to jobs that would force you to make an early decision (such as consulting) since they'll just add stress when you have to turn them down. It is smart to have a Plan B, just make sure that you've exhausted your options before you have to pull the trigger.  
  • Stay up on VC news. PE Hub has a great mailing list that will give you a quick view of the news of the day. VentureBeat and TechCrunch are also excellent for staying abreast of what is going on in the world of Venture.  

Those are the things that worked for me, I hope they work for others.

Aug 08

VCDB: How to find people that will take your call.

Matt Winn, an associate at Chrysalis Ventures, has just released a tool that is tailor made for MBA students looking to leverage their alma mater during the VC job hunt: VCDB. Matt has taken the data from the NVCA and made it searchable via geography or bio. Looking for a job in Boston and you went to Tufts, just a search away to find people that might actually take your call.

I have to say, this is a really good use of publicly available information and Google Maps to create a niche mash-up.

Jul 08

Team or Market? Jockey or Horse?

In classes on VC professors often talked about the debate about whether team or market was more important in venture capital. At VC confidential they have a typical discussion of whether it is the Horse or the Jockey. Very famously Don Valentine of Sequoia has said that he looks for big markets and then worries about the team. A couple of quotes:

"I like opportunities that are addressing markets so big that even the management team can’t get in its way." 

"I am 100% behind my CEOs right up till the day I fire them."

I used to take this as bit of an academic debate, kind of like a discussion on different religions or scientific theories that were likely to stay unproven but valid. That was until I heard Irwin Federman‘s thoughts on the subject. Like many things profound, after you hear it you know it’s correct because of its simplicity. You think, ‘Well that’s obvious, I could have told you that.’ At least in this case, I found this to be powerful.

Irwin said that whether it is the market or the team that is important is really a function of you as the investor. To be able to rely on the market size you need to be able to determine that the CEO is the problem early, make the decision to move on them, and then convince the board to follow you in pulling the trigger. Irwin said: "You have to be very honest with yourself, and if you’re not that type of person it doesn’t make you bad. But it does mean that you are betting on a team."

So if you’re like Don Valentine – you have the clout on the board to fire a CEO and have the Rolodex to replace them with an A player – then you can rely on big markets. But if either you don’t have the foresight or will to fire a CEO, or the juice to get the board to follow you, then your are essentially making a bet on the team, and so you better be able to trust them.

So obvious, once someone beats you over the head with it. 

Jun 08

2/20: How do VC’s pay the bills?

At Tuck I have taken a couple of classes on VC investing, and though they have done a good job teaching deal structure they never really delved into how a fund was structured or managed. This may be because it varies greatly from firm to firm, but it meant that I really didn’t understand a lot of how a fund was actually operated. So today I had lunch with the funds operations controller, in an attempt to learn a bit more about the inner works of a VC partnership.

The standard fee structure for PE and hedge funds is 2/20, the LP’s take 2% of the fund to run the day to day operations, and 20% of the profits. Now a fund with a proven track record may be able to get better terms, it is rumored that some of the top VC funds got 35% at the height of the bubble, but as a rule of thumb 2 and 20 prevails.

Lunch led to a couple of insights that I found to be interesting, the first is that the 2% isn’t always on the amount committed, but instead is sometimes on net asset value (NAV). The thinking by LP’s is that they should have to pay 2% on money that has already been invested and returned. Of course this makes it more difficult for the VC, since the amount of money they have to ‘keep the lights on’ is now variable, so they prefer the more static, and lucrative, 2% of fund size.

The second thing I learned seems obvious in retrospect, but it had never occurred to me before now. If you’re taking a fee of %2 of the fund each year, that turns out to be 20% of 10 years. So some of the money received from early wins will need to be recycled back into the fund to get to deploying 100% of the funds value.

Very interesting stuff that I didn’t hear about in school.   

Jun 08

How will the credit crunch affect VC

For Spring Break I went to visit an old friend in Thailand, I had a great time lounging around, going to the weekend market, and doing a bit of work on his startup on the side. On the flight back to New York I ended up getting seated next to a gentleman who had been in Thailand to race his two person yacht. We struck up a conversation, and he asked what I did and I said I was in business school.

Him: "It must be tough finding a job with the current credit crises."

Me: "Well, I’m interested in venture capital, and fortunately that is counter cyclical."

Him: "Actually venture capital is counter cyclical in an expanding credit market, when credit is contracting like it is now it becomes cyclical."

Me: "What exactly is it that you do?"

So it turns out he does risk management for the wealthy at large banks such as Morgan Stanley. Needless to say I was a bit bummed, but then again his job is to forecast the gloomiest scenario and then protect his clients from that. It probably doesn’t lead one to see the cup as half full.

Today Brad Feld had a post regarding contrary views on the future of venture capital. There was one piece of it that particularly caught my eye:

Merrill Lynch’s chief strategist Richard Bernstein in "Some thoughts on alternative investments (6/23/08)" says "The growth in alternative investments seems linked to the growth of the credit crisis" but then goes on to say "There may be two areas of alternative investments that seem relatively attractive in the current financial environment.  In both cases, these are areas that might benefit from the tightening of global credit.  The first is early-stage venture capital.  … If return-on-investment does indeed tend to be higher when capital is scarce, the significant tightening of traditional credit funding to smaller companies seems to make early-stage venture capital strategies more attractive."

So now I have heard opposite opinions on the affect of a credit crunch on venture investing. I’m curious to find out which of these is the accepted wisdom.