The venture capital industry plays a crucial role in the investment community and presents many opportunities to build a financial career. There are venture capital employment avenues in both large financial companies as well as independent, smaller venture capital firms. The best way to determine whether a future in venture capital is for you is to understand how venture capital investing fits into the overall financial picture. Read on to learn more about this fast-paced and enterprising career.
Venture Capital Vs. Private & Public Equity Investing
In the investment community, there is more than one way to hold a stake in a company, and just as there are various means of investing, there are different business structures built around each investment model. Three of the most common types of investing are public equity, private equity and venture capital.
Much of the investment industry focuses on investing in shares of public companies that are listed on exchanges like the New York Stock Exchange (NYSE) or Nasdaq. The investment vehicles that typically operate under this model are mutual and institutional funds, as well as exchange-traded funds (ETFs). In these cases, many shares of ownership in public companies are held by individual investors through the funds themselves. (To read more about ETFs, check out our Exchange-Traded Funds feature.)
In private equity and venture capital, however, larger ownership stakes of each company are sold to fewer investors. These chunks of ownership are sold to investors through independent limited partnerships that are established by venture capital firms. One important difference between venture capital and private equity, however, is that venture capital tends to focus on emerging companies that seek funding to establish a business, while private equity tends to fund larger, more established companies that are seeking an equity infusion or a chance for company founders to transfer some of their stake in the company. (For more on this subject, read Cashing In On The Venture Capital Cycle.)
Qualifications Of Venture Capitalists
Since venture capital tends to invest larger dollar amounts in fewer companies, due diligence - background research into each company - is very important. Many venture capital professionals have had prior investment experience, often as equity research analysts. Venture capital professionals also tend to concentrate in a particular industry. A venture capitalist that specializes in healthcare, for example, may have had prior experience as a healthcare industry analyst. (For more on equity research, see The Changing Role of Equity Research.)
Such experience is not required, however, and often a formal education can make up for a lack of prior analyst experience. Having an undergraduate degree in computer science is a great background for an information technology venture capitalist. Similarly, having an undergraduate biology degree is a positive foundation for a venture capitalist that specializes in biotechnology.
A general business background is also a strong foundational building block for a career in venture capital, and pursuing a Masters in Business Administration degree is arguably the most solid entry card into any financial field. If you are currently an undergraduate or graduate business student, it is advisable to look into venture capital internships where you can learn about various industry specialties from the front lines. (Find out more in Should You Head Back To Business School?)
If you have an idea about which venture capital industry you may want to specialize in, look into taking some classes in that field of study. Even a college graduate who is in an unrelated professional field may want to think about taking classes in a venture capital field that holds interest for him or her. If your schedule does not allow you to travel to a classroom, consider an online class. All of these options add weight to a resume being reviewed by a venture capital firm.
A Day In The Life
Like most professionals in the financial industry, the Venture Capitalist tends to start his or her day with a copy of the Wall Street Journal, The Financial Times and other respected daily publications. Venture capitalists that specialize in an industry tend to also subscribe to the trade journals and papers that are specific to that industry. All of this information is often digested each day along with a morning coffee and bagel.
For the venture capital professional, most of the rest of the day is filled with meetings. These meetings have a wide variety of participants including other partners and/or members of his or her venture capital firm, executives in an existing portfolio company, contacts within the field of specialty and budding entrepreneurs seeking venture capital.
At an early morning meeting, for example, there may be a firm-wide discussion of a potential portfolio investment. The due diligence team will present the pros and cons of investing in the company. An "around the table" vote may be scheduled for the next day as to whether or not to add the company to the portfolio.
An afternoon meeting may be held with a current portfolio company. These visits are maintained on a regular basis in order to determine how smoothly the company is running and whether the investment made by the venture capital firm is being utilized wisely. The venture capitalist is responsible for taking evaluative notes during and after the meeting and circulating the conclusions among the rest of the firm.
After spending much of the afternoon writing up that report and reviewing other market news, there may be an early dinner meeting with a group of budding entrepreneurs who are seeking funding for their venture. The venture capital professional gets a sense of what type of potential the emerging company has, and determines whether further meetings with the venture capital firm are warranted. After that dinner meeting, when the venture capitalist finally heads home for the night, he or she may take along the due diligence report on the company that will be voted on the next day, giving them one more chance to review all the essential facts and figures before the morning meeting.
Venture capital professionals get the chance to evaluate and invest in early-stage companies that may have fantastic opportunities for growth. It is an extremely competitive industry, sought after by ivy-league grads as well as seasoned investment professionals, but offering great rewards to those willing to put in the time and effort.