Venture capital (VC) firms search the startup world and look for the next Facebook or YouTube. They provide risky capital infusions to early-stage or small companies that have limited access to more conventional sources of capital like bank loans.
In exchange, the venture capitalists receive ownership in the company and significant managerial oversight. In a venture capital firm, the venture capital associate is the most junior member. Nevertheless, these positions are competitive, involve a lot of responsibility and independent thinking, and command strong salaries.
- Venture capital firms provide funding to start-up companies and small businesses, namely those with fewer options for raising money.
- Venture capital firms are distinguished from private equity firms, which tend to provide funding for more established companies.
- Venture capital associates are responsible for sourcing new deals for their firm, and for supporting those that are already in the works.
- Venture capital associates typically work long hours, particularly right before deals close; as a result, they are very well compensated.
Venture Capital vs. Private Equity
Venture capital firms are quite similar to private equity in terms of the deals they make and the sources of financing. They differ in terms of the types of companies they pursue.
Private equity firms, in general, tend to gravitate to the established companies, whether small or large, whereas venture capital firms do financing for start-ups and smaller companies who do not have access to the capital markets. This distinction is important because it frames the roles of the associates at venture capital firms.
VC Associate Job Description
VC associates have two main job functions:
Sourcing new deals: VC associates are on the front lines finding and screening deals. They are expected to have a sales-like mentality and find potential deals, by cold calling companies and entrepreneurs and setting up meetings. The associate then presents prospective deals to the firm partners.
Supporting existing deals: VC associates, similar to other financial analysts, support all aspects of a deal, from due diligence to modeling and execution. With due diligence, they produce the initial analytics that lead a firm to pursue or reject a deal.
Similar to private equity, when a deal moves onto later stages, associates continue to work side-by-side with the partner. Work intensity and hours fluctuate based on how close the team is to closing deals. Like other finance analysts, VC associates can work extremely long hours near deal closings. Because of the high demands and pressure, VC associates are often rewarded with above-average compensation.
The type of VC firm distinguishes some of the functions of the associates. VC firms that concentrate on early-stage financing do much more sourcing and very limited due diligence and modeling. Firms that concentrate on late-stage financing do more of the traditional diligence, modeling, and execution, similar to a private equity firm.
The amount of venture capital money invested worldwide in 2018, representing a new all-time record.
How VC Associates Advance
The advancement track is also a bit different at VC firms when compared to private equity. As in private equity, most VC pre-MBA associates come in with some type of experience. This can range from a stint as an investment banking analyst to some kind of industry‑specific training. Firms expect pre-MBA associates to stay for two to three years and then exit to business school or another employer. In fact, many firms give a two-year contract at this level.
The post-MBA VC associate is on the partner track. If a partnership is the end goal, and it usually is for post-MBA associates, then the way to get there is to establish a strong track record of sourcing companies, closing deals, positively impacting the portfolio company, and exiting the investment to generate solid returns for the firm.
Education and Training
Venture capital pre-MBA associates usually have bachelor’s degrees in mathematics, statistics, finance, economics or accounting. VC firms tend to focus investments on a specific sector and will sometimes pursue candidates in the industry who have no prior finance or venture capital experience. For example, a venture capital firm focused on healthcare may hire a biochemist that successfully started a pharmaceutical company.
Post-MBA associates, in general, get considered for a VC firm based on the school they attended. Candidates who attend top MBA programs are usually recruited for these coveted jobs. And depending on the type of VC firm (early versus late stage) the characteristics sought can differ widely. Early stage VC firms look for candidates who understand markets and industries, and who can perform analysis to determine market size and opportunity. Late-stage VC firms look for the more traditional skills of financial modeling and deal execution.
The entry into venture capital is extremely competitive and usually requires an MBA from a top business school in order to advance to the partner level.
VC Associate Salary
Annual salary and bonuses differ broadly in this field depending on the size of the VC firm and specialization. In general, pre-MBA VC associates can expect an annual salary of $80,000‑$150,000, according to Wall Street Oasis. With a bonus, which is typically a percentage of salary, this can be much higher. In addition, firms will compensate associates for sourcing or finding deals. At higher levels in a venture capital firm, bonuses involve multiples of salary tied to the portfolio and carry from investments.
The Bottom Line
Venture capital associates operate in a unique area of finance. Unlike investment banking and other financial analysts who focus on modeling and deal execution, VC associates have less structure.
Even at the entry level, VC associates are tasked with finding deals, meeting entrepreneurs and evaluating business ideas. This can appeal to a candidate who is interested in being involved and partnering with businesses.