Over the years, it has been a blast to meet many people, including those in the VC industry. Sometimes, people come to me for career advice. I take very seriously those conversations, and I’m sworn to secrecy on the details.
A question I get from VC Associates is this: how do I get promoted?
So, here’s an open letter.
Dear VC Associate,
As I’ve written in the past, “partner” means different things at different firms. Some firms give out the title as a marketing tool. This means you can get the “partner” title, but you may not be an owner of the firm (more here regarding a VC firm’s “management company”) or, even, a part of the legal GP entity.
For this post, let’s assume that making “partner” means that you are part of a fund’s GP legal entity. You know that is the case when you are asked to formally sign some legal documents.
I think there are many roads to partner, but, when you boil it all down, it comes to two things: making money and fitting in.
This may seem obvious. You make an investment and the company is sold or goes public. The VC firm then can make a “distribution” of shares or cash to the fund. If a fund is then profitable, the GP entity collects its 20% of carried interest. Your partners are happy, and they then promote you.
When I entered the VC industry, promotions happened quickly (I was promoted to the GP entity after 18 months, common back then in VC Land) because liquidity happened quickly. The Web 1.0 revolution was in full force and investments exited at a fast pace.
Today, it’s different. It is a long road to liquidity, and that’s if your investment does get to exit (vs. a shut down). In fact, the median VC fund now lasts 14 years, per a NVCA report.
So, what should you do?
First: source something later stage. This will shorten the time-to-exit. Price a Series B or Series C round and, in particular, convince your partners (and, the entrepreneur) to let you take the board seat. You need that board seat to build your track record.
Try to find a board where some experienced VCs already are involved. Your partners will feel better about you taking a board seat if there are people whom they know and trust on that board, too.
Second: be additive. You must do something that is truly additive to the GP. If most of your time is processing someone else’s deal flow, well, they can pretty much hire anyone to do that. So, do something for which you are uniquely positioned to do and which your partners will not do.
Perhaps, you will be one of the people willing to open a new office. Your partners likely will have children already settled in schools, and so, may not want to move. If you move, you’re additive.
Perhaps, you have industry expertise that others do not have. Perhaps, you speak Mandarin and your partners don’t.
The point is this: create gains and/or be so mission critical that you are indispensible. If you’re not additive, you’re replaceable.
Third: make a critical mass of investments. Do not get stuck in the “I do the diligence and someone else takes the board seat” mode. That will make you a non-partner forever. As mentioned, you want to be the person on the board. And, you need to make more than one investment.
I say that because there’s a great deal of luck in VC. You can do everything right, make that one perfect investment, but then discover, as an example, that a founder quits the company. You need adequate sample size to offset bad luck. I’d say at least three investments, ideally, five to seven.
Now making a number of investments may hasten a termination if those investments fail. Who cares? If you don’t show that you can make good investments, you’re not going to get promoted anyways. You’ll be told to apply to b-school or find a job at a portfolio company.
So, get up to speed, get credibility, and make some investments.
This is highly subjective but as important, IMO, as financial returns. Every VC firm has a unique vibe to it.
Different firms have partners whose idea of “fun” varies greatly. Some jokes are appropriate at certain firms, while those jokes are not at others. How partners spend their free time, with whom, and on what activities is a leading indicator of that firm’s culture.
I think you already have a good sense as to whether you fit in and how much you do. I think there’s a key question to ask. Pick one of your partners and ponder this: can you imagine living that person’s life at his/her age?
And, if you don’t really fit in that much, well, then you have to ask that other important question: how much are you willing to change to fit in? Only you can answer that question. You’ll either adapt to the culture, or, if the changes are so drastic, you’ll feel pretty compromised on integrity. So, you move on.
P.S.: HIGH-RISK STRATEGY
Now, I would be remiss if I didn’t mention this: interview somewhere else, get an offer, and use it for leverage. This is very high-risk.
I’ve seen this explode in a person’s face: he received an offer somewhere else, bluffed, the VC firm said “see you, good luck,” he tried to stay at the VC firm, and they would not let him.
Once you squeeze the toothpaste out of the tube, you really cannot put it back in.
On the other hand, I have seen this strategy work very well quite a few times. VC firms are highly competitive. If someone else considers you partner material, there’s a good chance your home firm will match. And, they may actually respect that you had the guts to go out and test the market.
The best sources for a new job? Your co-investors at other VC firms. So, that’s why this strategy is very much linked to the point above about making later-stage investments. The two very much go hand-in-hand.
Good luck, VC Associate.
But, even if you don’t make partner, don’t worry: your life is pretty good already, as is.