Good reasons NOT to do Venture Capital

(aka: I am a hypocrite) 

I’ve been lucky enough to work at Genacast Ventures as the right hand of rock-star Gil Beyda (founder Real Media, Tacoda, etc.).  Turned down some awesome early-stage start-up opportunities to take the role, and will always wonder, but am very happy with the choice.  Only 2.5 weeks in, happy to share some surprises and advice:

In short, I’ve loved it – BUT probably don’t recommend pursing VC immediately to most others (esp. newly-minted MBAs).

For those looking to get a job in VC, I will repeat the advice I get from almost every VC I’ve talked with: [Why VC?  Don’t.  Go start a company, get some scars or (preferably) success stories and come back in 5-10 years.]

Sure, it’s hard to get a job in this small (and shrinking) industry, but that’s not a good reason not to try.  After only a short while on this side of the table, I see why this advice makes sense:

1)   MBAs, Undergrads, Consultants, etc. generally don’t have the depth of expertise or experience to quickly screen companies.  Unless you’ve started a couple companies, it takes a while to develop the right gut to not waste the partners’ time.  I am getting better, but still occasionally show deals to Gil that are fairly clear passes for our fund, just to make sure.  The best VCs are such because they can filter faster than anyone.

2)   Joining at this point in your career means you are (generally) on a non-partner track.  Meaning you’ll stick around for a couple years, maybe get a promotion, but end up having to go start a company or work as an operator at a portfolio company before you could be considered for further advancement.  Why not do that now?  Especially given the market conditions…

3)   Lack of carry + not the best compensation compared to other options make the opportunity cost high – you shouldn’t be in this for the money anyway.  If you are, go to banking or PE, even consulting over VC.

4)   The VC skillset doesn’t directly translate into an entrepreneur’s skillset, if you ever want to go that route.  It does help you screen your own ideas and make great contacts, but these are attainable if you are scrappy without a VC job.

So, why am I doing it?  I always have had a penchant for early-stage investing as you are potentially seeing the most innovative stuff (in reality, almost all are incremental improvements), are almost fully aligned with the founders, and can actually help a bit with feedback while they are still iterating.  That being said, the difficulty of finding these needles in haystacks without a metal detector is not to be understated.

I quickly realized after a few weeks that early-stage screening consists of sifting through more ‘non-ideal’ plans than you can imagine.  Clearly, nothing is perfect, but most aren’t close and consume the vast majority of your time, even once you learn the art of how to pass quickly.  For many this results in what I’ll call FILTER FATIGUE.

Later stage investors have the luxury that (even though all will claim to have the same problem) their predecessors have done some level of screening.  They see deals that an (at least somewhat savvy or rich) individual(s) vetted and believed could succeed.  Sure, there is still a fairly sharp funnel at each stage, but the mouth of the funnel deals with all the crazies.

What this all means: hustle & search broadly and filter as quickly as possible.  Even more than an entrepreneur, your job is to hit the street, network like crazy, develop a presence in the ecosystem, etc.  In Gil’s words: ‘the VC game is filled with a bunch of cowboys.’  We often pass each other on the Amtrak in and out of NYC, spending the vast majority of our time with entrepreneurs rather than discussing deals or working together.

I hope that sheds some light on what it is like to work at an early-stage VC fund and hopefully deters many…the few that are undaunted will have a tough enough road ahead.

Posted on June 26, 2011, in Venture & Start-ups. Bookmark the permalink. 1 Comment.

  1. Does that make Penn Station your hitching post?

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