A GOOD VENTURE CAPITALIST IS HARD TO FIND
Influx of Investment Capital Has Firms Searching for Talent to Make More Deals
So you want to be a venture capitalist? Experience the thrill of the big risk and the even bigger thrill of the big-money payoff? Bask in the prestige of perhaps the sexiest job title in the market today?
Well, it’s not impossible,but you better have one heck of a resume. VC firms,rolling in investment funds and eager to make more deals, are looking, but they say a good venture capitalist is hard to come by.
Not that they don’t have plenty of people beating down their doors.
Thomas Gephart, a VCer with Irvine-based Ventana Global, said he encountered a man with a decade or so of managerial experience and an MBA who was willing to go without pay for a year just for the chance to work in a venture-capital firm.
The last Gephart heard, the fellow had yet to land a VC job.
“To be a good equity investor takes experience. There is little substitute,” said Luis Villalobos, a former technology executive who made the switch to investing professionally. He has been involved in the start up of Tech Coast Angels, a group designed to pool angel investors together to increase total funding per deal, and founded GazelleLab, an Irvine-based incubator.
The only really qualified applicants are those who already have venture-capital experience. The problem for VC firms looking to expand is that those people already have jobs at other firms.
“We are looking for people and it is very difficult. I would underline difficult,” Gephart said.
So the VC companies are trying to recruit other potential candidates: high-level executives in large corporations, Wall Street veterans, technology gurus or serial entrepreneurs who now want to help others grow their companies. These are people who have operational, mergers-and-acquisitions, technical or private-equity experience that they can bring to bear to pick and grow portfolio companies. An MBA also usually is required, but there are a few venture capitalists out there who do not hold one.
Compensation includes salaries and shares or warrants in the portfolio companies.
At the same time, the world of a venture capitalist is no cakewalk. The big-money plays and prestige mask the long hours, countless plane flights and endless meetings required of venture capitalists.
VCers also need to have an extremely high tolerance for risk. They are handling millions of dollars of someone else’s money and are relying on a few statistics, some market research and their own gut instincts.
Venture capitalists need to think and act like entrepreneurs, Gephart said. They have to be able to see and share the management’s vision and be willing to tackle huge markets. They have to believe that a fledgling company can take on giants like Hewlett-Packard or Oracle and come out a winner.
So the best potential candidates are businessmen who have already taken the risks, made the big money and can choose to spend the rest of their days sailing a yacht or driving a golf ball, but are drawn to the challenge, excitement and risk involved in VC.
For all these reasons, the VC world is a small one. One estimate puts the number of venture capitalists in the nation at about 1,000.
That number is growing, however, because the capital available has been increasing rapidly, generating more deals ($17.6 billion was invested by venture firms in the third quarter of 2000, compared with $14.7 billion in the fourth quarter of 1999, according to Pricewaterhouse-Coopers’ Money Tree Survey) and the need for more venture capitalists at the firms.
Nevertheless, the growth of the VCer ranks is lagging the increase in funds,and in fundings,by a wide margin, taxing the talents of those in the industry.
Ten years ago, a venture capitalist in a firm may have had four or five portfolio companies to guide. Now they may have as many as 15, or even more. For that reason, many venture capitalists who have the ability to mold a company to growth and profitability are reporting that they don’t have the time to spend with their portfolio companies.
“Venture guys are getting stretched and required to sit on more boards,” said Frank Cutler, who was a co-founder of E*Offering and is a private equity investor.
Venture capital has changed dramatically in the past decade,in volume, deal flow, deal sizes and returns on investment,and will continue to change as the Internet evolves. As venture deals become more of a commodity, and more capital is thrown into the market, movements toward efficiency will prevail in the VC realm, and the more organized firms will have the better percentage of good deals.
This all creates opportunity for would-be venture capitalists who can bring top-flight credentials to the table. n
