A Career in Private Equity & Venture Capital
Would you like to be in a job where you listen to exciting business proposals, meet lots of interesting people, and are exposed to latest cutting-edge concepts and ideas?
A field where you earn huge returns and also earn the gratitude of your clients for funding them. Then a career in private equity and venture capital may be the right one for you.
Behind every recently successful company like Google, Yahoo!, Facebook, behind every successful entrepreneur is a venture capitalist who made the correct call in funding that idea.
Venture capital is a type of investment provided by external professionals into new, high-growth companies. The investment is in the form of cash in exchange for shares in the company. A venture capitalist is the person making the investment while a venture capital fund is a pooled investment vehicle often in the form of a partnership that invests the capital of third-party investors into investments that are considered too risky for normal financing like equity or bank loans. Venture capital also includes professional managerial advice as well as using networks and contacts of the professional investors to get business for the company.
Types of Private Equity & Venture Capital
There are multiple forms of private equity or venture capital. These are primarily classified based on the stage the company is in.
1. Angel Investors - Seed Capital - Angel investors who are less of investors and are primarily helping out very early stage companies to start operations. Generally, these investments are done by wealthy individuals who have been entrepreneurs, or even by funds for socially useful projects.
2. Early Stage Investors - This is at a stage where company just has a core team, a business idea, and operations are just beginning. Early stage investments by Venture Capital funds generally become very profitable as they get much more chunk of equity at this stage.
3. Private Placement or Strategic Investors - This is done by established companies when they need to raise funds for projects but without taking funds from the general capital markets. Instead, they dilute equity to professional investors in return for money.
4. Funding Rounds - There are multiple stages of funding that are generally done by companies. The pay-off for the venture capital fund lies when company becomes public in an Initial Public Offering or is acquired by another company.
Venture capitalists generally target a huge rate of return due to the risk of investing in unknown companies, and generally go through a lot of business proposals before accepting a business proposal for funding.
Careers in Private Equity & Venture Capital
Private equity firms are usually much smaller in number of employees. The typical roles are as follows: -
Associate - This is an entry-level position. Associates basically work as support teams for sourcing deals, and assist partners with the work. The entry is generally for MBAs from premium business schools with good academic records.
Senior Associate - This role happens after two to three years as an Associate and is a continuation of that role. After this role, people generally come on the track for becoming partner.
Partner / Vice President - They generally receive a share of revenue as well as annual profits. They have expertise in the area they are investing in, and are generally experienced finance professionals, ex-consultants or entrepreneurs themselves.
Limited Partner - Investors in venture capital funds are called limited partners. They comprise both high-net-worth individuals as well as institutions with funds.
Venture Partner - Venture Partners work on deals and receive fees only on deals that they work with rather than general partners who get a fee on all deals.
Entrepreneur in Residence - This is a temporary six- to twelve-month role for people who work on developing business ideas within the Venture Fund, and then typically move on to become Chief Technology Officer at the companies they found.
Tasks Involved in Venture Capital
Due Diligence - Studying the proposals for feasibility and auditing the credentials for the same
Deal Making - This includes sourcing, negotiation, presentation and closing the deals to be financed.
Funding & Marketing to investors - This is done to raise funds from investors to start up the venture capital fund, and also infuse funds when the need arises
Sweet Pros of Careers as a Venture Capitalist - Careers in this domain have fast growth, and are monetarily very rewarding. There is good international exposure as well as exposure to latest trends in wide variety of domains.
Sour Cons of Careers as a Venture Capitalist - There is a steep barrier to entry. Entry is open to successful consultants or entrepreneurs, and depends on your networking skills as well as domain knowledge. A Venture Capitalist needs to review lots of deals to spot a winner and must have canny investment instincts as well as be street-smart to see through details of well-packaged proposals. Careers have to cope with rapidly changing economic environment and shifts in funding. An example is that level of VC activity that came down to a third after 2001 technology downturn.
Venture capital is an exciting area with a rewarding monetary life and potential to really change the world with newer companies. Behind successful companies like Google and Yahoo! stood initial investors who were willing to take the risks and fund them. Those successes lead to huge amount of value creation for economies, investors, and job creation for people. Entrepreneurship and venture capital are exciting fields, if you are able to cope with them.