Tuesday, September 26, 2006

What's thy disposition, O' VC God!: Current Trends in Venture Capital

Disclaimer: I am a student, this is my opinion. If you know better, teach me. Leave a comment or ping me directly.

Understand the industry dynamics to find the job
Like those mythical dragons of China, jobs in Venture Capital seem to be exist but then maybe not. You see people getting hired but you are not sure how because no one knew, no one heard, and yet people are hired. Dragons probably don't exist but Venture Capital jobs do. And they exist in the realm of hearsay. You have to hear about them, they are not posted. Someone speaks, someone listens and in that wondrous journey of words through the ether, jobs are snatched, people are hired and history is made.
Ok, so the first paragraph was a whim of mine. To blend my somewhat childish literary tendencies into a professional blog. Now back to normalcy. Venture Capital positions are available but far and few. The trick is for someone to remember you when an opportunity arises. As discussed earlier, Networking is the key. But it's also important to understand the nature of this industry and where it is going.

State of the Industry
Simply put, there is far too much money in the industry and not that many great deals. The result is Overhang ( a nice, simple explanation of the problem is here courtesy Paul Kedrosky)and loads of good money chasing a few good deals. Most of the returns in the industry are made by the top few firms while the others scamper around for the scraps. That said, there are good VCs everywhere. However, this industry can be a vicious cycle. Past history is the only indicator of future performance. Far too many legends sit around on their past laurels while very capable people struggle to make a name for themselves. You have to be in a great firm to get a hold of the best deals (so that you can make a name for yourselves). You have get a hold of the best deals and display great aptitude in working on them, to get a shot at the best firms. And so the grand vicious circle of Venture Capital is created.

So since there is so much money floating around, there are a bunch of trends:

1. Move towards Emerging Markets - Countries like China and India are seeing a tremendous inflow of VC capital. A lot of firms are looking east to see if they can invest the money they have raised and make some profit. Whether they do so or not, is the topic of another posting. GigaOM has an excellent article on VC investing boom in India. Check it out.

2. Move towards Later Stage deals - Many VC firms are trying to invest in later stage, traditional Private Equity style deals. This, in the case of emerging markets, can be the low hanging fruit and might be a decent way of divesting larger bite sizes and getting the necessary returns. This means competing against hedge funds and PE shops, increased prices and lower returns.

3. Bigger is Better - There are few brand name funds being chased by a horde of LPs, and this is leading to huge amounts of capital in these select funds that are being raised. Small size funds are almost a misnomer. Look at this Quarter: Oak raised 2.56B fund, NEA raised 2.5B and Vantagepoint raised 0.9B (less than its target of 1B).

4. The incredible shrinking machine - Because of a combination of the factors above, the big will become bigger, the rich will become richer and the credible will become, well...more credible. A lot of small players will exit and the number of VC firms will decline dramatically (more so from the bottom).

So, the jobs will be fewer, people will be more selective about hiring you and most importantly:
you should be more selective about which firm you want to work for!

I will talk a lot more about this and each of the above trends in the coming posts.

Wednesday, September 20, 2006

Beyond Networking

Networking is essential to Venture Capital however it can only go so far. It cannot replace the skill set that is need to be a good Venture Capitalist. Now, I will caveat this by saying that I might not necessarily be a good one but I do know (through discussions with VCs of every stripe and shades) what could make an MBA student a good VC.
In my opinion, there are three kinds of skills required (in no particular order).

PROCEDURAL KNOWLEDGE: All the skills that can be learned and form the basic transactional foundations of the day to day activities of a VC. You will do this and need to know this to be a VC. However, this alone does not make you a VC.
a. Venture Capital Theory - An introduction to Venture Capital model of financing and its methodology.
b. Basic Financial theory of Venture Capital - simple to learn, easy to implement. It involves knowledge of things like termsheets, valuation models and methologies, most of it can be learnt from a simple Corp Valuation or a Venture Capital class at school.
c. Legal Aspects of entrepreneurship - Knowledge of legal convenants/terms used in termsheets. Very useful in structuring deals and basic bread-butter stuff for most VCs.

VENTURE EXPERTISE: Builds on the procedural knowledge and is the part which distinguishes a good candidate from a bad one.
a. Technical Expertise - Having technical knowledge in one or more technology sectors is key whether it is semiconductor or biotech, security or wireless. This can be attained through general expertise in a sector or through BS/MS/PhD in it.
b. Domain Expertise - Following up the technical expertise with a genuine interest in the direction of the market is important. It is key to stay abreast of the general industry trends through a combination of blogs, articles and news-wires.
c. Operating Expertise - Having general operating experience in the industry is very useful since it proves that you have the ability to place yourselves in the entrepreneur's shoes and have been exposed to the usual situations that plague tech startups. After all, what advice would you give an entrepreneur if you don't know how it is to be in his/her place?
d. Entrepreneurial Expertise - Even better than just operational expertise. Having experience starting something or working in a startup is one of the best skillsets you can bring to a Venture Capital firm. After all, you know how it is.

EMOTIONAL MATURITY: Builds on knowledge and expertise. You can be the most knowledgeable expert in this world but it is useless if you don't know how to use your skills.
a. Ability to Connect - The nature of a VC job is such that you spend 90% of your time connecting with others. Be they partners, Entrepreneurs, customers, management teams, lawyers or bankers. It is important to be able to connect with a wide variety of people and work with them.
b. Communication Skills - It is important to articulate what your inner self says. You will be wearing many hats at the same time. Interim CEO, board observer, Venture Capitalist and what not. All of these require the knack of switching hats and communicating with a different audience.
c. Empathy - Remember the Entrepreneur? They are the gutsy one. They are taking the risk with her career/ambitions/time/resources to do this. Empathize with them. Its important to do all you can to help them succeed and most importantly, empathize with their situation. A good relationship with your entrepreneur will lead to many more interesting deals/ideas and coupled with expertise, will add credibility to your working style.

At the end of the day, as Curtis Feeny from Voyager Capital told me once, its more important to be a good human being than a great Venture Capitalist.

Did I miss something? Do comment if you think there is something else to add to this list. Next post will deal with what I did through the first year of my school to position myself!

PS: I am not a VC (yet) and neither do I have a VC job (yet). Most of my musings are based on what I learnt over the last year and through my VC friends.
PPS: Everything know or do or have done is because someone in this industry gave me a chance, talked to me or taught me. This should go a long way to prove that "nice VCs" is not a oxymoron:)

Monday, September 04, 2006

How did I Network?

First of all, the art of good networking involves not considering it as a process but an experience. You have to enjoy meeting people, talking to them about their ambitions and of course, you goals. The aim should be to connect with the person you are talking to and make a friend. Everything else will follow. Meeting people with warmth, with openness to new ideas and people is the best form of networking.
If you find the process of networking cumbersome, then maybe Venture Capital is not for you. The industry is an art form more than a precise science, and it works primarily because it is a collection of tightly-knit, extremely bright people. Every deal that you source, diligence and close might involve phone calls to your friends in the VC firm across the road.
The process of finding a VC job is not too different. It's not about applying for positions in a VC firm, it's about knowing when they appear. When someone comes across an opportunity that might be a fit, that someone has to remember you.
So Networking is important and more important is Networking with genuine sense of openness and fun.
The way I went about the process is not too different from what most of the MBA students do when they look for an internship/full time position.
Step 1: Create a Pitch
Create an effective 1-2 minute pitch on your background, credentials and ambitions. Being very clear about what you want to focus on is important. Ultimately, the question is what do you bring to the table. And this has be answered in a clear and concise manner. I found strong, effective pitches were the best way to get the attention of the person across the table or phone. Also, the people who you are talking are usually pretty busy and are taking time out of the work to lend a helping hand. Speaking clearly and articulating your ambitions unambigiously helps save their time and also helps them help you in the most appropriate way. You also come off as an impressive, motivated individual and that can't hurt!

Step 2: Collate your sources
You have to first of all collect any initial contacts that you might have in VC world or related to Venture Capital.
For us MBA students, these are primarily from the following sources:

1. Friends who are in the VC industry
2. Friends who are entrepreneurs and who have interfaced with VCs at some point in the lifecycle of their startup
3. Your peers at school who might have had VC experience
4. Business school Alumni

Step 3: Get Started
From all this, create a list of initial contacts who you can talk to and start pinging them one by one. Before you speak to them, practise your pitch with a few peers!
The way I have done it till date is by sending them an initial short introductory email with a short bio and a request to meet/talk for a few mins. Obviously, using your contacts to "warm call" people is more effective than "cold calling" them. Having said that, when I started, I did not know that many folks in the VC world and I have been reasonably successful in talking to loads of VCs. The trick is to ensure that you have some valuable to say and you have the confidence that you deserve to be given a chance.
I can say that the people you will end up getting responses from are a self-selected group of VCs who are generally less-stressed, warm human beings (there are exceptions and I have been at the recieving end of those). Trust them, rely on them, talk to them and lay out your ambitions. At the end of each conversation, ask if they could do you a favor by introducing you to someone who was a relevant person to talk to. This is a long shot but you have nothing to lose and you can end up winning a "warm call/referral".
That is the way the network grows.

Finally, as you network will grow, you will learn how to pitch better, you will figure out the VC parlance and know what the trends in the industry are. In a very subtle way, you will become smarter and will understand what this industry is about.
And that is a good point to re-evaluate if you are indeed a good fit for Venture Capital. Thus, networking will help you not only in finding a job but in deciding if you actually do want the job.

Till now, I have been aggregrating my experience in VC recruiting but I am curious about what other's experiences have been? Anything different to say or an experience which does not match what I outlined in this blog? Do comment or ping me.
Next time, I will talk about what else can we do beyond networking to enhance our chances.

The Process

"The Process". Sounds like a John Grisham novel right?

Anyways, so here is the process:
1. Be self-aware
Know what you bring to the table before you start talking to people.

2. Refine a pitch
When you starting talking to people, you should have a brief/impactful way of introducing yourselves.

3. Know what you want to know
Have an idea of why you are networking. Don't get on to the phone and ask for a job. Try to find out about field, genuinely and sincerely. Jobs come and go, knowledge has to be invited home.

4. Network
Talk to as many VCs as you can and get in front of them with your ambitions in tow.

5. Do a field study in a VC related topic
Try to do a field study in a VC related topic preferably with a VC firm and get a hold on the street lingo in VC land. ("Carry" is not a verb as much as a noun in a VC song and things like that).

6. Network
Refine your idea of what you bring to the table and what kind of VC job you want, and use that to talk to more VCs.

7. Subscribe to tech/VC blogs
Ensure that you are on top of the tech startup world/trends by subscribing to influential, interesting VC/tech blogs.

8. And network a bit more
Keep talking to as many people as you can. Essentially, when the right position comes by, someone should remember you. That is the only way one gets a job in VCland.
(Unless you are Ankur Luthra (Summit Partners) who got his pic in Wired magazine gazing at a wall full of business plans)

How to find out how to find a VC internship

No. My english isn't that bad. I just thought that it was a funny title for a blog entry.
A geek like me can find 10 girlfriends (at the same time) easier than find a VC internship. Not a great analogy and probably an exaggeration. That said, it is "hard" to find a VC internship.
But hard is relative. Its harder than finding a McKinsey gig or harder than finding your IB gig. But easier than starting a successful startup. The trick is to commit to finding a VC internship. If you are hellbent on finding one, you probably will. The way I structured my search was as follows:

Step 1. Talk to all 2nd years who did anything related to Venture Capital
This is the best resource that us Bschoolers have and we usually dont use it well enough. Find people who previously worked in VC or did something related to that in their summers and talk to them. They have gone through the phase you are going to go through and they know the drift.

Step 2. Find mentors/people who will bat for you (among your peers/2nd years)
I found Arif Janmohamed, Mukul Chawla and Sandeep Lodha. Arif now works at Cisco M&A, Mukul is at Warburg Pincus and Sandeep crossed the border to Bain. But all of these had VC related summers or had recruited at VC firms. I got to know them and they mentored me on everything from my resume to the process to the pitch. They gave me contacts and opportunities. And then coached me on how to make the best of those opportunities.
Find people like that and hang on to them. Its a small world, if you are good, you will cross paths with your peers. So don't be afraid to ask for favors. You will get an opportunity to return it. But most of all, don't waste people's time. If you are not commited or are just testing waters, be upfront about it.

It's kind of like life right? There are usually people who know more about things than you do. Your options are to bumble along and find the path yourselves, or to be open to learning the path from others. Some paths are to be forged individually and some are more apprenticeship-model based. VC is more latter than the former.

Anyways, at the end of these steps, I had a clue as to the process that awaits me.

Saturday, September 02, 2006

My first steps into Venture Capital

So I decided that I will try to figure out where I can make a career in this field. Everywhere I talked to, people tend to be discouraging and do not think, there is a way to get a position in VC directly out of Business school. Maybe there is a grain of truth. There is not much you can contribute to a VC firm if you are just out of school. However, most of us are NOT just out of school.
Most of us have a few years of operating experience and even multiple degrees before we get to Bschool. Having said that, there is a profile which is especially conducive to getting in.
(This does not mean people with different profiles can't get in, this is just more conducive)
1. Have an advanced engineering degree (BS, MS in EE/CS/other engineering disciplines)
2. Have startup experience either through starting something or by working on the groundfloor of one
3. Have operating experience of some significance
4. Be a hustler

I think the last point is probably the most important one. You need to hustle quite a bit. Get in front of incredibly busy people, charm your way to an audience and then make the most ouf it. This is NOT IB/consulting, there is no set path. You should be genuinely interested in meeting other entrepreneurs/VCs because you are interested in getting to know them. And you can't do that unless you are 100% passionate about this technology and startups.
Which brings us to the main criteria to get a VC job:
VC jobs are not backups and you will not be very efffective recruiting for IB/Consulting/etc and try to get a VC job in the background. That said, startup jobs/tech operating jobs can be a consequence of looking for a VC job. You start talking to people to find a VC internship and suddenly, you get a great operating internship in a nice tech startup.
That happens more often than we would think.

So having spent enough time talking to 2nd years/VC friends, I decided I was going to go find myself a VC internship. And then process really took off.

Why Venture Capital?

Why? Indeed I spent quite a bit of my time at school (at the expense of that amazing market strategy class) looking blankly at the professor and thinking about what I wanted to do with my life.
So many avenues were open to me and the economy seems to be doing well too. But what should I be focusing on? This is the question most people are faced with at regular intervals of their lives and I sincerely believe the ones who succeed are those who can answer it in a way that it aligns with their darkest, innermost urges.
What is your elixir?
What makes you happy?
What would be a satisfactory life if I fast-forwarded 40 years and you were in the autumn of your career/life?
Most people try to look at life as a ladder and look at the next few rungs at a time. I do not believe that is a unreasonable strategy. But I like to atleast take a stab at fashioning my life from the big picture down. What is the 30000ft view of what I want to do? And then lets zoom down to see, what the potential next few steps might be.
Unrealistic? I do not know. I am 29 and have worked enough and studied enough to atleast make an attempt to figure my ambitions out.
But I ramble. The question was: Why Venture Capital?
I have a bachelors and MS in Electronics and Telecommunications. I really love technology. No, not just in a geeky sort of way. But I genuinely believe in its power to change our lives. Tell me the last consultant/IB guy who changes the way we did things? But the guy who invented the VoIP protocol, and the guy who created/marketed Skype changed our life immutably. So, post-MBA whatever I do, it has to do with technology. Then these are the options I have:
1. IB with a tech focus
2. Consulting with a tech focus
3. Operating role in a large/midsize tech firm
4. Do a tech startup/ground floor of a early stage tech firm
5. Invest in tech (PE/VC)

Of all these options, 4 and 5 seem most interesting to me. I dont seem to be excited by 1 or 2. And have done enough of 3 in my prior life.
So, it boils down to either investing in technology or starting a company of my own. Both of which are viable, reasonable options and none of which is a backup to the other.

Somewhere in the first couple of months of my MBA, after hearing the experiences of tons of alumni/2nd years, I decided to pursue a career in Venture Capital and/or look for entrepreneurial oppportunities.

Why start this blog?

This blog started was inspired by a comment from Will Price, who is a principal at Hummer Winbald Venture Partners. Will was probably the last VC I met before I left Bay Area to get back to my 2nd year at Wharton.
I was doing my usual thing, making a contact, getting advice as to what more I should do to position myself for a VC job and out came this nugget of wisdom.
"Write a Blog"
"About what?", I said.
"Something that you are good at related to Venture Capital", came the response.
Now I have an extensive semiconductor background, have been in operating roles in large, small, mid-size firms and have domain experience in Wireless/Software among other things. But so do many others. Why should someone come to my blog to read about my take on things "unless" my take was seriously unique?
Then came a flash. Why not write about this process that I am going through? I have spent days/months/almost an year in this industry, meeting people, cold-calling, warm-calling, mailing, doing what I can to figure out if:
a. This industry is a fit for me
b. If I am a fit for this industry

I have spent countless hours meeting VCs and Entrepreneurs of all shades and stripes. There is something in my experience that would be useful to other aspiring VCs and other professionals who might want to get an insight into this as a career.
And more importantly, what I learnt from my countless encounters.
So thats that. Thanks Will for the idea. By the way, he has an excellent blog going. Check it out.