I Never Wanted to be a VC
A few weeks ago, I attended a close friend’s wedding in San Francisco. I sat at a large table with people I’ve known for more than 20 years (though many of us hadn’t seen each other in nearly that long). Over the course of the night, we caught up on the twists and turns that each of our lives have taken since we all lived on Stanford’s campus so many years ago. The proverbial scores on our Silicon Valley bingo cards were high:
Most of us ended up in tech
Almost everyone had worked at one or more startups
There were lots of founders and ex-founders
A few of us eventually found our way into venture capital
As we shared our respective journeys, it struck me that all of the VCs had one thing in common: none of us had graduated Stanford with “become a VC” as our ultimate career goal.
Back in my day…this was not a thing
The first time I ever heard the term “venture capital” was in the late-90s during the dot-com boom. I took an 8-month break from my undergraduate computer science program to work at a local startup. The company I worked for raised a small amount of money from “venture capitalists”, whom I naively presumed were just rich people who wanted to invest in tech.
The dot-com bubble burst. That company (and countless more) went bankrupt. The investors lost their money. I went back to school.
By the time I graduated, the nascent tech scene in Vancouver had been all but obliterated. So I opted to head south and go to grad school.
I spent two years at Stanford working on my Masters degree in computer science, then re-entered the workforce in 2004. By then, nature was healing and startups were beginning to return. At the annual Stanford Computer Forum Career Fair, up-and-coming companies like Google, Netflix and “The Facebook” were recruiting alongside tech behemoths like Microsoft, Oracle and IBM.
Antonio’s Nuthouse, circa 2002 (in those days — before Mark Zuckerberg and his Facebook crew took over — startups and venture capital were rarely the topic of discussion)
By that point, I was vaguely aware of venture capital. Entrepreneurship is deeply intertwined in Stanford’s programming, so the topic was frequently mentioned, but always within the context of funding startup ideas. By the time I graduated, I knew that VCs existed and that they were a source of capital for startups, but I couldn’t tell you who they were, how they operated or where they got their money from. It’s very likely that I met a number of VCs while I was a student. It’s also very likely I could have cared less.
Because in those days, being a VC wasn’t something you aspired to.
20 years ago, if you were technical, you aspired to work on really hard problems. That typically meant working at a large tech company or, perhaps, joining or founding a startup.
If you were in finance in 2004, more than likely your goal was to work at Goldman Sachs.
But that was then. And this is now.
So what happened?
First off, the growing prominence of the tech industry as a whole led to an increased awareness of and interest in venture capital. Today, venture capital courses are offered at almost every undergraduate and graduate business program in the world. Tens of thousands of eager students learn about the venture capital industry each year.
And then there are the VC “clubs”.
In 2012 (when competition amongst VCs was increasing and the concept of the “scout fund” was first borne), First Round Capital launched an experiment called the Dorm Room Fund at Drexel University and the University of Pennsylvania. The idea was simple: teach a handful of business students the basics of venture capital and give them a small amount of money to invest in student entrepreneurs. The experiment was wildly successful. Not only did Dorm Room Fund expand across the US, but similar programs popped up all over the world (such as Rough Draft Ventures in Boston, The House Fund at UC Berkeley and Front Row Ventures in Canada).
Panache Ventures portfolio company Valence Discovery, which was acquired by Recursion Pharmaceuticals last year, began life as a student-founded startup called InVivo AI that received its initial funding from Front Row Ventures
Aside from generating returns for their benefactors, these programs have proven to be incredibly effective at both helping student-founded startups access early funding and teaching students how venture capital as an industry works. But there’s been an unexpected consequence: many of the business students who participate in these programs subsequently expect to graduate and move immediately into VC.
I don’t think that’s a good thing.
Every month, I get dozens of emails and LinkedIn messages like this one, from graduating business students eager to get into VC:
There’s absolutely nothing wrong with this email. In fact, it’s incredibly well-written and came from a very strong student.
When I receive such messages, I almost always schedule a call to have a conversation with them. But it’s generally not to tell them about the recruiting process at Panache. It’s to help them to understand that their best path into venture capital isn’t directly out of school (at least, not in my humble opinion).
At this point, it’s worth noting there are two distinct categories of venture capital: early-stage and late-stage (growth stage). The exact definitions of these vary wildly, but from a functional standpoint they can be categorized as follows:
Early-stage investing: Investing in startups where virtually none of the investment decision is based on financial analysis
Late-stage investing: Investing in startups where the majority of the investment decision is based on financial analysis
Late-stage investing is actually a great fit for high-achieving business students, due to its emphasis on financial analysis and the structured way in which these firms typically operate. But when business students ask me about “getting into VC,” they’re usually referring to early-stage investing. And therein lies the mismatch.
At the early stages, investment decisions are mostly driven by subjective potential. The potential of the founders. The potential of the technology. The potential of the market. A classroom or VC club can teach the process of early-stage investing, but cannot possibly impart the expertise required to evaluate subjective potential.
What can? Experience.
When I was an undergraduate, all of my internship/coop experiences were technical. Sure, I had dreams of becoming wildly successful one day (it was the dot-com days, after all), but I had no illusions that my best path forward would be anything other than to build something. Though I was pursuing both computer science and business degrees, CS was unquestionably my focus.
I recently had coffee with a student completing the exact same joint degree that I did 20+ years ago. His vision was the opposite. He saw his CS degree not as the core asset but as a “checkbox” for his resume. He wanted to become a VC and desperately hoped that he wouldn’t have to actually “get a coding job.” Over the course of our conversation, he asked every way he could how to go directly into VC and how he could “avoid having to be a programmer.” When it became clear that I wasn’t going to give him the answer he wanted, he thanked me for my time and excused himself.
I’ve had many conversations like this over the years and they always make me sad and frustrated. Sad that so many bright young people are infatuated by an industry that is, at its core, glorified capital allocation. Frustrated that they’re increasingly led to believe that there’s a credible path from graduation directly into venture capital.
I have absolutely no issues with students being impatient (lord knows, I certainly was!). But I wish these programs focused more on understanding venture capital as a means to building successful companies and less on glorifying the industry itself. Venture Deals by Brad Feld and Jason Mendelson continues to be one of the most impactful books on founders nearly 15 years after it was first published specifically because it comes from that perspective.
That’s not to say that VC courses and clubs shouldn’t talk about the career opportunities in the industry. But they should be realistic about the prospects and focus on the many paths that can lead to being an early-stage VC, including:
Successful founder
Unsuccessful founder
Early employee at a high-growth startup
Product management
Combining startup and “big company” experience
Corporate development (the people in large companies who analyze and acquire startups)
Tech journalist
Let’s stop inspiring students to become venture capitalists and get back to inspiring them to become founders and builders.
Because that’s what we actually need.