Significant inflows have swept into funds, with the value of venture capital deals surging for the third consecutive year to $136 billion in 2015, according to data provider Preqin. The boom is led by tech groups and particularly in the US, where $77 billion of venture capital flowed into companies last year, according to PitchBook — a threefold increase over the past decade.
The risky but lucrative business of betting on the next Facebook is tempting graduates from the elite business schools away from other sectors.
And with such growth, top venture capital firms, such as Sequoia Capital, Accel Partners and Kleiner Perkins Caufield & Byers, which backed Twitter and Google, are tapping into the MBA talent pipeline.
“There are opportunities across the investing spectrum — from sourcing to deal execution to portfolio management,” says Dylan Pearce, a principal at Greycroft Partners in Los Angeles.
He says MBAs are valuable to the firm: “Probably 80% of the investing professionals here have an MBA.”
But breaking into venture capital is no easy feat. “It’s not going to be as simple as looking at your job board and seeing 15 VC firms that are coming on campus,” he says. “Being creative in your job hunt is necessary.”
The top US business schools are feeders for the venture capital sector’s biggest names.
According to a survey by PitchBook, 24% of VC professionals with MBAs got their degrees at Harvard Business School, where hiring has climbed 5% over two years. Stanford Graduate School of Business accounts for 17%; Wharton School and Kellogg School of Management 8% and 4% respectively.
“Last summer there were a record number of our MBAs working in venture capital,” says Tom Sabel, associate director and career advisor at Stanford GSB.
Stanford’s San Francisco location, straddling Silicon Valley, which is home to top firms such as Andreessen Horowitz and Greylock Partners, is an advantage.
“To get a meeting with a VC, you just drive a few minutes down the road,” says Tom. “It’s a rich environment.”
At California’s Haas School of Business, the VC-focused student group Haas Venture Fellows recently organized an event on Silicon Valley’s Sand Hill Road. It attracted more than 50 VCs.
“It’s all about location,” says Rhonda Shrader, director of entrepreneurship at Haas School. “Although the competition for snagging a coveted spot is more intense, the density of VCs here offers a higher probability of a good match.”
Powering the growth of venture capital hiring is the record pace of successful exits.
Tech stars such as messaging platform WhatsApp, acquired for $22 billion by Facebook last year, or the $5.4 billion IPO in 2104 of online lender LendingClub, highlight a feast of financial returns for VCs — despite growing concerns that tech start-ups are shunning public markets.
“The growth in venture investment over the last six years has dramatically increased awareness [of careers],” says Todd Carson, senior associate director of Wharton MBA Career Management.
There are lucrative returns are to be had. The average salary paid to Stanford GSB grads at venture capital firms last year was $175,000. At Harvard, MBAs are netting $150,000, plus $25,000 signing bonuses. At the director/partner level, pay is as high as $450,000, according to salary data provider Emolument.
He says there often needs to be outsized exits, such as from $1 billion “unicorn” start-ups, but it’s a risky business. “The secret is that it takes a really long time for ownership in a VC fund to produce returns — and those returns are far from a sure thing.”
Because venture capitalists are essentially hunting for the next “big one”, they have been increasingly willing to throw cash at start-ups with fast growth but few revenues. The inherent risk means that VC firms are highly choosy about who they hire, and who they promote to partner.
“VC is not an industry you can enter to be trained in your role — you must bring an expertise to the table,” says Ben Thomason, sector director for finance at Duke Fuqua’s Career Management Center.
Core skill-sets demanded include due diligence, financial modelling and the ability to prospect and evaluate potential deals. And, he says, an eye for evolving trends and growth drivers are key for budding VCs.
Experts say VC talent tends to come from investment banking or other technical backgrounds, but there are no sure-fire paths to entry.
A thriving network of entrepreneurs, or experience running a start-up, are also assets. “Having a great network is very valuable — it helps with deal flow, due diligence and sharing best practices,” says Greycroft Partners’ Dylan, who is also a Wharton MBA.
Yet some of the biggest career opportunities touted by VC firms are outside of investing: with their portfolio businesses. “The VCs want to meet students who are not just potential deal makers, but to see if they can fit with their portfolio companies,” says Stanford GSB’s Tom.
These portfolio roles will become an increasingly integral part of the fabric of venture capital, says Origin Ventures’ Jason, who got his MBA at Chicago Booth.
“This opens the doors to people with more focused career histories to break into a venture fund.”