The Realities of Emerging Venture Capitalists: Hustling in a Startup-like Environment

Introduction

Venture capitalism has long been perceived as a realm of wealth and leisure, where established investors effortlessly reap the rewards of successful startups. However, this image primarily aligns with the privileged few, while the emerging venture capitalists like us embark on a challenging journey akin to running a startup. We are tasked with securing investments, building a brand, and pitching to a diverse set of stakeholders. If we take deeper look, emerging VCs and the parallels they share with startup entrepreneurs are alike.

The Perceived Image of all VC's, not all are same

The popular view of venture capitalists paints a picture of guaranteed wealth, with established VCs enjoying substantial incomes from their successful investments. The realities of emerging venture capitalists are distinct from this stereotype, showcasing an entrepreneurial spirit that blends risk-taking, serendipity with hard work.

The Reality for Emerging VCs

Emerging venture capitalists are a diverse and tenacious group, each on their unique journey to make their mark in the world of venture capital. Contrary to the glamorous image of VCs, they encounter significant financial challenges and risks while donning multiple hats:

1. Financial Commitment: Emerging VCs invest a substantial portion of their personal net worth into their funds, showcasing their deep commitment to the cause and the inherent financial risks.
2. Income Uncertainty: Emerging VCs experience income instability. Their earnings primarily depend on management fees, which are tied to fund performance and size, rather than guaranteed salaries. I know a lot of emerging VC's who don't take salaries till a larger fund or second fund is established.
3. Resource Limitations: Operating with limited resources, emerging VCs may not have the extensive networks, deal flows, and industry clout that established counterparts enjoy.
4. Hustle and Hard Work: To compete in the highly competitive venture capital landscape, emerging VCs work tirelessly. They are in a constant pursuit of promising startups, forging connections, and honing their expertise.
5. Fear of Failure: Emerging venture capitalists live in the shadow of the fear of failure. The stakes are high, and a failed fund can lead to significant financial loss and reputational damage. Unlike startups, failed VC's rarely make it big again. We largely hear success stories due survival bias.
6. Learning Curve: The venture capital learning curve is steep. Emerging VCs must swiftly gain the expertise required to identify promising startups, negotiate deals, and offer valuable guidance to their portfolio companies.

The Parallel with Startups

Running a first-time fund shares striking parallels with managing a startup. Just like entrepreneurs, new general partners find themselves in a constant pitch mode:

• Pitching to LPs: Emerging VCs must secure commitments from Limited Partners (LPs), convincing them of the potential for returns on investment vs existing established funds. The differentiation of funds is hard if one looks deeply. Fund size defines leverage and fund strategy.
• Pitching to Founders: To attract promising startups, emerging VCs need to convince founders that their capital and support will add significant value. You are selling not just to your investors, even to your founders to accept your capital. You may source great deals, but winning them is even harder.
• Pitching to Upstream VCs: Convincing upstream venture capitalists is crucial to secure follow-on funding for portfolio companies. This may sound not so important, but till you have achieved strong signalling bias, as VC's you need to constantly pitch your portfolio to upstream VC's to secure capital for the next rounds.
• Pitching to Partners: Partnerships are critical for success, and emerging VCs must pitch their visions to potential collaborators (VC's) . The VC world is small, ability to trust and work with trusted folks becomes crucial. Without trust its hard to do deals together. Usually a patterns starts to emerge with whom you are comfortable to work together. Also these relationship are tenuous, with conflicting interests driving each firm.
• Pitching to Potential Employees: Attracting talent to the team involves selling them on the vision and opportunities that the fund can offer. This come at relatively lower salaries vs established funds. Attracting talent is easier but retaining and building a strong team is a challenge for emerging VC's
• Building the brand : Positioning the brand and building to make it attractive to all the above stake holders is even more critical in a world conscious of associating with right folks.

All of these come with its fair share of insults, rejection and frustration like an entrepreneur :-)

In summary, the image of all VCs as wealthy and idle is far from the reality for emerging venture capitalists. Emerging VC's are driven by spirit of entrepreneurship, taking on financial risks and putting in tireless efforts to navigate the challenging world of venture capital. Much like startup entrepreneurs, emerging VCs are characterised by their determination, ambition, and resilience, working relentlessly to build their portfolios, prove themselves to become and accepted as an established VC firms.