An anonymous user has a great response on Quora, Q&A Site:
I have been a VC general partner for nearly 10 years at a large brand name fund. Have had several successful exits.
Am on the exact kind of career and portfolio trajectory I wanted to be on – and am extremely thankful for it and wake up thanking my lucky stars every morning.
There are lots of great parts of the job – especially watching young and small teams create new products, calendar control, and the fact that the pay is pretty good – even without carried interest – which very few funds in the past decade have shown.
The average Silicon Valley partner at a mid sized to large fund ($300+M) on fund 3 or above makes $500k to $2M per year and the most senior partners make $4 to $10M per year!
So with that in mind, it’s really hard to complain about any parts of the job when it is really the greatest job on earth.
But if forced to pick – the worst parts of the job are:
1. Dealing with your partners. At a large fund, there are lots of partners. And what it takes to become a partner at a big fund and stay there for years is often a high asshole factor, ability and desire to deal with firm politics and internal jockeying for power.
Don’t get me wrong. There are some great great partners. But I think 2/3rds of the people in the GP ranks at big firms have massive egos (as one LP put it “VCs have more ego per dollar of return than any asset class we know of”)
The way this asshole factor manifests itself is in several ways:
–Multiple tiers of “partners” – many are partners in name only and have no control of the firm’s decisions – see a great post here: http://jtangovc.com/vc-economics… Never have I more felt like a second class citizen than when i (and several other “partners”) were not invited to certain meetings around firm governance. Also no transparency into the firm’s hiring/firing/financials
-Crazy Back Room Politics: “You vote for my deal at a Monday meeting and I will vote for yours” – this is subtle but insidious and leads to mediocre and median returns in an industry where the “median” money manager has lost money for 15 years
–Multi-office VC firms often also have a geographic issue where decision making becomes all that much harder because partners at the remote offices often feel….remote.
–Senior partners who are well past medicare age will rarely leave. More often than not, they are forced out – that dynamic lays itself out over and over again. With the egos in mind, that is not a surprise.
2. Dealing with Co-Investors. Take the asshole-factor above and apply it to companies where there are often 2-4 VCs on the board – each with their own agendas and egos – often not agendas that are focused on what is best for the company and often stuck around issues like fund reserves, fund life, etc – which most GPs will never admit to in a board meeting but absolutely do impact their perspective.
Also related to #1 – the inability for some “partners” to actually speak on behalf of their partnerships at the board level when re-financings and other big decisions happen.
3. It’s Lonely. Yes you have your raft of 5 to 10 companies, CEO’s who you speak to daily/weekly, boards, portfolio recruiting, partner meetings, etc. But at the core of it, this is an individual sport. There’s lots of solo travel, solo time at a computer, solo meeting taking. If you like true team work – not the BS of VC firm websites – then VC is not a career for you. Related is the answer below about cheering from the sidelines vs. being in the game.
The job of a great VC is to be a coach and not a player. Many former CEOs who become VCs have trouble with this and get stuck in the weeds trying to do the CEO’s job for them but taking none of the blame (boy could I tell some stories….)
4. The Ups and Downs. When things arent going well at the portfolio companies (which often tends to happen at the same time) – you just feel bad about yourself and your ability to pick good teams, companies, etc. You are stuck in these companies for 3 to 10 years and the hardest decision to make is to not finance a company’s next round due to performance. This rarely happens in venture. It should happen more.
I am convinced this is one of the reasons VC has bad returns as an asset class. Sure companies do pivot but on the whole, you know in the first 18 months if the company will be a screaming winner (5x+) or just OK (or worse!)
5. The Limited Partners. There are some brilliant LPs for sure. But as a whole most LPs are bean counters, asset allocators and will always select the shitty Brand Fund raising its 7th fund vs. a great emerging manager with a better track record.
LPs are the lagging-most indicators in the entire economy. I have had LPs tell me recently that they are really focused on finding new “social media funds” – really now? After so much of the value has been created? LPs are herd thinkers extraordinare. They rarely ask GPs the hard questions like:
-How do you divide voting and economic control of the LLC entity that owns the management company?
-How are junior people compensated? And then isolate junior people to ask them
-How has the firm done vs public market benchmarks?
-Are the GPs really working or do they take the summer off, spring break 2 weeks off, December off etc? What am I buying with my 2.5% fee
-Show me your investment themes for the past year? Or your investment memos and diligence packs for your biggest 3 deals.
-Lack of creativity with fee and carry structures (ie, lower fee, higher carry)
LPs like to “buy IBM” – that hurts this industry and creates hard conditions for new VCs from existing funds to start their own funds. There is no seeder community like there is in the hedge world. And so there is very limited job mobility in all fact.
6. Economics. The salary is great. But then you back out the 1% to 5% that GPs have to pay in to the fund and for the younger partners making closer to $500k per year and having to pay in their percentage of that GP commit, the economics do start to look markedly worse. I have am just seeing my first carried interest checks now – after 10 years in the industry! And like I said, this is a brand name very “successful” fund.
Note: all of the above are from the perspective of a large, multi-sector firm – with fund sizes over $300M-$500M. I’m sure it’s very different in a smaller fund with fewer partners.
Finally, notice I did not mention that “saying no” was a hard part of the job – it’s just part of the job – and that is the trite answer you will see a VC give on a panel when asked what the hardest part of the job is. But you actually get used to that part of it.
In conclusion, I am very thankful for the job. But there are many days where I ask myself why I chose this path and daydream about being in a portfolio company as a senior exec. The problem is that the longer I stay in VC, the harder it is to get out and to do anything more useful