A VC in Vacationland

I get asked this question all the time, so a post was in order…

There are a few paths into the private equity investing world—all of them take quite a bit time to accomplish:

1. Work your way up—be lucky enough to be a top student at a world-class MBA program, majoring in finance. This is a traditional route for many VC/PE partners. It will likely take many long hours finding potential new investments, doing mind-numbing due diligence and creating innumerable Excel spreadsheets before you get to partner 7-8 years later, if you can survive the grind.
2. Make the VC/PE firm a lot of money—This is usually accomplished by having a startup that was funded by venture or private equity money and selling (or an IPO) for five or more times their investment. You have proven your worth and often VC/PE firm will admit you directly as a partner.
3. Industry Guru/Successful Entrepreneur—generally applies to CEO’s who have had a long history of successful companies and are looking for the chance to make some money as well as mentor startups.
4. Strike it rich—come into a lot of money through business success/inheritance/whatever and set up your own VC/PE firm.
5. Specific technology expertise—if you have world-class expertise in an exotic technology, like F-Poss nanotechnology or big data analytics (to name some current hot areas), one VC’s are Jonesing to invest in, you can sometimes sneak in the door as a portfolio adviser.

Besides the above, here are a number of other details to make your entry most alluring to a VC/PE firm:

1. Network—VC/PE guys are very dependent on the quality of the network they have established over their working lifetime. It pays to know a number of current VC/PE partners and associates in these firms. Knowing founders in their portfolio companies (successful ones) is also very helpful. Then there are the lawyers, investment bankers, accountants, consultants, etc. that support the industry—these are critical guys to know as well.
2. Expertise—as mentioned above, a finance background is crucial, as is expertise in the investing areas that are currently target areas for VC’s and PE’s. Generalists are just not that useful, nor are people with basic science or technology degrees. Investing is highly specific and having detailed expertise through work or education in hot spaces (these change yearly) is important.
3. Personality—outgoing and inquisitive personalities work best in the VC/PE world. You must be able to pick out the one winner in the on hundred companies you look at. Not being afraid to ask difficult questions and push founders into corners is a necessary trait.

Are you ready to pass the test? Find yourself an 'in' with some partners in a VC/PE firm and go talk to them about what it takes to get into their world.