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I often get approached by folks looking to start a career in venture capital. They’ve read all the investor blogs, can quote the latest high-profile fundraisings and acquisitions, and have concluded that venture is a game of playing Midas.
Early on in these conversations, I try to set the picture straight by telling them this: venture is a career of rejection followed by failure. Unless you feel comfortable with experiencing large quantities of both, you should consider other careers.
Describing the industry as such usually prompts other VCs to laugh — not because they don’t agree, but because it so accurately describes our day-to-day. Yet, it feels so different to what you would believe from reading blogs about venture investing.
Some explanation behind what I mean: every fund cycle begins with raising a fund. This typically involves 100+ meetings with fund investors (Limited Partners or LPs). As a VC fund manager, you are probably hoping to get 5 believers from this group — so you’re expecting at least 95 rejections. You will need all 5 believers to raise a large enough fund to start investing.
If you are lucky enough to find the believers before you run out of personal cash (this fundraising will likely take ~2 years for a first-time fund), then congrats — you’re in business! You announce the fund, open the doors, and the investment proposals start flowing in.
At Frontline, we now have over 1,000 companies a year approaching us looking for funding. We expect to invest in 10 of them which — you guessed it — means 990 rejections a year. Split across our three current investment partners, this means 330 rejections a year per partner.
To be successful in venture, you have to have real empathy and respect for the entrepreneur. As your career progresses, you may get better at evaluating markets and giving constructive feedback — but it never gets easier turning down an entrepreneur who is pouring their life, soul, and bank account into a company. A little bit of you dies 330 times a year.
And we’re hardly done yet — after the rejection comes failure. Of the 10 or so companies Frontline invests in a year, we know that (based on VC history) at least half of these will fail to realise their vision. Some will result in planned company shut downs, others will be acquihires, and some will grow into small niche companies — but very few will get to truly achieve their dreams of reinventing an industry.
Some folks can handle this rejection and subsequent failure better than others. However, I would urge anyone entertaining venture as a career to understand that, if they are going to be successful in the long-term, they need to be driven by this dynamic — rather than expect that it won’t happen to them.
Be candid with yourself and ask if you have the resilience to handle the unique challenges of working in this industry. If you can, this is the best job in the world. The energy that comes from working with smart, driven entrepreneurs every day of the week (whether they succeed or fail) is incredible and makes it all worthwhile, for me at least.