Why Venture Capital?

Why do you want to work in venture capital (VC)? This is the question that just about every interviewee can expect to hear during the recruitment process, and candidates should make sure they have a solid answer in mind.

Be prepared for reverse engineering questions like "Why not Investment Banking?" or "Why not consult?" as opposed to purely just "Why Venture Capital?"

So you believe you want to work in venture capital. The appeal of socializing with sharp, energetic young founders and their teams drew you in. 

Perhaps you loved traveling to tech conferences and having dinner with other such capitalists to compare notes on how much money you made. 

However, they aren't the responses your future employer anxiously anticipates. You are correct.

There are many very good reasons to go into VC, both that employers like to hear and don't want to hear. It doesn't mean that they aren't all good reasons, but it does mean they aren't good to bring up. In this article, we'll go over what responses you should use and which ones you should not.

Reasons to Pursue a Career in Venture Capital

You may have heard that working in VC can seem a bit more life-like - or you watched a bit too much Shark Tank?... Work in VC can indeed have a quality that feels more like a hobby than work!

In more senior positions, they can be taken up by members who may have gone to IPO with their previous startup - but your potential employer likely would rather hear about your interest in the work part rather than the hobby part.

As a starting analyst, you will probably be doing much more work than the fun stuff. The good news is that there is plenty to like about the work in VC. Beginning work is a lot of market research and "deal flow" - a term you will hear about in the future.

Deal flow refers to sourcing startups and creators who may have gone through accelerators (See Y-Combinator) and adding them to your CRM ecosystem for outreach and other due diligence.

Researching Innovation

To start, it can be extremely interesting. If you enjoy looking at emerging technologies and exploring new companies, you respond excellently to this question. It could sound something like this:

"What makes you interested in venture capital as a career?"

Response: "Well, that's an easy one. I've been interested in new technologies for as long as I can remember. 

It has always fascinated me how human innovation has compounded over time and produced the incredible world we live in today. Still, I'd not be comfortable spending all my time focusing on a new technology, which brings me to VC.

I enjoy searching for new companies and understanding their businesses; I already do it for fun. For example, I recently came across a company called "Company X," which is using "Technology Y" to create "Product/Solution Z." 

It's such an innovative way to connect the desire for sustainability with actual profit, and that type of innovation excites me. Researching various companies that are similarly innovative and pushing the frontiers of technology is something I can see myself doing."

Interviewer: "You've got the job."

Ok, it might be a challenge, but you can easily see how that is a better response than wanting to make lots of money.

Passion drives the most productivity. So if you can show you're passionate about the work, an employer will feel like they can count on you to perform well and give you a shot.

Making a Difference

Of course, there's more than one reason to want to go into this field. 

VC may have the strongest connection to progress among all financial specialties. Working in this field might give you the impression that you are discovering good businesses with the potential to improve the world.

It is your responsibility as a venture capitalist to support those businesses' development so they can prosper. 

Many VCs will tell you that they only fund business owners who can demonstrate a sincere desire to do good rather than make a quick profit. It can feel wonderful to support businesses that you genuinely believe have the potential to do good. 

Supporting the establishment of new technologies has the potential to improve people's lives in several ways.

In the same vein, you support business owners in realizing their goals. New businesses sometimes require a huge amount of capital as an initial investment before they can produce and market their goods. 

Not to mention the effort it takes to publicize a product and ensure that customers know their new product is available. Working in venture capital would allow you to support businesses in realizing their goals. 

You play a role in their ability to feel good about what they have created.

Small Businesses

The study of businesses while still in their infancy can be much more interesting than companies that are already well established.

Older, more established businesses have plenty of problems and interesting decisions of their own, but the organization and growth of a small business can be extremely exciting. 

Early companies often have a slew of difficult challenges to succeed. Who can make more drastic changes and decisions in a private company that can be interesting to study and participate in?

Established companies have already carved out their market corner and are working on expanding it. But, on the other hand, small startup companies have to fight to carve out that space. 

This is where some of the most innovative decisions a company can make and the most energy and passion spill out. This fast-paced and challenging environment can be among the most exciting business areas.

The People

I know I said that you shouldn't mention the steak dinners, and you probably shouldn't, but venture capital does involve a lot of personal interaction. There is face time with clients, entrepreneurs, and with other VCs.

Enjoying talking to people and learning about their thought processes can be a worthwhile reason to join this industry.

Those working in this industry often have large professional networks. So it is a fairly important part of doing the job well that you have a lot of connections that you can reach out to looking for new investment opportunities. 

The whole point is that you're trying to find good companies before others do, and knowing lots of people increases your chances of being able to do that.

While you should be careful not to sound like you wish to hang out and chit-chat all day, enjoying the company of others and getting to know different people can be a good reason to list in an interview as it can be a large part of the job.

Learning Opportunities

There is a lot to learn from this career. As a venture capitalist, you'll be working with many firms in various industries. 

Some of these companies will be creating their industries. So getting a front-row seat to learn about new companies and technologies that have the potential to create change can be very interesting.

You can rely on numbers and what you know as a venture capitalist. However, it would help if you researched what a company does, the industry it's targeting, and how likely it is to succeed. This is called due diligence. You can use several tools, such as CrunchBase or Pitchbook. 

This means doing a lot of research on industries that you might need to learn more about those companies. The opportunities to learn about new initiatives and companies are a regular part of VC and can be very appealing.

Less Appreciated Reasons when Joinning VC

There are no bad reasons to join VC. There are only reasons that your interviewer does not want to hear. Unfortunately, when interviewing for a job, some of the most obvious reasons can be the most frowned upon by potential employers.

It is important to understand what should not be brought up, just as much as it is important to understand what you should bring up.

It is perfectly reasonable to look forward to the generous compensation that such a profession can offer; however, to be successful in this field, it is necessary to be motivated by more than just money. Your interviewer, in particular, wants to avoid hearing about the compensation that VC can offer.

Money is a part of every job, but there are other important reasons to take a position. Your employer wants you to be passionate about what you do. They want you to want to do your work because that means you will work harder, longer, and do a better job.

Now that we have covered "Why Venture Capital?" - Let's review some generic interview questions with model answers. 

1. Which industry would you invest in if you could only select one, depending on your investment philosophy?

Me, I would select an IT or Tech related sector. Based on my research, their profits far exceed other S&P sectors, such as healthcare and real estate. 

Based on my economics training in college, the IT sector keeps growing even when the economy is not booming, so it offers a haven. One thing is its oligopolistic nature with few major firms, such as Microsoft and Apple, and they have incredibly high valuations. 

Of course, before, I would research the market and consult industry professionals to encompass all aspects of due diligence. 

2. How would you rate our portfolio? What investments are your favorites? Which one would you have rejected?

Refrain from being surprised by this question. It's completely OK, to be honest, here. But, also, remember that you have to do extensive due diligence on the firm's portfolio companies beforehand to show you are not coming in "cold" and just trying your luck. 

Pick a handful of their portfolio companies, form an opinion, and explain your growth projection. Instead of attempting to cover every company, It is best to focus on two or three topics and develop in-depth analyses.

3. What Venture Capital Resources do you subscribe to? 

So, in preparation for your interview, I would suggest taking a deep dive into the following resources: 

• GoingVC
• TechCrunch
• The Twenty MinuteVC Podcast

Going VC is a great publication with in-depth articles explaining the VC world from 0-100. Topics include investment approaches and how to break into the industry. It also has a great resource library to browse to learn about the industry. 

TechCrunch is a newspaper about startups and venture capital funding. It offers valuable information on the venture capital (VC) sector, including the most recent investment rounds, which Startups received a grant from which Funds, and under what terms.

The Twenty MinuteVC Podcast: This podcast has interviews with some of the most successful founders and venture investors, and they are quite informative and intriguing. 

Everything from how to make money to deciding whether to invest in a business is addressed in the course material. This podcast is worth listening to if you want to hear wise counsel from the most accomplished individuals in the early-stage investing sector.   

Using these key resources will keep you up to date with the happenings in the industry, cove any current affairs latest questions, and even bring up questions yourself to the interviewing party. 

4. Name three pieces of due diligence you would do when analyzing a company. 

I would first start with the bigger picture and move inwards. I would look at key metrics such as market size and which companies and countries are investing in the industry and try to identify a growth pattern.

Secondly, I would see if their technology is truly unique and do a comparable company analysis. I would then read their annual report and identify key metrics such as sales numbers and EBITDA to see if the company is growing. 

Most importantly, I would assess the team behind the idea and if they have a track record of success. 

 Researched and authored by Gregory Cohen | LinkedIn

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