How can a network engineer move into venture capital deals?

February 2, 2009 9:46 AM

How can a technology professional move into venture capital?

I'm a technology professional (engineering type) with no formal education but a lot of experience and a long history in the industry i'm in (networks). I have a strong interest in learning more about investing - VC, private equity, that kind of thing. With the background I have, how can I best insert myself into this field given that i'm not in the Valley and don't have a strong network of people with investment background? I think the role that appeals most to me is learning about the deals and being mentored, but i'd love to eventually some day evolve this into an advisory role for a VC based on my experience.

posted by arimathea to work & money (10 comments total)

I think your first step would be to start building a network. Depending on where you are, you can probably find a VC or angel investing group by attending things like BarCamp, seeking out and reading blogs of VCs or startups in your area, and finding events that feature startup companies in your area.

I've found that every city has VC activity of some sort... this isn't a phenomenon that's limited to California, or Boulder, or Austin, or Boston, or any of the startup meccas. I would think that you'd also find more unique ideas in some of the smaller areas.
posted by SpecialK at 9:52 AM on February 2

Get a MBA in finance/investing and then start your career ladder anew. Or do what most VCs seems to do: found a company, get rich, become a VC. These are the two classic career paths in the industry.
posted by GuyZero at 11:40 AM on February 2

I have worked in the tech industry on the government/economic development side for the past five years, and so my advice would be:

Your profile lists you as living in Atlanta, which has a strong tech sector and is also centrally located in regards to transport networks; you don't have to relocate to Silicon Valley in order to operate in the world of tech financing.

I think the biggest thing that struck from your question is lack of focus. What do you want to do at a VC firm? You say you have a long history in the industry, but are you a visionary? Can you analyze a particular technology or IP and make a strong business case for supporting it?

Before going back to school, I would do as SpecialK say, and build your network, and also ask people what is needed. It would seem that an industry association like TAG would be a good place to start.

I really wonder if it's such a good time to be involved with VCs, anyway, especially in a smaller market (compared to the Valley or the Northeast US) like Atlanta. VC capital has dried up, for one thing, and there is a growing skepticism about how effective VCs are at nurturing innovation, since VCs are most concerned with realizing a significant return on their original investment, rather than the success of the company they have invested in.

There will probably be more opportunities to assist with Angel investors in your area, unless VC firms in Atlanta say otherwise.
posted by KokuRyu at 12:37 PM on February 2

More Georgia tech links.
posted by KokuRyu at 1:01 PM on February 2

KokuRyu, thanks for your comments...

I think what I really want is to get a sense of how deals are structured, what goes into the deal process, that sort of thing - from the inside, so as to get the most benefit from observing actual activity as opposed to reading it from a book. I wouldn't call myself a visionary, but I think I have a good intrinsic sense of technology and whether or not that technology can make money. I'm pretty sure that VCs already have tons of these people, i'd just like to get to know more about that, and maybe become one someday. I work at a hardware company today, but my background is in ISP (network) stuff.

I think the larger scale goal I have is to understand the investment side well enough to put myself into a job making some money in the field, but I don't see it as a full time career right now, largely because of the lack of experience & knowledge on my side. I'd just like to get my feet wet without going full bore into it, and to get a real sense of whether or not it's a worthwhile or interesting career, as well as to see whether I can provide any value.
posted by arimathea at 2:18 PM on February 2

A colleague of mine asked around for a working VC who might be willing to mentor him. Twelve months later he had a job at another VC firm.
posted by rdc at 2:36 PM on February 2

It's worth considering that VC as a business model may have the front two wheels off the cliff at this point.
posted by rr at 4:28 PM on February 2

VCs are no more off the cliff now than bond traders are off the cliff when bonds are down. VC goes in cycles - while VC activity is down now may be a good time to look for a VC job as the competition may be down even more.
posted by GuyZero at 8:52 PM on February 2

I think you are confusing the cyclical nature of the business with questions about whether VC as we know it today is even a functional business model -- a business model that is structurally unable to deliver profit to customers is not one that is going to hang around outside of the context of a larger bubble.

I like VC as a model; it is a very American approach and is a good way to foster innovation. They tend to accumulate a lot of really smart, experienced people. But smart, experienced people in general are in oversupply and the supply of dollars (in the form of commitments and avenues to create distributions) is not.

I'm not saying things like these -- one two -- are the gospel, but if you don't already have an in with a VC, becoming a VC is pretty much out.
posted by rr at 9:19 AM on February 3

I'd start be taking a hard look at the structure of the VC industry.

In terms of funding for software and services there just aren't that many products that need the amount of investment that VCs need to justify their cut, and the "labor" intensiveness of VC makes it difficult or impossible to do enough small deals. This was probably the case in the dotcom era, and one result is that companies got stuffed with a lot more money than they needed. It's even more the case now with so much foundational expertise technology available for free (opensource software, useful blogs, etc) or as a commodity (large scale hosting).

Things might be different on the hardware side (though I have my doubts, given the increased commodification of design and manufacturing), but even so, there aren't going to be enough deals to absorb all the overcapacity in VC from the decline of the software side.

I'm not sure about biomedical or energy, but that's not where your background is anyway.

In the end, there is more capital than there are good ideas to invest in. To a large degree, VC is built on this premise. It builds on the assumption that most seemingly good ideas will not look so good in hindsight, but that a few will be so good as to wash away all sins. This used to work pretty well, but the economics shifted. More capital (retirement savings from a growing population in an increasingly affluent country/world.) was available. At the same time, the returns on those earlier investments were actually reducing the capital requirements of new startups. In the end, it argues for a reallocation of captial. For example, if society invested more in things that help create good ideas (like, I don't know, education), then there would be more good ideas to invest in.

All that said, my understanding is that there are typically two ways into VC. You can start in another area of private equity & investment banking, but they aren't exactly healthy themselves right now, and probably have their own non-cyclic structural issues. Also, the way in there is usually something like "get into an ivy league school, intern at an investment bank in Manhattan, graduate, work in an investment bank in manhattan, build your network... become a Jr Partner at a VC firm.

The other way is as "an operator," a high level position in one or more early stage startups, preferably with a successful exit. There are also ways in from a big company, particularly if you've been in a position to either buy a startup or two, buy the products of startups, or sell a lot of a product that startups are competing with. It really boils down to connections, and the experience that you used to develop those connections.

Are you in a position where you are either a supplier or a customer of any early startups? It doesn't matter if you have final say on any deals. What's important is that you have a reason to work closely with their senior management, either in making sure you deliver what they need, or they deliver what you need. Use that as a way to develop a relationship with the execs who will themselves likely have relationships with one or more VCs.


(which argues for reallocating more capitol to things that .
posted by Good Brain at 1:19 PM on February 3