As deals dry up, Junior VCs worry about their careers

Many venture capitalists at the beginning of their careers face a new question: How do I prove myself in a declining market?

“It’s a pressure cooker environment for emerging VCs,” said Adam Dawkins, founder of the Emerging Venture Capitalists Association, a nonprofit with about 1,350 members, mostly holding titles such as analyst, associate, vice president and director of venture firms.

The push to help a company’s success by getting and closing deals is huge now, as companies re-evaluate team sizes due to fundraising concerns. But new deals are harder to come by because the market is shrinking, venture firms are becoming conservative and founders are reluctant to raise capital in a bearish environment.

The unprecedented amount of money that has flooded venture capital in recent years has caused companies to expand and launch new ones, attracting people to the industry.

Venture capital firms, for example, paid more for Stanford University business school graduates than any other employer last year. Recipients of a master’s degree in business administration earned a median salary of $237,500 at venture firms, according to data Stanford shared about the class of 2022. By comparison, Stanford MBA 2018 graduates had a base salary of $160,000 in venture capital.

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The Emerging Venture Capitalists Association, or EVCA, estimates that there are approximately 2,725 trainer-level venture capitalists in US venture firms that hire individuals in these roles on their investment teams to analyze markets, source deals, conduct due diligence and invest in startups. They usually do not have a stake in the company’s management company and do not manage the relationship with the fund’s investors.

For several years, while the venture market was expanding rapidly, it was relatively easy for new VCs to build a career by making investments and watching startups grow in value, even going public or being acquired.

There are now more than 7,000 hedge fund managers in the world, which has roughly doubled in the past decade, according to data provider Preqin Ltd. They manage about $2.5 trillion in assets, up from less than $500 billion in 2013.

For VCs “the show-to-value cycle and timelines were compressed in many ways,” said KJ Sidberry. Mr Sidberry stepped down as managing director of San Francisco-based Forerunner Ventures in January and is set to join GV, the venture capital investment arm of tech giant Alphabet. Inc.,

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in a similar role. With fewer deals, there’s less opportunity to make a single, career-defining investment, he said.

However, he says there are many interesting startups in the consumer sector, his area of ​​focus.

By all indications, the risk market has slowed recently. The number of US deals in the fourth quarter of 2022 fell 38% compared to the same period last year, according to data from the PitchBook-NVCA Venture Monitor.

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What’s more, the percentage of early-stage deals that achieve follow-on funding is likely declining across the industry, said Abir Liben, principal at New York-based Primary Venture Partners. This conversion rate is an important metric for venture capitalists, as it is proof of their success before a startup reaches the exit. With the conversion rate dropping across the board, VCs will be comparing themselves to each other in a new environment, he said.

“That metric isn’t going anywhere; There’s a calibration around what’s considered big,” Ms. Liben said.

One way to improve a seed investor’s chances of success is to keep a close eye on the public market and, by extension, the late-stage venture market, he said. Ms. Liben concluded, for example, that insurance technology startups have a much lower chance of succeeding in the public markets than those providing banking infrastructure. Knowing that helps him determine which startups are more likely to raise follow-on funding, he said.

Developing deep industry expertise is another way junior VCs can be useful to their companies, said EVCA’s Mr. Dawkins. Mr. Dawkins is also an early stage founder and general partner of Terra Nova. Junior VCs who are experts in an emerging technology, whether it’s cryptocurrency or artificial intelligence, are valuable resources for their company, he said. “Partners can trust them more and more,” he said.

There are benefits to starting out in venture capital, said Matt Murphy, a partner at Menlo Ventures and an investor since 1999.

“It’s a good time to start. You don’t have a big portfolio and maybe you’re struggling, and you’d be willing to back a bunch of early stage companies in an era of more discipline and a less competitive VC environment. Those factors can push someone very early in their VC career,” he said.

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Slower markets also provide more learning opportunities for new VCs, says Allison Averill, who joined Menlo Park, Calif.-based Unusual Ventures last year as vice president after working as a product manager at cybersecurity firm CrowdStrike Holdings. Inc.

“There’s a little bit more time now to have conversations with subject matter experts and do more due diligence on the company and spend time with the founders without the pressure to come up with a term sheet,” Ms Averill said.

For Ryan Dion Taylor, who previously worked at a large energy project development firm, the transition to venture capital was not easy last year. However, when the opportunity arose to join Azolla Ventures as a partnership, Mr. Taylor took it, despite fears of a volatile market and the fact that Cambridge, Mass.-based Azolla was in a position to raise funds.

“Jumping from a well-fortified ship onto a sinking raft, it felt a bit like that,” Mr Taylor said. But he’s glad he took the leap, he said.

He was surprised that the flow of the deal was fast. Many founders are reaching out after being rejected by other companies that have become more conservative, Mr. Taylor says. Azolla, with a social impact mandate, is able to invest early. So far, he has been closely involved in a deal the company is making. But saying “no” to creators he likes has been hard, he said.

Hiring and promotions in venture capital this year will depend in part on the fundraising market. Menlo Park, Calif.-based Menlo Ventures, for example, plans to hire two partners in the next 12 to 18 months, Mr. Murphy said.

For now, “there seems to be a lot of good energy floating around from a career perspective in general,” Mr. Sidberry said. “I was able to celebrate a lot of peers who have recently been promoted,” he added.

Write to Yuliya Chernova at

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