Learn as much as you can about venture capital by reading professional journals, books, and other resources. CNBC offers recent articles about developments in the VC industry at https://www.cnbc.com/venture-capital. Another good resource: The Business of Venture Capital: The Art of Raising a Fund, Structuring Investments, Portfolio Management, and Exits (John Wiley & Sons, 2020). 

In college, you can get exposure to the world of venture capital by joining a venture capital club. These student-managed organizations offer mentoring opportunities, presentations by leading VC industry figures, and the chance to compete in regional or national investment competitions. Some schools provide even more opportunities. In addition to its Entrepreneurship & Venture Capital Club, the Darden School of Business at the University of Virginia offers a VC incubator, which “supports the development and growth of promising seed and early-stage business ventures by providing them with funding, faculty and student support, office space, access to technological expertise, and free legal services; a Venture Capital Bootcamp, a three-day workshop for students who are interested in venture capital and entrepreneurship; and the Batten Venture Internship Program, which links students with summer internships at VC firms and their portfolio companies."

Many people view a career in venture capital as exciting, lucrative, rewarding, and a bit mysterious. Some think venture capitalists literally fall into deals and spend most of their time jet-setting around the world passing out money while enjoying the good life. While there’s definitely a lot of money to be made for highly skilled venture capitalists, this career involves many long hours, occasional frustration when deals fall through or when profits don’t match expectations, and a lot of hard work.

Venture capitalists have five main duties: identifying investment opportunities, evaluating target companies, negotiating the terms of investments, helping to build successful portfolio companies, and liquidating investments.

Venture capitalists—especially those who are new to a firm—must generate a steady stream of investment possibilities for their employers. They identify business opportunities by reaching out to their network of friends and acquaintances, which may include contacts they made when they worked at a portfolio company or at a firm that provided professional services (e.g., accounting, auditing, legal, consulting, etc.) to VC firms, their portfolio companies, or to corporations. Additionally, venture capitalists (such as John Doerr at Kleiner Perkins) may be so well-known in the VC industry or in their previous industries (Information technology, for example) that they’re inundated with pitches from entrepreneurs or young companies that need investment.

Once investment opportunities are identified, the venture capitalist spends a considerable amount of time determining if his or her firm should invest in the company. They conduct research, build financial models to determine the potential financial return on the investment, interview the founders of the company, meet with risk managers and lawyers, and perform other types of due diligence. They study (and try out, if possible) the target company’s products or services (and the technologies and manufacturing processes that are used to create them), the market and the company’s marketing plan for the products or services, the quality of the company’s management team and its finances, and other criteria to make a decision. At any one time, a venture capital firm may be considering anywhere from 25 to 50 potential deals, so the due diligence process can be time-consuming, and, sometimes frustrating, because only a handful of companies will meet all the firm’s criteria for investment.

Once the venture capital firm chooses to invest in a company, venture capitalists, in close collaboration with lawyers, negotiate the terms of the investment.

The deal is done. The investment has been made in the target company. Many people may think that the work of the venture capitalist is complete, but this is far from reality. Venture capitalists provide many types of assistance to the portfolio company’s founders and management team. For example, they help the founders establish and review the company’s strategic focus. He or she may think that the founders are marketing to the wrong demographic or launching a service in a too-small geographic area, or perhaps they believe that the price of a product is too low. Venture capitalists also help recruit and hire senior management such as chief financial officers, and provide advice on compensation structures. Many take a seat on the company’s board of directors to ensure that it’s being run properly.

Finally, when they believe the company is ready and market conditions are favorable, the venture capitalist works to liquidate the investment. This is typically done by completing an initial public offering (IPO) that takes the portfolio company “public,” generating additional capital to improve or expand the company. In this situation, investors do not immediately receive a return on their investment. They typically must sign lock-up agreements that prohibit them from cashing out their shares for at least six months. Instead of an IPO, the venture capital firm can choose to merge the company with a larger existing private or public company. In this situation, shareholders receive an immediate financial payout based on the terms of their investment agreement.

In addition to these duties, some venture capitalists serve as the managing partners of their firms, or, at a large firm, share these duties with another partner.

One of the main responsibilities of a managing partner is to fundraise. He or she must constantly look for new investors (and stay connected with past limited partners) who are a good match for the firm’s particular focus (i.e., investment stage, industry, geographical area, and size). Managing partners work with the firm’s marketing and accounting professionals to create a private placement memorandum for investors that provides information on the firm’s track record with previous funds, biographical data about the partners, the investment terms for the fund, and other information. Then they meet with potential investors to pitch the fund. In addition to fundraising, managing partners also:

• make the final decision regarding a particular investment or investment strategies
• prepare an annual budget for their firm
• work with lawyers to prepare and manage legal documentation for the partnership
• manage partnership expenses
• prepare reports for partners
• recruit and manage staff
• work with in-house or third-party accounting and compliance staff to pay taxes and prepare and submit compliance documents to the Securities & Exchange Commission and other regulatory bodies