A venture capitalist is an investor who either provides capital to startup ventures or supports early stage and late-stage startups that have demonstrated high growth in terms of employees and revenues in exchange for equity or ownership. Venture capitalists are willing to invest in such startups to earn massive returns on investments if these companies are a success. Before raising money from Venture Capitalists it is a great idea to understand who are the players with various roles inside the venture capital firm. In other words, this write-up will explain the venture capital job titles, description and their hierarchy.
Various Roles Inside The Venture Capital Firm [ Venture Capital Hierarchy ]
“Analysts” are the junior most professionals in a VC Firm who are either interning MBA students or who have just graduated from college. Sometimes, a VC firm will recruit analysts who have one to two years of experience with a startup or an investment bank.
The key role of the analyst (or job description of “Analyst” ) is to research the startup market, take part in industry and VC events and get updates on the latest industry/technological trends. They are not the decision-makers in the firm but can act like a door for an entrepreneur to meet the decision makers. They are always involved in understanding various businesses and look for prospective suitable early age and late-stage startups (that are constantly progressing) for investing in it.
“Analysts” can be promoted to the “Associate” level after a few years, but many of them choose to complete an MBA and take up entrepreneurship.
“Associates” are higher up to Analyst in the hierarchy. They have two to three years of experience in investment banking and consulting which means they tend to have a financial background with an MBA or Ph.D. They are good at making relationships with portfolio companies and their role ( job description of “Associate” ) is more focused on due diligence, analyzing business plans, executing transactions and analyzing interesting industry subsectors. Associates are not decision making entities in a VC Firm.
“Associates” get promoted to “Principal” after few years of experience and successfully executing various deals
Though “Principals” are not the most powerful people in the VC firm, they are seniors who can make a certain level of decisions regarding investments (though not completely involved in the strategic execution). They work closely with the portfolio companies in which the VC firm has invested. Their typical nature of work in the portfolio company is to negotiate acquisition deals and help get the company to exit as soon as possible.
“Principals” get promoted to “Partners” after a few years of experience and successfully executing various deals and generating returns for the company.
- Partner (General Partner or Managing Partners)
“Partners” are the senior most people in the VC Firm above “Principals”. They are responsible for raising funds ( for their VC firm to invest in startups ), identifying right industry verticals to invest in, making key high-level decisions like giving thumbs up or down for investments and exits, meeting and networking with potential investors etc. They are not into day-to-day operations of the VC firm.
- Entrepreneur In Residence ( famously referred as “EIR”)
“Entrepreneur In Residence” is either a former CEO of a successful startup company that has given VC a tremendous exit with loads of money, or someone very experienced in the startup space who has the potential to become the future CEO of the company in which the VC has invested. EIRs are hired by the CV firm for a period of six-month(minimum) to 24 months(maximum) to help the startup (in which VC has funded) to accelerate its progress and catalyze the VC firms investments. When a company is in the seed stage, EIRs play a big role in starting up the new company from scratch. Quite often, the actual founders find EIRs as threatening as they can take control of the overall startup through the backed Venture Firm. So if you are a startup founder, be careful while divulging complete startup information. This is tricky and you need to get tricky.
- Limited Partners ( famously referred as “LP” )
If you have ever wondered about where VCs get money from – then the answer is – through “Limited Partners (LPs)”. LPs do not sit in the VC Firm. In other words, they are not employees or executives of the VC firm. LPs are the ones who invest money in the VC Firms who in turn invest that in startup companies. LPs are the source of money for VC Firms. LPs include both rich individuals, wealthy families, public pension funds, institutional endowments, corporate pension funds, sovereign wealth funds, and funds of funds.
Hope this blog post helped you understand the roles inside the venture capital firm. Feel free to comment on your opinion.
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