One of the greatest opportunities that entrepreneurs have is to become venture capitalists. Apart from having a flexible schedule and controlling huge capital amounts, it is truly gratifying to fund a startup that ends up succeeding in the long run. That is why so many people would like to learn how to become a venture capitalist.
Forbes reports that the industry of venture capitalism is microscopic. It also states that the odds of becoming a venture capitalist are the same as those of becoming a professional baseball player. Therefore, it is not easy to enter the market. This article will help you to learn how to become a venture capitalist.
Who Are Venture Capitalists?
Venture capitalists are professional investors who provide 3rd party capital to support startups. These people invest in startups that are promising and expect to get large returns in the future.
These individuals typically go beyond simply investing in startups. Venture capitalists also act as leaders, mentors, and also advisors to the startups that they choose to fund. The experts help the startups in each and every step along the way.
How To Become A Venture Capitalist
There are two main routes on how to become venture capitalists and these include investment banking and serial entrepreneurship. Some of the venture capitalists were formerly business experts, financial advisors, or even academics. Here are five methods that are tested and tried on how to become a venture capitalist.
1. Educate Yourself
You always need to read your path on how to become a venture capitalist. Experts have published so many books in this field that will provide you with all the information that you need.
Having a high school diploma or college degree is not a must if you want to become a venture capitalist. However, formal education is a bonus in this journey. It will teach you the basics and help you in building good networks.
Investopedia reports indicate that half of the venture capitalists are MBA degree holders. 60 percent of these professionals have either graduated from Stanford or Harvard University.
2. Get A Mentor In Venture Capitalism
If you are serious about becoming a venture capitalist, you have to get a mentor for yourself. This person should introduce you to the venture capital world in the best way possible.
He will teach you the basics of running a business and take you through the process of picking successful startups. You can also join a venture capitalist company as an assistant or technical advisor in order to get on-the-job mentoring.
It is good to inform your bosses that you would like to become a venture capitalist because they will help you out. The other strategy is to become an intern at a venture capitalist firm. All these strategies will help you learn how to become a venture capitalist.
3. Explore Entrepreneurship
Experience is the best way to become a venture entrepreneur. Entrepreneurs know how startups work and the challenges that come along the way. These people have the desired knowledge to advise new entrepreneurs on how to handle them.
4. Pick Up Investment Banking
If you work for a tech-oriented bank that funds startups regularly, you will get useful knowledge of how to become a venture capitalist. It will give you a great understanding of the banking processes to help you get started.
5. Be An Angel Investor
Instead of going directly into venture capitalism, you may start by testing the waters of being an angel investor. The main difference between venture capitalists and angel investors is that the angel investor invests his own capital. On the other hand, venture capitalists normally work through a firm.
All you need to become an angel investor is the ability to identify a promising startup and a good bank balance. Moreover, once you become an angel investor, you will be able to understand whether venture capitalism is a good career.
If you succeed, it shows that you have the right skills of identifying promising startups and helping them to succeed. Therefore, angel investing forms a great basis on how to become a venture capitalist.
What It Takes To Become A Venture Capitalist
You can have the knowledge and skills to become a venture capitalist but you need these qualities in order to succeed.
The Ability Of Finding Promising Startups
It is the job of a venture capitalist to choose the right startups. The businesses are still in their early stages and may not have concrete numbers. Therefore, the intuition that you have will play a major role throughout the process.
The Ability Of Doing In-depth Background Checks
After you identify a business that is promising, you need to check the background of the founder and tell whether they are credible and honest. You also need to carry out in-depth industry research. It entails carrying out market research, talking to industry leaders, and working in financial models in order to predict startups’ future.
The Ability Of Saying No
Venture capitalists have to say no to most of the businesses that request funding. The founder could have issues or the venture may not have the potential. Be prepared to crush the dreams of most of the people who come your way for help.
The ability To Take Risks
However much you analyze and investigate the startup, there is always some level of risk that is involved in venture capitalism. You may invest your time and money in a venture just for it to fail. You may also reject a startup that will end up flourishing. Venture capitalists should always be comfortable with the risk that comes with this investment.
Ability To Negotiate
After deciding to fund a startup, you should agree on the finances. What amount of money does the founder require? Also, What is the look of the future finances? What returns will you get from the business? You need to apply serious negotiation skills in all this.
Ability Of Networking
The industry of venture capitalism is small and hence thrives on the people that you know in the industry. Get to know the individuals who like you and are happy to see you succeed. It will help you learn how to become a venture capitalist much faster.
1: How Much Money Do I Need To Become A Venture Capitalist?
Ans: Most venture capitalists invest in those firms that they are familiar with, and they take the investment decisions only after conducting rigorous research on the firm. If you want to become a venture capitalist, you’ll need a financial capital of $1-$5 million at the very least.
2: Do Venture Capitalists Get Paid?
Ans: If you are a venture capitalist in a top-tier company, you can expect to earn somewhere between $10-$20 million a year. The good ones can even earn more than that provided they are in this industry for a long time now. If you work in a venture capitalist firm, you are obligated to charge 2-3% as a management fee from your clients if they access your service.
3: Do You Need A License To Be A Venture Capitalist?
Ans: If you have a rich relative, or if you are rich yourself, you can start a venture capitalist firm any day because you neither need any specific degree nor any particular license to operate as a venture capitalist. The most successful venture capitalists in the market come from all kinds of professions like technology, finance, law, etc.
Before you start the journey of how to become a venture capitalist with little money, you need to study the experience of the people who have gone ahead of you. It will help you to get tips that will help you throughout the journey. You should not move on blindly yet there are so many resources that can help you along the way.