Keith Herman interviews Dan Pantelo, Founder & CEO of Marpipe. Dan gives the backstory of Marpipe and speaks candidly about his entrepreneurial journey. Equally important, he talks about his own character traits and early days that lay the foundation for this current adventure.
The Oddities of the Venture Job Market
Last week I shared some thoughts on the parts of venture capital that don’t make sense, specifically regarding the structural barriers to investing in the asset class, both as a GP and as an LP. This week I want to dive into the oddities of another element of this industry: the venture capital job market.
Over the past few years, I have formally and informally mentored dozens of aspiring VCs, seeing a fairly close view of the dysfunctions of this labor market.
Let’s start with the exploration phase. In conversations with people who have come across VC as a potential career path, the first question I usually ask is, “What is it about venture capital that has piqued your interest?” Very often, I find that the answers reveal a misconception of what venture investors actually do (e.g. “I love launching new products”) and instead suggest that the seeker would enjoy a different role (e.g. joining an early stage startup) much more than they’d like being an investor. This leads me to the first bizarre realization: it feels like every other person I meet wants to be a VC, but very few seem to know what a VC actually does.
One of the most frequently asked questions is, “What is the day-to-day role of a venture investor?” Frustrating as it may be, the answer is, obviously, “It depends”. It depends, mostly, on fund size, stage focus, and role type. Generally, the larger the fund, the more specialized the role; the later the stage, the more quantitative the analysis; and the more senior the role, the more strategic the work. Of course, there are exceptions and hybrids, but generally, investor roles vary vastly from one another, and finding the right fit for your personal interests is very much a needle-in-a-haystack situation.
Let’s say you formulate a general idea of what you’re looking for and begin your job search in earnest. For junior- to mid-level roles (typically analyst, associate, and principal roles), if the job openings are even shared publicly, you will likely encounter a mix of somewhat arbitrary and/or elitist prerequisites:
“Top-tier university degree required” (yes, everyone else is chopped liver; sorry, I don’t make the rules)
“Background in management consulting or investment banking”
“Attention to detail a must”
“Pre-MBA only” (the most bizarre and offensive shifting of goalposts, in my opinion)
In many cases, the application process will require you to draft sample memos, share investment theses/analyses of trends, build financial models, provide your thoughts on the fund’s existing portfolio companies, and curate lists of interesting startups (often explicitly aligned with the specific funds’ investment areas — how convenient for them!). It is not unusual for these processes to take you 20-40 hours a week.
The reality is that after months (or, in some cases, years) of these interviews, most candidates inevitably fail to land a role, often for little reason beyond the fact that there are simply hundreds of applicants vying for a single position. While disappointing, this is expected.
What’s less intuitive is the fate of those who do end up in the coveted venture roles. Given the amount of time spent on vetting, interviewing, and testing candidates, you would think that this process is the firm’s beginning of a long-term investment in a future partner. In rare cases of partner-track (or partner-potential) roles, this is indeed the case; but in many, it could not be further from the truth. Whether it’s disclosed at the beginning of the application process or discovered later on, most junior- to mid-level venture positions are rotational, with the expectation that any hires will move on from the firm within 2-3 years. Yes, all of this time and effort, to find yourself in a dead-end role.
This brings us to another somewhat underappreciated reality of venture roles: every position is either discretionary or non-discretionary in nature. In discretionary roles, you are being hired for your judgment. You are hired to leverage your unique point of view to source, choose, and help companies. In contrast, non-discretionary roles are, in a nutshell, support roles: you are there to source leads, build models, conduct due diligence, write investment memos, and “learn the craft of venture investing”. You are then, in most cases, expected to seek a discretionary role elsewhere, either by joining another fund at a more senior level or starting your own. You can (and most firms likely would) make the case that many venture roles are “a mix of both”, but let’s call a spade a spade: if a job description prioritizes attention to detail, working under tight deadlines, and having spent time at a top tier consultancy or investment bank, the firm is optimizing for a killer analyst more than it’s searching for its next visionary leader to identify outlier investments.
As venture’s popularity has increased, a whole sub-industry dedicated to helping people “break in” has emerged: blogs, webinars, resource guides, Slack communities, paid bootcamp programs, and more. And while these resources often provide excellent information, diving into the specifics of articulating investment theses, sourcing companies, networking, and preparing for interviews, they don’t actually solve for the extremely lopsided nature of this labor market, in which the demand of candidates outpaces the supply of jobs by multiple orders of magnitude. Once all of these candidates become experts at navigating this job search, where will they go?
To firms with arduous and, frankly, exploitative hiring processes, particularly for mostly non-discretionary roles: is all of this really necessary? Is there evidence that asking candidates to spend so much time on your interview processes correlates to strong performance in the role, especially one that is short-term in nature and limited in scope? And especially for those who consider these roles at least partially discretionary, have you considered that your onerous interview requirements may be perpetuating the homogeneity of the industry by boxing out candidates who do not have the luxury to dedicate dozens of hours of unpaid labor to your interview process, ultimately depriving you of hiring those with not only differentiated backgrounds but also the highest investment potential?
To candidates agreeing to these hiring requirements: why? Let’s say you get the job. Congrats! Your two years fly by. Now what? What were you hoping to gain? What are you now hoping to do?
If the answer is that this whole circus is a necessary stepping stone to a discretionary role, then as an industry, we have to face the reality that these job practices are yet another form of structural gatekeeping and a failure of our collective imagination. The venture industry desperately needs more people, from varied backgrounds, with different paths to bring fresh perspectives and fund truly world-changing companies. And building new structures that get us closer to that potential has to start with a hard look at the things that are simply not working about our current systems.
With the evolution of syndicates, equity crowdfunding, rolling funds, and more, the opportunities for individuals to learn and build personal track records outside traditional structures are becoming clearer. We simply can’t keep doing the same things and expecting different outcomes. If you are working on alternative venture investing pathways, please share ideas and stay tuned. As always, feel free to reach out directly (@geri_kirilova on Twitter or geri@laconia.vc via email).
Things That Don't Make Sense About Venture
A few months ago, Leah Fessler published an excellent blog on things that don’t make sense about venture capital. It inspired me to finally jot down some of my own thoughts on a few of the absurdities of this asset class that I’ve been grappling with for years. Frankly, I have a very long list, starting with the structural barriers to venture investing.
Let’s start with the VC GP perspective. If you are a new GP trying to raise a modest $20 million fund for seed/pre-seed investments, especially for a first-time fund, you will most likely find that the conventional paths to raising such a fund are not as straightforward as they appear. Assuming you do not have an anchor LP who’s open to committing a meaningful chunk of the capital for the fund, you will likely try to raise from either institutions or high net worth individuals.
So you start with institutions. You quickly find out that the majority of institutional LPs (pensions, endowments, foundations, large fund-of-funds, etc.) write minimum checks of $5M - $50M and typically have concentration criteria that preclude them from funding more than 10% of the total fund size. Womp womp. Non-starter for your $20M fund.
Next up: high net worth individuals. You might think, alright, $20 million is a speck of dust within the broader asset management industry, surely I can convince 200-300 people to write checks of $50,000 - $100,000!
Sadly, out of luck again. The driving constraints have way too many caveats and nuances to fit into this blog (I recommend Chris Harvey’s explanation here if you really want to nerd out), but the bottom line is, you most likely won’t be able to accept investments from more than 99 LPs per fund as per regulatory limitations without some major structural gymnastics.
So … you can’t access the trillions of dollars of institutional capital that are allegedly being invested into venture, and you can’t raise from the long tail of high-earning/“rich but not THAT rich” investors. You somehow need to raise $20 million with checks averaging $200,000. For reference, anyone rationally writing a $200,000 check into a single venture fund likely has a net worth of over $10 million. And you need to close 99 of these? 😳
Next time you hear someone bemoaning the lack of diversity in venture and startups, think about these realities:
At risk of stating the obvious, the barrier to entry for new GPs, especially those without prior “top tier venture” experience, is nearly insurmountable and heavily skewed toward those who are already wealthy or have close personal proximity to wealth.
The barrier to entry for LPs who are interested in writing checks into venture funds is similarly high. Even people who are willing to make six-figure investments into risky, highly illiquid assets in order to fund innovation are likely to learn that their money is not good here. This barrier not only limits wealth creation but also sustains the homogeneity of decision-makers and influencers within the venture ecosystem, starting at the top of the capital stack.
Before we break out the world’s tiniest violin for all the aggrieved VC GPs and LPs, let’s talk about the biggest loss incurred: the perpetual dearth of capital dedicated to pre-seed/seed-stage companies. Over time, the few funds that manage to get off the ground & see early signs of success with a micro fund focused on seed investing almost invariably expand into significantly larger fund sizes (and, all too often, larger investment round sizes) in order to access & deploy an institutional capital base. And the earliest stage founders seeking a few hundred grand to a few million dollars? They remain chronically underserved.
Given these realities, here are the things that still don’t make sense to me: Why are most institutions unwilling to allocate meaningful amounts of capital into the segment with the highest potential return within the venture asset class? And perhaps more importantly, why does one of the riskiest asset classes (early stage venture capital) largely contort itself to the constraints & incentives of more inherently -- and rightfully so -- risk-averse capital allocators (large institutions, family offices & ultra-high net worth individuals, who are largely optimizing for wealth preservation rather than wealth creation), instead of creating new structures that foster more accessibility and alignment in GP/LP return expectations?
Thankfully, we are seeing more bottoms-up interest and pressure to drive structural changes than ever before. If anything in this post resonates with you and/or you’re interested in collaborating with us on solutions to these systemic absurdities, please reach out directly: @geri_kirilova on Twitter or geri@laconia.vc via email.
TowerIQ Announces Multi-Year Partnership With MJ Insurance To Drive Automation In Risk Management
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Ocrolus Recognized As A Top Mortgage Tech Company In Housing Wire’s 2021 Tech100 List
The HW Tech100 identifies and recognizes the most innovative technology companies serving the mortgage and real estate industries.
The 2021 Tech100 Mortgage winners are revolutionizing the mortgage process – from origination to closing, and servicing to secondary markets. Most importantly – they are helping mortgage lenders and services deliver outsized growth driven by innovation and impact.