A quick review of the Venture Capitalist’s job…

In this article, Louis DETALLE (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2023) explains what a Venture Capitalist works on, on a daily basis.

What does Venture Capital consist in?

Venture Capital (VC) represents fundamental and indispensable early funding-support throughout the life cycle of the company.

VC consists in taking (minority or majority) stakes in the capital of small companies which are generally unlisted on the stock exchange and that have not reached break-even point. It is therefore a method of financing companies in order to support them on the path to growth. Indeed, the objective of a VC fund is obviously to realize a capital gain at the exit, when the start-up has matured and has become a powerful actor.

This is risky because start-ups are less successful in borrowing from banking institutions, so they attract other investors such as business angels and venture capitalists.

What are the main differences among Venture Capitalists?

VC funds can be specialized in sectors such as deep tech, biology, marketplace, telecom and plenty of others. A start-up will therefore have better chances at obtaining funding from them if they target funds that know well the field in which they evolve.

In addition, another aspect of VC is the stage of investment and the size of tickets.

Because VC can come at the very beginning, as “seed investors”, of later in core venture with “A-B and C series”.

Later on, companies can resort to growth capital, which aims at entering the capital of a company that has reached a certain maturity and profitability. The funds collected will then be used for internal and external growth: respectively the development of the company’s offers in order to develop its activities or the acquisition of competitors.

For that matter, Growth Capital will be the bridge between Venture Capital and Private Equity.

What are the main VC actors a company can resort to?

Start-ups and small companies can resort to a wide range of financial investors:

•  Early-stage investment funds (BPI, Axeleo Capital, Alven Capital, etc.
• Corporate funds represented by large groups that are interested in the creation of innovative companies.
• Business angels, represented mainly by entrepreneurs, who organize themselves into associations or investment companies.
• Crowdfunders, who are individuals who invest in start-ups such as Xavier Niel for instance.

A company must choose its investors according to its stage of development, its sector and according to its objectives.

What does an analyst in VC work on?

The tasks of a Venture Capitalist are diverse and include, for example, the producing and challenging a business plan, modelling different scenarios and strategies in Excel. The analyst and the investment teams of the VC teams thoroughly analyze the companies seeking for funding. They try to determine whether the projections of the seeked investment are reasonable and not overestimated.

Indeed, bear in mind that private equity funds intend to fund companies trough equity. And as equity investors (i.e. shareholders) are reimbursed at last in the event of a bankruptcy, their work is to determine if the company will really generate growth with the capital at stake. That’s why deep sector-analysis are also required from a VC analyst.

This is all the truer for Venture Capitalist who will take on huge risks since they are the first financial actors the start-up can turn to.

Why do VC jobs appeal so much to business school students?

First of all, it should be noted that this profession combines corporate finance skills with entrepreneurial thinking, which is rare!

Indeed, the best Venture Capitalist often has previous entrepreneurial background, and this is what enables him to see things that startups cannot: because this person has already made the mistakes the fund-seeking entrepreneur has not.

This entrepreneurial aspect of the job is very well known and argued by VC actors and it attracts young & ambitious students who don’t want to get into large corporate firms and favor more agile structures.

Related posts on the SimTrade blog

▶ Jessica BAOUNON Why Berlin could be the new Silicon Valley for startups?

Resources

The top 10 VC actors in France

Youtube How to get a VC internship?

About the author

The article was written in December 2022 by Louis DETALLE (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2023).