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How to get a job as a venture capitalist by thinking like an investor

When I entered college I knew I wanted to lean more about startups and really touch the process of creating a product. I always preferred the adrenaline rush of being around entrepreneurs and other passionate people who were giving up the safe haven of a corporate job in order to build the future.

I didn’t have the words at the time, but I wanted to break into venture capital and learn how to think like an investor.

To get a job in venture capital, I was told I needed to work on Wall Street first or go into consulting.

With this advice in my back pocket, I tried a summer in finance but quickly found it wasn’t for me. It took about a year for me to figure out how to enter the industry but I succeeded and I’ll outline everything I’ve learned below.

The job of a venture capitalist is to source early stage companies that will offer a great return for the firm in seven or eight years. In order to find great companies to invest in, VC firms need highly intelligent people who have a passion for technology and an eagerness to reach out to and understand young and emerging companies.

To get a job at a venture capital firm, you have to separate yourself from the noise and prove yourself.

If you show initiative, passion and knowledge before interviewing, it makes a VC firm’s process a lot easier since they have thousands of eager candidates to choose from.

Since I was at school, I started a campus organization dedicated to teaching students about venture capital. The program, Columbia Venture Partners is a 10-week education curriculum that teaches students how venture capital works, how to pitch a company, how to understand technology markets and how to evaluate startups.

This gave me an excuse to run around New York City and meet with partners at some of the most established venture capital firms in the city. After I gave them an overview of the program, a majority of the firms were open to accepting students from my organization for internships throughout the year.

So now whenever they thought of hiring, they would think of myself and the organization. Whenever I heard of an early stage company that I considered a good fit for these firms, I could also make an introduction since I now had their attention.

These are just two quick ways I learned how to build value for some of the most sought after individuals in the tech space in order to break into venture capital.

Here are my 4 tips on how learning to think like a technology investor can help you break into venture capital.

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1. Research entrepreneurs in your area.

If you’re building relationships with entrepreneurs in your area, you’re already on your way to understanding technology companies and learning how to think like an early stage investor.

I researched dozens of companies in the transportation technology space (Luxe, Juno, Chariot, Gett) and reached out to their teams while preparing for VC interviews in order to get a sense of who was continuing to disrupt the industry after Uber and Lyft.

If you haven’t yet, reach out to an entrepreneur in your area, someone who has founded a startup and has been through at least an initial round of funding or seed round. Most of the time, entrepreneurs and founders are genuinely friendly people and will hop on the phone with you for a 15-minute call or share some of their wisdom through an e-mail.

If you have Twitter, you can generally reach out to an entrepreneur by @ replying, “hey, do you have an e-mail I can send a quick note to?” LinkedIn is also a decent way of connecting with entrepreneurs. If you’re still having trouble finding entrepreneurs in your area, search your city on AngelList, a platform that largely consists of startups and investors.

2. Write a thoughtful e-mail to set up a conversation.

You’d be surprised by the crazy requests and e-mails entrepreneurs receive on a daily basis. Make their life easier by providing context in the e-mail and showing that you have a strong desire to learn more about their company and industry. Create a nice striking subject line like, “Congrats on (recent achievement)” or “Advice for entering the ___ industry”.

Here’s one of the short cold e-mails I write that generally gets a response:

My name is _____, I go to (school) and study (subject). Congratulations on (relevant startup event), I am excited to see how this progresses.

I feel I have a genuine interest in early stage companies and would love to get some advice on navigating the startup ecosystem in______

I know you’re slammed, but what does your calendar look like for a quick phone chat over the next week?

You can tweak this format to fit your needs but the important thing is to show genuine interest in their company and ask for advice. I usually acknowledge their busy schedule first through something like the above (“I know you’re slammed”).

Interestingly, I found that if I directly ask for a busy person’s time, they would say they needed to check their calendar. However, if I ask what their calendar looks like over the next week, I was sometimes able to get a meeting on the books in a matter of minutes. Stick with this type of phrasing.

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3. Know the key terms that VCs use to value companies.

Like any other industry, venture capital has its own language and terminology. When you come in contact with VCs either as an entrepreneur or someone interviewing for a position, they’re not only looking to see if you can answer their questions, but also if you can pitch a company to the firm’s partners as if you’ve been following the industry for years.

The best way to go about blending into the industry through an interview or pitch is to make use of key industry terms and use them in the correct context. I’ll outline three commonly used terms below.

Monthly Recurring Revenue (MRR) is revenue that is contractually obligated to recur in the following month. Let’s say there is a business called TreeSoft that licenses software to others on a subscription basis, otherwise known as a Software-as-a-Service (SaaS) business. TreeSoft charges $12,000 annually per contract, so every month they have $1,000 of recurring revenue to rely on per client. If TreeSoft has 40 clients then they have $40,000 in monthly recurring revenue.

MRR is important because VCs want companies that can consistently bring in revenue. Investors would be less interested if TreeSoft did a one-off event that brought in $10,000 in revenue or had a one-time $25,000 software purchase because it doesn’t bring as much value to the company in the long-term.

Annualized Run Rate (ARR) is just Monthly Recurring Revenue multiplied by 12. If a company licenses software or offers any subscription product, ARR (or “run rate” for short) is the most accurate depiction of a company’s revenue for venture capitalists. Just like the above example, if a one-off event or large sale happens but is not contractually obligated to happen again, it becomes less interesting to investors.

Churn Rate is the amount of customers lost in a given period. If a company’s annual churn rate is 8 percent, they’ve lost 8 percent of their customers in that period. The lower the churn rate, the better.

4. Put together a company elevator pitch.

Now we can put together a quick 60-second pitch that shows off our knowledge about TreeSoft and the industry.

I know TreeSoft is thinking of expanding into second-tier cities like Miami and Raleigh, but I’d love to inquire to management about their current annual churn rate in San Francisco and New York.

There’s a lot of local and brand name competition in these cities and I’m curious about the strategies they’re employing to stop the potential loss of customers and ultimately, monthly recurring revenue.

I’ll be in a few cities promoting my book, #BreakIntoVC: How to Break Into Venture Capital and Think Like an Investor coming out on March 28th. If I’m in your city, reach out and let’s make sure to grab a coffee.