At undergraduate business schools, students tend to recruit traditional business pathways such as Investment Banking and Management Consulting. This is largely a function of early recruitment timelines, club education/culture, 6 figure starting salaries, exit opportunities, and a sweet LinkedIn post. Investment Banking and Consulting are outstanding career launchpads, and as discussed further below, they oftentimes lead to exit opportunities in technology investing roles. However, for students passionate about the intersection of technology and business, entry-level roles at technology investment firms are an incredible alternative to traditional pathways. During my time at Michigan, this linked guide was the holy grail of tech investing recruitment knowledge - the document I’ve created below is a continuation of Sam’s work. The following is not written on behalf of any university or firm, nor is it a one-size-fits-all guide. I hope it will help future undergrads better understand why, who, what, and how to recruit for technology investment firm roles.
“Technology Investing” is the broadest of terms. Tech investment firms span the landscape from first-check venture capital investments through hedge-fund investments in public stocks. Nearly all entry-level job opportunities in tech investing will fall under the umbrella of Private Equity in three main buckets: Venture Capital, Growth Equity, and Buy-Out (traditional PE). Due to the knowledge constraints of my personal experience, this document will focus mainly on Venture Capital and Growth Equity.
First, it’s important to understand the purpose and structure of Private Equity firms. Private Equity firms are typically led by a group of investment professionals called General Partners (GPs). When launching a fund, GPs raise capital from Limited Partners (LPs): Institutional Investors (state pension funds, fund of funds, university endowments, etc.), high net-worth individuals (HNIs), or corporations. These LPs allocate funds to private equity to diversify their portfolios among different risk appetites. GPs serve their client investors by deploying capital into private technology companies to provide outsized returns relative to the public markets. The traditional fund structure (currently under scrutiny), is for firms to take a 2% annual management fee of the total fund and 20% of investment returns thereafter; the remaining capital is returned to fund investors. Below are non-exhaustive explanations of the three main firm investment stages:
VC firms take minority ownership in technology companies at the earliest stage, typically making a bet on the product, founding team, and market. Early-stage technology startups raise venture capital to pay for their underlying technology (ex, compute), pay salaries, grow their team, increase marketing reach, and for strategic advisory. Each firm has a different approach to its preferred investment stage, check size, board management, and strategic advisory. The Power Law explains how the VC model works: a majority of investments can yield little-to-no return due to the outsized returns from a small number of successful investments. In essence, firms can flop on 99% of investments so long as they have the next Facebook, Stripe, Airbnb, etc. Venture investments have long investment horizons, typically between 7-10+ years (this number seems to be increasing).
Growth Equity firms take minority ownership (with some exceptions) in technology companies at the growth stage, typically making a bet on large-scale market adoption, executive teams, and unit economics. GE firms typically invest in business-to-business software as a service (B2B Saas) technology companies, although there are exceptions (Norwest’s growth investment in Vuori, General Atlantic’s investment in Joe and the Juice). Growth stage companies have typically found product market fit, are scaling into large markets, and have a pathway toward profitability. Growth stage companies raise growth capital to grow sales teams, hire experienced executives, make acquisitions, and provide liquidity to founders/investors/employees. The market to fund the best companies is typically very competitive. With nearly all GE firms fighting for the same deals, GE firms hire recent graduates to do outbound sourcing. Outbound sourcing allows firms to build relationships with founders at early stages, potentially for years, to ensure they win allocation in deals. The outbound strategy is a key differentiator between positions at VC vs. Growth Equity firms. While VCs might invest in the double digits of companies every year, growth equity firms will make a handful of high-conviction, large investments each year. GE firms typically hold investments for 5-7 years before exiting to strategic corporations, later-stage investment firms, or IPO.
Buyout Private Equity firms take majority ownership in technology companies at the maturity stage, typically making a bet on efficiency, market presence, or expansion opportunities. Maturity-stage businesses have scaled into a large market with diminishing unit economics due to competition. Maturity-stage companies will raise capital to provide liquidity to founders/investors/employees, grow through acquisitions, or gain strategic expertise. The large valuations, mature cash flows, and opportunities to improve efficiency allow firms to capitalize on leveraged buyouts. PE firms purchase companies from earlier-stage investors, founders, or take public companies private. PE firms have the shortest investment time horizons, typically between 3-5 years.
Firm hierarchy: Partner, Principal, Vice President, Senior Associate, Associate, Analyst. Each firm has its own version of job titles and positions. It is common for VCs to have small teams, sometimes only a group of a few partners. Additionally, Analyst positions only exist at a handful of firms that prioritize an outbound strategy.
Below are a few common pathways for people to get in and out of tech investing:
Since the target audience of this document is undergrad students, this is the most relevant position. Firms that have an Analyst program typically have junior-summer internships, followed by a two-year full-time program after graduation. Relative to internships in Banking/Consulting, return offer rates at buy-side firms tend to be very low. Students who don’t partake in junior-summer internships still have the opportunity to recruit for full-time positions (discussed more below). The main job of Analysts is to source new deal opportunities (discussed more below); Analysts do not handle much financial diligence. During the two-year program, Analysts are working towards a promotion to Associate. The promotion to associate is competitive amongst Analysts and candidates transitioning from Investment Banking/Consulting.
Analyst programs represent a small portion of entry pathways into tech investing. Perhaps the most common is via candidates pivoting from their Analyst years in Investment Banking and Consulting. The Associate position is still responsible for sourcing, but they bear more diligence responsibility and are often the Excel Spreadsheet warrior during deals. For students pursuing Investment Banking or Consulting with the hopes of transitioning to tech investing, I’ve seen most successful transitions come from Tech groups at banks and PE groups at consulting firms.