There’s a lot to love about being a venture capitalist. You meet with smart people every day. You make money regardless of whether your investments work. People assume you have smart opinions about things.
Strange as it may seem, however, a growing number of illuminati are passing up the chance to work with established firms to do their own thing. Among the newest of them: Avidan Ross, a former private investment company CTO turned angel investor, who says he met with a number of firms about tie-ups before setting out to raise his own $31.4 million fund from mostly high-net-worth individuals. (He announced its closing earlier this month.)
Why would anyone pass up the chance to land a plum role with a venture firm that’s managing hundreds of millions, if not billions, of dollars? The overarching reason, of course, is that they can.
Often, such potential recruits have already made enough money to gamble on themselves. Think of Aydin Sekut of Felicis Ventures, Manu Kumar of K9 Ventures and dozens of other individuals who’ve turned themselves into venture capitalists over the last decade.
It’s also easier than ever for those who haven’t yet made their fortune to raise a fund, particularly given growing mainstream interest in startup deals. Venture capitalist Niko Bonatsos works for General Catalyst Partners but sees many of his peers taking alternative paths. As he puts it, “If someone can [raise and] invest $30 million or $40 million themselves, why wouldn’t they do that? It’s like, ‘You’re a young guy, you know founders. Here’s $10 million. Go invest it.”
Indeed, the trend away from traditional VC – dating back to 2006, with the advent of “micro VC” – seems to be growing more pronounced, for a few reasons.
For one thing, with companies staying private longer, a lot of potential recruits who might otherwise have cashed out are still working inside highly valued companies. “In terms of vesting schedules, it doesn’t always make sense to leave a job for VC, especially for younger people who haven’t been entrepreneurs or executives and haven’t had a major liquidity event,” says Bonatsos.
Also making the equation harder: Venture firms often want to pursue young consumer experts who started at companies like Facebook and Twitter. But with capital continuing to rush into startups, never has there been a better time for them to launch another, new company themselves.
“Why work for a piece of 20 percent to 30 percent carry instead of a huge piece of your own company?” asks Bonatsos.
Yet another factor is simply the wide-sweeping cultural shift we’re seeing. It’s no secret that millennials don’t view the workplace in the same way as previous generations. In fact, Intuit has published a report predicting that fully 40 percent of U.S. workers will be self-employed by 2020.
Some won’t have a choice, but others are deliberately avoiding traditional companies. As Patricia Nakache, a general partner at Trinity Ventures who spends a lot of time thinking about on-demand opportunities, recently told us: “Millennials are much less receptive to the monolithic education or work-experience notion that, ‘I’m going to have this job with a single company for 10 or 12 years or take all my classes from one-four year institution,’” she says. “They’re really beginning to question the boundaries of those experiences.”
That’s saying nothing of the impracticality of joining a venture firm if you want to focus more narrowly on seed-stage investments, says Hunter Walk, a former product manager at Google who co-founded the seed-stage firm Homebrew in early 2013 with Satya Patel, a former Twitter VP who also spent time in both venture firms and at Google earlier in his career.
By sheer dint of joining a venture firm, Walk argues, the firm will need more capital to rationalize the newest GP’s seat at the table, which makes playing in early rounds harder and harder.
Venture firms probably aren’t losing too much sleep over this shift.
Though recruiting top candidates may be harder than in the past, VCs still have plenty of leverage when it comes to attracting talent, starting with their established brands. As Walk readily concedes, brand matters.
At Google, for example, “People cared a lot more about the ‘google.com’ part than the ‘Hunter’ part” when emailing, he says, laughing. “Being able to draw on that sort of brand name and these big service arms that can help run events and do industry analysis – there are certainly days when aspects of that are appealing,” he says.
There are also many more potential candidates than available jobs at top venture firms.
It mirrors many other industries in Silicon Valley, notes Josh Elman, a former operator at both Facebook and Twitter who is today a partner at Greylock Partners. “Yahoo has more trouble recruiting than Google. Some companies just have more success when it comes to pulling in strong candidates,” he observes.
Perhaps the biggest reason for most firms to rest easy, though, adds Elman, is that while more people than ever are setting up shop for themselves, it will always be the case that there are more “joiners” than “founders.”
“If you’re a founder, you should start a company,” he says. “But if you’re a joiner, like me, you find great, iconic opportunities and help them be better.”