Your friend might tell you he has a connection to a venture capitalist. Great, you think, now I have connection with someone who can get me money. Before you get too excited, understand the hierarchy of a venture capital firm and what that means for you. Not everyone at a venture capital firm has the authority to pull the trigger on your startup.
Let’s go through the totem pole of a venture capital firm.
Managing Directors or General Partners
At the top of the pyramid are the managing directors or general partners. Venture capital firms are structured as general partnerships and the managing directors or general partners take home the most pay. The buck stops with these folks. They make the investment decisions and will sit on the board of the companies in which they invest.
Directors or Principals
Below them are the directors or principals. Directors or principals often have significant deal experience and responsibility. They will, however, require the pull of the managing directors or general partners to get a deal all the way to funding.
Below the directors or principals are the associates. These are usually post-MBA hires. Sometimes, they have worked their way up through the ranks without getting an MBA. Associates typically work for a director or principal and do a whole lot. Sometimes, they get involved in sourcing deals, due diligence, or writing reports. They spend a lot of time also making capitalization tables (cap tables are pretty techy and will be the subject of a future post).
Below the associates are the analysts. These are the bottom of the totem pole. Analysis are the most junior people and are usually newly-minted college grads (though from the best schools for tier one VC firms). Analysts will play with Excel and Powerpoint all day. Sometimes, superstar analysts will be promoted to associates. The usual track, however, is that analysts are on board for a couple of years and then move to something else, usually business school. At some firms, analysts take on some of the responsibility of associates.
Other Members of Venture Capital Firms
It depends on the firm, but some venture capital firms have Entrepreneurs in Residence (EIR). They might have the coolest job on earth. They are usually smart and experiences techies or entrepreneurs while playing with ideas and/or technologies that could be a fast-growth business. EIRs are usually on board for on a temporary basis, anywhere between one and three years. Sometimes they get paid. Sometimes, they just get office space.
What You Should Know
Obviously, if you know a managing director or general partner, you truly have an “in.” More likely, your friend (or you) might know an analyst or associate or director/principal. Make sure you develop and grow your relationship with them but also make sure you can get opportunities to develop a relationship with the managing directors or general partners. These people make the investment decisions, sit on your board, and have the real clout at the venture capital firm. You deserve an opportunity to see if their will align with your vision for your startup.