- Each year, bankers and consultants are lured to VC by the promise of finding the next Meta or Uber.
- But for those who joined the field during the downturn, the reality hasn’t been quite as glamorous.
- Slowing deal flow and firm cost-cutting has led to increased competition and stress, VCs said.
Every summer, dozens of young bankers and consultants in their twenties wrap up their analyst and associate programs and flood to the promised land of venture capital. For many, working with bleeding-edge startups, Twitter fame, and a better work-life balance make the two years of grueling all-nighters and Excel spreadsheets worth it. And as the tech boom of the last decade spawned companies like Airbnb and Uber, VC firms continued to grow, raise massive funds, and hire young talent to figure out where to deploy these billions in capital.
For young investors who pivoted to VC in the middle of the recent market downturn, the reality hasn’t been quite as glamorous.
“I feel like I got catfished,” one growth-stage investor said.
Young VCs who were formerly investment bankers or consultants told Insider that faltering deal flow and cost-cutting within firms have led to increased competition and stress among their peers. A number of these sources spoke under the condition of anonymity because they were not authorized to discuss these internal matters publicly.
From window shopping to bargain hunting
Many young investors eagerly filled junior-associate positions at VC firms, expecting the breakneck rate of deals common in 2020 and 2021 to continue. However, with looming market uncertainty and economic headwinds, VC funding has slowed considerably, forcing investors to spend the majority of their time on deal sourcing rather than deal execution.
One young investor told Insider that, while VCs might have spent 70% to 80% of their time doing diligence for deals in 2021, they now divide up their time equally between sourcing, deal diligence, and portfolio-company advisory.
“Before you were window shopping, and all the opportunities were in the window,” the investor said. “Now you have to go into the stores and rummage through the racks.”
Additionally, VC associates are begrudgingly spending more time in the downturn on market maps and industry deep dives, both to uncover under-the-radar startups and to carve out their own niche focus areas, such as in cybersecurity or in fintech, the growth investor told Insider.
With fewer deals to go around, there’s more pressure than ever for new VC associates to bring in hot investments, young VCs told Insider. Two investors said that their firms release weekly leaderboards for the number of calls and emails employees send to startups — one said that the number of emails they’re expected to send weekly can break into the triple digits.
Many firms also recruited aggressively during the recent VC boom — but now that the market has faltered, some new hires are wondering if they’re just another potential cost to cut. Firing investors isn’t always explicit, the growth investor said, citing one case where an underperforming colleague was subtly asked if they had considered going to business school.
This fear has led to increased competition, especially among young associates vying for a position higher up the firm ladder. Often, junior VCs will race each other to claim a hot startup in the firm’s company-tracking software or will scour conference lists or just-released funding announcements for lesser-known potential investments, the growth investor said.
“No one’s trying to actively fuck you over, but if they know something that’s going to give them an advantage, they’ll be cagey about it,” the growth investor said.
Still, some younger investors were positive about making the switch from banking or consulting to VC. One investor told Insider that they didn’t regret the pivot from tech-investment banking to venture capital in the second half of 2021. Despite the tougher market this past year, the investor is still much happier that they can now build deeper interpersonal relationships with founders than they could in their old role.
“In banking M&A, you’re working really as the broker, whoever your client is on either side of the deal, it’s more transactional,” the investor said. “Venture is much more of a longer-term relationship game — you’re partnering with an entrepreneur early on, helping them with building out their business.”
The investor also said that the slower pace of desirable deals has made them feel like there’s enough time to properly go through the diligence process with less worry that another VC would snatch it out from under them. “You’re able to have a lot more conviction in a name before you go up to the management team, and you have more time to have done that homework versus in 2021,” the investor said.
Others said that the tough times may encourage young investors to try new approaches to winning deals and making names for themselves in the VC community, like brand-building or organically growing a following on social-media platforms such as Twitter, YouTube, and TikTok.
Some young investors like Nicole DeTommaso, who left investment banking to intern at Harlem Capital in 2020, started posting regular detailed Twitter threads on how to break into venture capital in the second half of 2021. She’s since been promoted to senior associate and has grown her audience to over 40,000 followers, some of whom even help her with certain due-diligence processes, she told Insider. “If someone has a deal they recently looked at that fits my or Harlem Capital’s thesis and then they see my name pop up on their feed, they’re more likely to remember to share it with me,” she said.
Sam Loui, a former Techstars global startup-pipeline coordinator, told Insider that her educational startup and VC TikTok channel actually helped with “sourcing and nurturing potential startups” for Techstars by “demonstrating helpfulness,” which inspired startups to apply to the firm’s many accelerator programs.
“A lot of younger investors are looking for different things that will lead to top of funnel, like content creation,” Meagan Loyst, the founder and CEO of Gen Z VCs, said. “In any time of challenge, it forces people to get creative.”