Family Planning: A bigger, more competitive industry has forced venture capitalists to devote more time and energy to choosing e –

When John Glynn became a venture capitalist almost 30 years ago, he entered an industry that bore little resemblance to what exists today.

Mr. Glynn, founder and general partner of Glynn Ventures in Menlo Park, Calif., and a self-described generalist, worked for several years as a lawyer before entering the fledgling VC industry in 1970. Inspired by successful Silicon Valley clients such as Hewlett-Packard Co., the young attorney returned to school to earn an M.B.A. from Stanford University and soon after went to work with Reid Dennis at American Express Investment Management Co.

Unlike in Mr. Glynn’s time, today’s aspiring venture capitalists must possess high-tech savvy, whether it be in biotechnology, information technology, software or some other specialized sector that is frequently targeted by venture dollars. “It’s hard to enter the venture capital industry today as a generalist,” Mr. Glynn muses. “We look for candidates whose backgrounds fit a future portfolio interest we want to pursue.”

Recruiting junior-level investment professionals, like most aspects of venture capital’s early history, once was an informal, uncomplicated process. And, in many ways, it still is. But as the industry continues to expand and evolve, VCs are confronted with new challenges and demands in their hiring practices. While the supply of candidates still far exceeds the availability of entry-level jobs, VCs are beginning to behave a bit more “formally” when recruiting the best new prospects.

Writing the Book

Informality is a quality that venture capitalists wear as comfortably as their khakis and unbuttoned oxford shirts in Silicon Valley’s perpetual dress-down workday. To ask a venture capitalist whether anything within his corporate culture is done with some kind of formality is akin to asking an Internet CEO when his company will turn a profit: It’s impossible to get a straight answer.

Recruiting is part of that traditionally informal culture. “We don’t just jump out and say we’re going to interview these 10 people and pick one,” says Warren Packard, a partner at Draper Fisher Jurvetson in Redwood City, Calif.

Many, if not all, of Mr. Packard’s colleagues echo his sentiments. How do VCs scout, identify and attract top-notch associate- and junior-level talent? In a small, close-knit community such as venture capital, networking, teaching classes at business schools, reading “resume books” and attending informal gatherings organized by universities all remain popular methods.

VCs have never been compelled to initiate any sort of aggressive recruiting strategies – until now. As the industry mushrooms in the wake of unprecedented growth this decade – venture funds raised a record $24 billion dollars last year – the gap between the supply and demand for jobs has somewhat narrowed. As a result, some VCs reluctantly admit, firms must be a bit more aggressive to attract the top talent.

“Clearly there’s a lot of competition for good people, but there’s a lot of people that want to get into this business,” says Salem Shuchman, a managing director at Patricof & Co. Ventures Inc.

One way firms have tried to attract entry-level talent is by cutting associates in on carried interest, a form of salary compensation that typically allocates about 20% of a fund’s working dollars to the vehicle’s managers (VCJ, December 1998, page 41). Historically, only higher-ranking executives of a venture firm, such as managing and special partners, received a portion of the carry. In the past three to four years, however, firms have increasingly added associates and junior partners to the mix, a reflection of the need to retain top talent in a competitive job market.

Patricof takes pride in its ability to groom its own, Mr. Shuchman says, noting that seven of the firm’s 11 managing directors began their private equity careers at the New York-based firm. Patricof’s investment staff is divided into health-care, technology and buyout industry teams, and the firm hires according to the needs of each group.

After a week-long orientation about the firm’s business practices, new hires are integrated into their respective teams, where they are immediately immersed in the business. Associates help evaluate deals, attend board meetings as observers and gradually become integral parts of their own teams.

To stay competitive in the job market, Patricof has initiated strategies in recent years designed to attract young talent. The firm offers a two-year analyst position for individuals who want some exposure to private equity before entering business school and, for the first time last summer, an internship position for candidates completing their M.B.A. Christian Strain, a 28-year-old Internet entrepreneur who earns his Harvard M.B.A. in early June, worked at Patricof last summer and was hired to return full-time in the fall.

As a large, international firm that manages $5.5 billion worldwide, Patricof can afford to devote time and office space to a summer intern. Smaller firms, however, must be more selective in their recruiting techniques.

“Our model has been to work with [potential employees] full-time,” says Draper Fisher Jurvetson’s Mr. Packard, noting that the firm does not offer either analyst or summer internship positions. “We don’t want to dedicate the same energy level with someone who is only going to be here two months.”

My Fellow VCs

The Kauffman Fellows Program, started five years ago by the Kauffman Center for Entrepreneurial Leadership, is a way smaller firms have been able to apply a more formal approach to identifying talented younger executives. Kauffman Fellows, three-quarters of whom have M.B.A.s, work at a venture firm for two-year “apprenticeships” with “mentor” partners, at no cost to the firm. Fellows are paid an educational stipend by the foundation for their two-year stint.

Recruiting has become “a real challenge” for the VC industry, says Trish Costello, the director of the Kauffman program. “Smaller firms don’t have the infrastructure to go out and recruit people,” she says. As a result, 36 private equity firms ranging from smaller firms such as Alliance Technology Ventures, Draper Fisher Jurvetson and Kitty Hawk Capital, to large institutional investors such as Chase Capital Partners, Patricof and Weston Presidio Capital, have offered to accept one of the dozen or so Kauffman fellows selected each year.

The program’s application procedures are rigorous, including a written personal statement, three references and several interviews. Thirty finalists are invited to a three-day matching event, which features interviews with prospective venture mentors and representatives from the Kauffman Foundation. Following the screening process, both the candidates and the venture firms rank their top three choices.

The fellowship program has attracted a diverse group of talent from a variety of backgrounds. Patrick Ennis, a 35-year-old Kauffman fellow at Arch Ventures in Seattle typifies the untypical nature of the program’s participants.

Armed with a Ph.D. from Yale University in experimental nuclear physics, Mr. Ennis worked for several years at Bell Labs, the predecessor of Lucent Technologies Inc., and earned an M.B.A. from the University of Pennsylvania’s Wharton School of Business, which he completed while commuting from New Jersey to Philadelphia every weekend for two years.

Mr. Ennis, who “didn’t even know what venture capital was” prior to enrolling in Wharton, had grown frustrated with corporate bureaucracy and was unsure of his future after business school when he was introduced to the Kauffman program and decided to apply. He matched well with Arch Ventures, was awarded a fellowship and moved to Seattle with his wife, providing a smooth transition to his new career.

“The Kauffman program was not starting over,” Mr. Ennis says. “It was getting a great jump start in the industry.”

Trawling the Waters

Not everyone, however, can be a Kauffman fellow. And there are plenty of other qualified candidates to fill venture capital’s swelling ranks. The trick is to be the first to find them.

Like Patricof, a growing number of large firms now offer summer internship and analyst positions.

“Five years ago, it was so unique to find a resume with an unpaid summer internship with a VC firm on it,” says Ms. Costello of the Kauffman program. Today, the Kauffman Center funds some 100 such programs.

Some VCs seek prospective job candidates for their firms and portfolio companies by combing the Kauffman Fellows Program for access to applicants who failed to make the final cut. VCs also closely monitor university campuses.

“The amount of time we spend at business schools is substantial,” says Bob Higgins, a general partner at Boston-based Highland Capital Partners. Mr. Higgins, who teaches a course at Boston University’s M.B.A. program, estimates that Highland’s six general partners spoke at job fairs, seminars and lectures more than 20 times at major business schools across the country.

Like Mr. Higgins, many other venture capitalists have dedicated their time and expertise to educating the next generation of VCs. Glynn Ventures’ Mr. Glynn has taught a venture capital course at Stanford University’s Graduate School of Business since 1991, as has Sierra Ventures’ Peter Wendell. Felda Hardymon, a general partner in Bessemer Venture Partners’ Wellesley Hills, Mass., office, teaches at Harvard Business School.

“The quality of [students] in business schools gets better each year,” Mr. Higgins says.

That observation is a direct correlation to a better-educated pool of candidates. Higher enrollment in private equity courses, membership in venture capital clubs and job placement in private equity firms for business school graduates have mirrored the growth of the industry itself.

While Harvard has taught classes in entrepreneurship since the 1940s, “There really wasn’t a course that looked at the other side of the equation,” says Josh Lerner, a business school professor who introduced the first course in private equity and venture capital in late 1993.

In the five years since, the number of Harvard M.B.A. graduates taking jobs in the venture industry has risen dramatically, says Kirstin Moss, director of career services. While only about 4% of 807 graduating students took private equity jobs after completing their degree in 1995, approximately 10% of a class of 851 did so in 1998, a jump of more than 60%. The increase is sizable when compared with traditionally popular sectors such as investment banking, which wooed 15% of Harvard’s 1998 graduates, and high-tech and telecommunications companies, which attracted 13%.

“So many more students coming into the business school today … are really committed to going down [the venture capital] path,” Prof. Lerner says.

Marc Fogassa, a 32-year-old Harvard Business School student and co-president of the university’s Venture Capital and Principal Investment Club, knew he wanted to become a venture capitalist before applying to the school. Dr. Fogassa, who received his undergraduate degree from MIT, attended Harvard Medical School and is set to complete his M.B.A. in June, started work as an associate at Atlas Venture in January. He credits his aggressive approach to the job market with being able to land his position with a top firm.

“Forget about McKinsey, forget about Bain,” he says, referring to graduates who take jobs at established consulting companies as a stepping stone to the industry. “It doesn’t matter if you’re not getting paid, not sleeping … I wanted to get into venture capital. At the end of the day, if you have done something with venture capital, you’re ahead of the game.”

However, not all VCs would recommend an aggressive strategy for business school hopefuls who want to enter the industry. General partners will continue to network, stay in touch with their alma maters, comb the resume books and speak at student conferences, all the time plucking attractive candidates to join their firm or one of their portfolio companies. “Venture capitalists want to find the people they work with, rather than the other way around,” says Draper’s Mr. Packard. “Serendipity plays a role.”

As it should in the VC industry, as it always has been. Or so they’ll tell you.


The Kauffman Fellows

Firm Location Fellow Mentor

Alliance Technology Ventures Atlanta William Lyman Michael Henos

ARCH Venture Partners Seattle Patrick Ennis Bob Nelsen

Austin Ventures Austin, Texas Rob Kornblum Joe Aragona

Battery Ventures Wellesley, Mass. Kenneth Elefant, Tom Crotty,

Jodi Sherman Jahic Ollie Curme

Canaan Partners Rowayton, Conn. Brent Ahrens Harry Rein

Cardinal Health Partners Princeton, N.J. Lisa Skeete Tatum John Clarke

Chase Capital Partners New York Jim Roberts Bob Greene

CID Equity Partners Columbus, Ohio Scott Chou Kevin Sheehan

CMEA Ventures San Francisco Vlad Dabija Gordon Hull

Domain Associates Princeton, N.J. Holly Hagens, Brian Dovey,

Darien Kadens Richard Schneider

Draper Fisher Jurvetson Redwood City, Calif. Jennifer Fonstad, Tim Draper,

Albert Tsuei Steve Jurvetson

Enterprise Development Fund Ann Arbor, Mich. Michael Partsch Tom Porter

Flatiron Partners New York Dan Malven Fred Wilson

Intersouth Partners Durham, N.C. Jonathan Perl Mitch Mumma

Kansas City Equity Partners Kansas City, Mo. Mike Roberts Bill Reisler

Kitty Hawk Capital Charlotte, N.C. Murphy Clark Walter Wilkinson

Mid-Atlantic Venture Funds Reston, Va. Steven Weinstein, Tom Smith,

William Quigley Marc Benson

Morgenthaler Ventures Cleveland, Ohio Jim Broderick John Lutsi

Oak Investment Partners Westport, Conn. Nelson Stacks Ginger More

Patricof & Co. Ventures Palo Alto, Calif. Adele Oliva Janet Effland

U.S. Venture Partners Menlo Park, Calif.Winston Fu Steve Krausz

Venrock Associates Palo Alto, Calif. Brian Ascher, Tony Sun,

Bryan Roberts Anthony Evnin

Weston Presidio Capital Boston Daphne, Dufrense, Michael Cronin,

Matthew Janopaul, Michael Lazarus

Courtney Russell

Wind Point Partners Southfield, Mich. Todd Wilson Jim Forrest

Source: Kauffman Center for Entreprenuerial Leadership