What are the roles and responsibilities of VC Principals vs. Partners within venture capital firms? This article will cover the roles and responsibilities behind the job titles and help you understand the critical parts that both of these senior members play in the decision-making process of VCs.
Venture capital companies are professional investors that make equity investments in other companies. This gives more opportunities for returns to the investor, but also at a greater risk. While technically a private equity firm, VCs distinguish themselves by investing at very early stages.
What is a Venture Capital Partner?
Partners at a venture capital firm can sometimes be an owner or a co-founder of the company. As such, they will have ultimate authority in making decisions about the firm and are in a senior position over the Principals.
Types of partners
Partners can fall into two categories - General Partners or Managing Partners. Whether an individual falls into either category depends upon their role in decision-making at the firm.
- A General Partner at a venture capital firm will be responsible for raising capital for the firm to invest. They will also be responsible for making the final decisions and issuing approval of investment choices at the firm.
- A Managing Partner will be more concerned with guiding the firm's overriding operational and strategic decisions. And they are less likely to be involved in individual investment decisions.
There may also be junior partners in a portfolio company. Junior partners do not have equity in the firm and will have fewer responsibilities and less authority. They will also have less power to execute deals but have been elevated due to their earlier experience and will be on their way to making partners.
Most partners at a VC firm will not usually be involved in the company's day-to-day activities. They have higher level, strategic roles within the firm concentrated upon high-stakes funding choices.
Some may have roles similar to that of board observers, while others may take a more active role in guiding the strategy of deals. One of the essential parts of a partner's role will be bringing new funding opportunities to the firm.
They will keep track of what principals spend, where, and how, but from a guidance and observance standpoint. They also choose who is allowed to become a partner, the negotiating terms when this happens, and where and how to source the funds for the firm to invest.
They will also draw larger salaries in profit share, management fees, and carried interest.
As new companies grow, they will likely take on new partners, directors, and junior people. Newer, small firms are likely to have fewer partners, usually made up of company co-founders. Larger firms are likely to have more limited partners, and managing directors made up of co-founders and newer members of the limited partnership.
What is a Venture Capital Principal?
A VC principal holds a decision-making position within the venture capital fund investment structure and usually has a more "hands-on" role and will be more actively support portfolio companies. They have considerable business and start-up experience and is generally promoted from an Associate or Analyst role from the same firm, or from another firm in the VC industry.
Becoming a VC principal requires a lot of experience, knowledge, and previous success in lower positions before they are entrusted with this role.They are experts in guiding and recommending investment decisions for VC funds but do not have ultimate power regarding the overlying strategy of the firm.
Principals must have a great deal of knowledge about venture capital and investments and have a proven track record of sound judgment. They will support partners by identifying investment opportunities, having good judgement, and deciding on appropriate investment fund sizes. But they do not have the ultimate power to decide for the firm.
They will usually be on the long-term partner track, that is, having a career that will lead them eventually to the partner level, and running their own firm. They will spend between five to ten years in this role before moving upwards.
They will need to prove themselves as good investment decision-makers during this time. They may also be invited to become junior partners before moving up to senior partnerships.
VC Principal vs. Partners - How Do They Differ?
Responsibilities in a VC Firm
Responsibilities of a VC principal
A VC Principal will be responsible for the vast majority of the daily running of the investment operations and assist partners by doing all the early stage work in deals.
This includes everything that comes with deal sourcing and investment opportunities, performing due diligence (also can be done by associates or other junior members of the team), actively managing company portfolios and any other tasks for the firm. They usually hold much influence when deciding how best to optimize investments in the VC fund.
They are likely to have made their way up through being an associate or analyst in the business. They now have more responsibilities in dealing with start-ups, entrepreneurs, and new business opportunities unsupervised daily.
Responsibilities of a VC Partner
The main difference in a portfolio company is that a partner will not generally be involved in these day-to-day activities of the venture firm but will be concerned with the overlying responsibilities of making tough decisions, deal flow, sourcing and guiding investment, and operational strategy.
Similarities in the responsibilities of a partner and principal
Both roles play an integral part in the success of their respective firms, being ultimately responsible for the investment decisions and financial success of the company. These positions involve much responsibility and high-stakes decision-making in investment deals.
Both roles require a great deal of knowledge about the market, much experience, and the skills to recognize lucrative investment opportunities when presented with them immediately.
Who should you talk to for funding?
Now that you have some idea about the roles, responsibilities, and hierarchy behind the job titles at a VC firm. Rather than focusing on titles, you should look at these three factors. Just because someone holds a senior position at the VC alone does not guarantee you a deal.
We've said venture capital principals are responsible for sourcing new investment opportunities for their firm, but let's not disregard associates. A venture associate will be assisting principals in performing due diligence.
Associates more often than not have targets of suggesting deals to the principals. But if you work on establishing a professional relationship with an associate, it would give you a leg up as you will have someone on the inside which can put in a good word for you.
Now, in this case, reaching out to a partner will be your best bet. A partner will have the most experience in a firm and the one who will be working with you and guiding you post-investment. They might even end up on the board of directors of portfolio companies.
And since they hold a senior position at the firm (more often than not, they are also a co-founder of the firm), their vote carries more weight than an associate or a principal.
Before a deal is finalized and a venture firm invests in potential entrepreneurs, they need time to talk amongst themselves. It usually takes three months for the deal to be done and capital transferred to your business.
You will most likely meet multiple people across the hierarchy, which means face time with associates, principals, and partners. So if you have more time, it does not hurt to talk to associates. Remember, the job titles do not mean they have no authority or influence. Even if their firm does not invest in you, they can talk you up to their associate friends in other VC firms. So you can still get an investment deal.
So take another look at these factors, the VC firm itself, their portfolio companies, and talk to other entrepreneurs who have pitched to them in the past. Then you can decide which firm to reach out to and whether to reach out to the associate, principal, or partner.
How to get connected with someone in a VC firm
Just reach out
LinkedIn is a great place to get connected with Venture Partners and Principals. Your pitch deck does not have to be perfect. Focus on building a relationship. Remember that investors invest in people. So reach out and make a connection. Even if they do not end up investing, they might give you valuable feedback or introduce you to someone else within their network.
Reach out through a mutual contact
If you are uncomfortable reaching out on your own or have a mutual contact (either a fellow entrepreneur or an angel investor) who can introduce you to a venture capital principal or partner, take advantage of your connection. VCs trust these contacts' recommendations!
Another viable option is to attend an in-person networking event. Many connections are built this way. You're able to test the waters as it were with these connections.
Always keep an eye out for these community events. Once you find something relevant, get tickets for yourself and anyone you wish to bring along with you.
Becoming one of the portfolio companies
The goal of the investment process for start-ups is to receive funding from a VC and become one of their portfolio companies. VC principals and partners have different roles, responsibilities, and compensations. They have different levels of influence when it comes to making investment deals. Knowing whom to contact is half the battle.
If you want to get funded and are trying to reach out to someone in a VC firm, do your due diligence by researching the firm, talking to other entrepreneurs, and reaching out to them, either through cold outreach or through a mutual contact or at a networking event.