Chicago Booth Review Podcast How to Become a Venture Capitalist

Scott Meadow: So imagine a resume that says University of Chicago Booth School of Business, MBA, Purdue University, first job, director of new business development for XYZ company, a Kleiner Perkins portfolio company sold to Microsoft. Once that's on your resume, then you are a sector specific expert who's worked in a cash constrained environment and who's made money for institutional investors.

Hal Weitzman: Getting into the venture capital industry is hard, so how can you plan to break in if you don't have the relevant experience? Welcome to the Chicago Booth Review Podcast, where we bring you groundbreaking insights in a clear and straightforward way. I'm Hal Weitzman. Today, Chicago Booth's Scott Meadow shares his advice for becoming a venture capitalist. Scott Meadow, welcome to the Chicago Booth Review Podcast.

Scott Meadow: Thank you. I'm glad to be here.

Hal Weitzman: We're delighted to have you here and we're here to talk about venture capital. I know a lot of people want to get into ... It sounds so fun to lend people what Shark Tank and they want to lend money to invest in new companies. Let's start with this. Why is it so difficult to land your first job in venture capital and why do you suggest that people reframe it from getting the VC job to earning the right to be hired? What does that mean?

Scott Meadow: Well, I think because the venture capital jobs, particularly in the United States, venture capital firms have become more and more fragmented. The limited partner community no longer needs venture capitalists to provide diversity. They can do that themselves. So as a result, instead of having a healthcare fund, broadly speaking, you might have a fund whose sole purpose is focusing on orthopedic surgery as a result. So therefore, if you're going to get a job in the industry, you have to have sector specific expertise.

Hal Weitzman: So you have to be the orthopedic expert or whatever?

Scott Meadow: Yes. And you have to get that generally from corporations that provide that kind of training post MBA as opposed to going into elite service firm jobs like consulting or investment banking.

Hal Weitzman: Okay. So the first piece of advice is don't think about venture capital, think about something else and how you could be an expert.

Scott Meadow: Unless you happen to be somebody that has an MD PhD.

Hal Weitzman: Right. But that's an expertise, right?

Scott Meadow: That's an expertise indeed.

Hal Weitzman: You're a medical doctor, you happen to be an orthopedic surgeon.

Scott Meadow: Right.

Hal Weitzman: And you want to make a switch, then I would imagine that that would be a good thing to bring into the venture capitalist. Okay. So you recommend that the first thing you should do once you have that frame about getting the right to be hired or bringing in the expertise is working at a well-financed portfolio company. What do you consider to be well-financed? If I'm applying, how do I assess whether they are well-financed or not?

Scott Meadow: Well, it's a little bit like getting into Chicago Booth. Why do people come and hire our students at Chicago Booth? Principally, they do so because the admissions office has pre-selected those individuals and so therefore the chance of those individuals being outstanding hires are pretty high. Think about it the same way. The most important thing is safety first. You don't want to be 32, 33, starting a family perhaps, and then all of a sudden be laid off because the firm ran out of money. So in selecting a company to go work for, it would really behoove you to find one that's financed by a top venture capital firm because the likelihood of that firm running out of money is very, very low if they've got a lot of high brand equity in the money that's supporting that venture.

Hal Weitzman: Okay. So first job, don't go for someone small and experimental.

Scott Meadow: Not unless your partner or your family has a lot of money.

Hal Weitzman: Well, if you have a lot of money, then I suppose there's a whole different conversation.

Scott Meadow: Well, right.

Hal Weitzman: We're talking about normal folks. Okay. So you have a funnel that helps people think about where they are and how they might progress. It's column one, column two, column three, but essentially you move from firms to portfolio companies, to management teams, mentors. Tell us about that process. What's in each column and how does it work?

Scott Meadow: Well, the way I sort of think about it is the first thing I would ask a student is, Hal, what are you thinking about when you're staring at the ceiling at three o'clock in the morning? Where do you want to be five years from now? What really excites you, et cetera? And let's just say that what you're particularly interested in is healthcare information technology. And so what I would recommend you do is first of all, come up with a list of the top venture capital firms in the United States who fund healthcare information technology. And that creates the opportunity for you to learn several things by examining those companies. First of all, you learn right off the bat who are the top firms investing in the field, which is very, very useful. Then if you go into the personnel of the people in the firm, you can get a sense, okay, how do I, how, measure up relative to the associates that are in the firm?

And if they have distinctive competencies that are different than mine, how do I go about getting those competencies? But that's really 20% of what you want to get out of that. The major thing you want to do is go through, imagine a list of 25 venture capital firms in that first column. And you go in, you sit on your laptop with a glass of wine over six, seven, eight weeks and you look-

Hal Weitzman: It's a big glass of wine.

Scott Meadow: Yeah, it's a big glass of wine exactly.

Hal Weitzman: Lasts you eight weeks.

Scott Meadow: You can have multiple glass of wine.

Hal Weitzman: Oh, you can. Okay. Now totally I'm excited.

Scott Meadow: Right. I figured that would spice things up a bit for you. And you go in and you look at the companies that, let's say Andreessen Horowitz has financed and you're looking at those companies with an eye towards two things in sort of ascending order of importance. Number one, can I how contribute something to this company? And that's of minor concern. Major concern, am I how super excited about what this company is doing? So if you go through and you're looking at 25 different venture capital firms and probably 30 or 40 different companies, that's hundreds of companies that you're looking at that are in healthcare information technology. So you're now getting a sense of the entire arena of investments of that type. And at the same time, you've selected maybe 15 or 20 companies, all of which are well financed, that you're excited about and that you can contribute to.

So that would sort of take us to column two, if you will. And column two, I would title portfolio companies of top venture capital firms in healthcare information technology that I'm excited about and that I can contribute to. And so now I have a list of, let's call it 15 or 20 companies. So I'm narrowing things down. And one thing that I can really feel good about as I look at that array of companies is all of them are financed by top venture firms. So the likelihood that they're going to run out of money is very, very low because those firms not only have plenty of money, but they have the kind of franchise so that if they called somebody to come into even a down round, it's highly likely that they're going to participate. So safety first, right? That's the reason why we want to get well-sponsored companies.

So now in column two, we've got a list of companies that Hal is excited about, that he can contribute to, that's in the sector that you're interested in and that are funded by top VC firms, which brings me to column three if you want me to continue on with this.

Hal Weitzman: Please.

Scott Meadow: Okay.

Hal Weitzman: Yeah.

Scott Meadow: So column three, I would title portfolio companies of top venture capital firms in healthcare information technology that I'm excited about that I can contribute to that are managed by serial entrepreneurs because chances are you haven't really participated in the entrepreneurial ecosystem at the highest level. And so you want to wrap yourself in the blanket of experience. And so in doing so, now you pour yourself another glass of wine and you begin to go through the 15 companies that you've got in column two. And the 15 companies in column two, you start looking at the management teams and you're sort of looking for three things in particular. Number one, does the C-suite and your coworkers, it would be great if both were the case. Does the C-suite and your coworkers have sector specific expertise? Have they worked in a cash constrained environment, i.e., a company that's been funded by a venture capital firm as opposed to Eli Lilly?

And then most importantly, have they been successful? Have they made money for institutional investors before? So there may be people, venture capitalists in column one that want to fund somebody in their first venture. That might be a nice thing for that entrepreneur, but it's not a good umbrella for you to get under if you're trying to learn how to be an entrepreneur. So I'm a big advocate about having sort of a tutorial through my first venture, right? So you go back, you're looking at the 15 different companies and you're hopefully narrowing those companies down to a more manageable group of, let's call it three to five companies. And those three to five companies would be companies that you're excited about, that you can contribute to, that are funded by top people and managed by serial entrepreneurs. And so the likelihood of you being somebody that might be interesting to them is going to be naturally much higher because you've gone through a deliberate process of ferreting out the companies that sort of best correspond with not only your resume, but your emotional state as well.

Hal Weitzman: And so at the end, you're left with some portfolio companies owned by venture capital or invested in by venture capital that you would then reach out to, apply to? How does it work?

Scott Meadow: Right. Well, reaching out is important, but how you reach out is even more important, right? Imagine the number of emails these people get from, please hire me, here's my resume. It's an automatic rejection, right? You call them, please hire me. No, that's an automatic rejection. You send them snail mail. That's an automatic rejection. So it's got to be a quid pro quo situation. And you think you have nothing to offer, but you come from one of the most significant research institutions-

Hal Weitzman: This is what you tell your students at least. Right.

Scott Meadow: ... on planet earth. This is my last lecture.

Hal Weitzman: Right.

Scott Meadow: And you come from one of the most prestigious research institutions on planet earth and most people want to talk to you given that that's where you come from. So you might call up the CEO and I would recommend starting at the top and you might say, "Listen, I'm a student. I'm studying with Professor Scott Meadow. We've been looking at the application of AI when it comes to healthcare information technology as it has to do with bone density diagnosis. And I've put together a white paper. I'm going to be out on the West Coast over the next six weeks. I wonder if you might have a half an hour to spend with me." And you might continue by saying, "You know what? I've got some interesting things about your company that have come up that I think you might find valuable."

Hal Weitzman: Okay. So you come in with something to give.

Scott Meadow: With a shtick.

Hal Weitzman: With something to give.

Scott Meadow: Right. And chances are, you have a relationship with somebody at Booth and if you say ... Many times I've had conversations with students, I'm thinking about applying to this job, and I would look at their seven or eight pages of notes that they put together. So it's not like we're making this up. And you come up with one or two intelligent things to say, and chances are they're going to say yes.

But the reason that you said that you're going to be out on the West Coast over the next six weeks is because there's 100% probability that two days before your scheduled meeting, they're going to call up and cancel, right? And so that's okay because you haven't really left Chicago. So you say, "Fine, when would it be convenient for Mr. Jones or Ms. Jones to see me?" They give another date and the chances of them canceling that are much, much lower.

Hal Weitzman: But just as a follow-up on that, do you think that younger people have an advantage there? Because as you say, everything is changing. A lot of it's connected to AI and tech. If I say, look, I'm an expert in not only in whatever it was, bone density, but also in AI and application, do I have an advantage over this maybe older, less tech-savvy CEO?

Scott Meadow: I don't really think so because I think that the experts in AI are going to be the experts in AI and you're much better ... When you think about major paradigm shifts in technology over time, the internet, AI, these massive paradigm shifts, the expertise there is pretty significant and probably well beyond the capability of most of our students. So you're better to come in with an application focused sort of resume as opposed to trying to book yourself as an AI expert. Sure. I'm sure we have students at Booth that might fit that role, but probably less likely.

Hal Weitzman: If you're enjoying this podcast, there's another University of Chicago Podcast Network show that you should check out. It's called Nine Questions. Join Professor Eric Oliver as he poses the nine most essential questions for knowing yourself to some of humanity's wisest, the most interesting people. Nine questions with Eric Oliver, part of the University of Chicago Podcast Network. Scott Meadow, in the first half, we talked about your process for getting yourself into the world of venture capital. One really important part before you think about anything else is what expertise do you have? Now, you teach, coach, MBA students, and what advice do you give them about developing, many of them are generalists, really aren't they, developing sector specific expertise after they finished an MBA?

Scott Meadow: Well, I think you've got to think about your MBA differently. You've got to think about your MBA much like your pals from undergraduate thought about medical school, right? So I graduate from Purdue and I get into University of Chicago Medical School and I graduate as a general practitioner. But if I want to be a neurosurgeon, then I have to go off to Mass General and do a residency in neurosurgery. So what I would suggest is think of your MBA as that medical school education and your first job as the residency that's going to provide you with the sector specific expertise to go on and be a neurosurgeon. And the way I think is best to get that residency unfortunately runs in the face of some of the emotional energy that many of our students have about what constitutes a prestigious job post-graduation, right? So high-

Hal Weitzman: You mean it doesn't sound as glamorous as what they had in mind?

Scott Meadow: Right. What's effective and cool at the Thursday night drinking club may not be the best thing to help you get a job in the venture capital business. Like for example, working for a high end investment banking firm or consulting firm isn't likely to give you the sector specific expertise, which is frankly fabulous news because most of your classmates want to do that kind of thing. So if you can instead find yourself joining a company like let's call it Medtronics and working in a management training program where over the next three years ... First of all, there's going to be lower competition, particularly from your Chicago Booth or other comparable business schools for those kinds of jobs. So your likelihood of getting that are much higher and during the next three years, you're going to do a 360 degree trip around the human body, looking at Medtronics' products and you're going to look at each one of those products through the lens of different functional areas, marketing, sales, accounting, R&D, et cetera, et cetera.

And so you emerge out of that Medtronics intern program as a sector specific expert at that point in time. It's not necessary to throw your elbows around and try to get a job with a venture capital firm, although I've had many students that have gotten jobs with venture capital firms, but you're just a perfect person to segue in to a portfolio company that is managed by a top venture capital firm. So imagine a resume that says University of Chicago Boost School of Business, MBA, Purdue University, first job, director of new business development for XYZ company, a Kleiner Perkins portfolio company sold to Microsoft. Once that's on your resume, then you are a sector specific expert who's worked in a cash constrained environment and who's made money for institutional investors. So at that point, you're 35 and you're at a crossroads, right? And the crossroads is I am now a bonafide proven quantity in the entrepreneurial ecosystem.

So I can now knock on the door of a venture capital firm, preferably the one that backed the company that I was just working with and say you ought to hire me. Well, why? Well, I'm a sector specific expert. Secondly, if I take a board seat or if you take me to a board meeting, I've already worked in a cash constrained environment, so I'm going to be able to look at that through an operating lens with a more conservative perspective than I might otherwise have. And you got a really better chance of getting a job like that. On the other hand, you might decide, you know what? It was so much fun working in a venture. I don't have to worry about politics in the same way, et cetera, et cetera. I'm going to join another venture. And you move yourself up the operating chain until hopefully by the time you're 40, you're a CEO of your own company.

Hal Weitzman: I see. So there are two parts really. One is either goes through the portfolio companies and gain deeper expertise or different kinds of expertise, and the other one is to go and become more of a generalist. Would you ever worry about getting pigeonholed or getting too specific?

Scott Meadow: I guess on some level that's a worry, although all I've seen is the limited partner community be more and more interested in focus, particularly on the venture side of the house, which is what we're talking about as opposed to the private equity side of the house. So I think to the extent that you can get that deep expertise and medical devices are not all medical devices, but there's enough similarity where you could probably make your way over a broader swath of the landscape than you might think.

Hal Weitzman: And it really makes a difference to be in a portfolio company as opposed to just being in a public company, let's say?

Scott Meadow: Well, no, because at a public company, you've never worked in a cash constrained environment.

Hal Weitzman: I see. So that's the difference?

Scott Meadow: Yeah. I'm a clinical professor, which means I'm not getting a free first class ticket to Oslo. That's not in my future, but theoretically, I can afford my own first class ticket to Oslo. And as a clinical professor, what's my biggest regret as a practicing venture capitalist over multiple years that I had never worked for a portfolio company. I would have arguments with CEOs and they would say, "What the heck do you know, Scott? You've never run anything." And whether I was right or wrong, my credibility wasn't at the highest level. So what I always say is don't take a job with a venture capital firm unless you have work experience in a portfolio company unless you get a job with a venture capital firm. And if you do, then you'll of course figure it out because you're smart, but it would be better if you had that preparation.

Hal Weitzman: Okay. Now, I know that we've talked exclusively about America, but I know you have some thoughts about, and obviously when you're teaching, many, perhaps most of your students are not from the United States. So how do you think different geography would change your strategy? I know you have some thoughts about India or different kinds of markets.

Scott Meadow: Well, if you think about economies that are at an earlier phase in the entrepreneurial evolution, your job's going to be very different in those economies. You take me in 1982, right? So I joined, why was I hired at the venture capital firm? Well, I'd gone to some fancy schools. I had worked for BCG and Booz Allen, so I had high gloss service firm experience, which was important because they were interested in hiring somebody that could do analysis because on Monday, I'm looking at a biotech deal. On Tuesday, it's a retail deal. On Wednesday, it's telecom. On Thursday, its real estate related. And at the same time, on the other dimension, I'm looking at a pre-proof of concept venture capital deal, a growth equity venture capital deal, and a leveraged buyout all under the same umbrella. Why? Because there wasn't the density of venture capital firms or limited partners interested in that economy.

So what I always say to my students is if you have the language skills and cultural affiliation where you're comfortable in that milieu, then every time you want to go back to India, to South Africa, to Russia, wherever it is, right? Because you're going to have an experience very similar to mine. You're going to see more projects because there are fewer people financing those, and there's going to be less money. So if somebody needs $5 million, there may be six people in the syndicate. All of those people you're going to get to know, they're going to become part of your network, they're going to grow with you, and you're going to be one of the sort of mainstays or have a chance to be one of the mainstays of the industry over time. So it's exciting to work in an entrepreneurial ecosystem like the United States, but you're a much less differentiated candidate in that environment than you might be taking your wares back to an entrepreneurial ecosystem that's at an earlier stage.

Hal Weitzman: Right. So I know that we've talked a lot about MBAs and those days, it was great to be young, but some of us aren't so young anymore. What would you say to someone who is going through a stage in their career where they want to make a switch, but they have the deep expertise you're talking about, not necessarily in a portfolio company, but they have deeper domain expertise, like you mentioned, an MD, and they want to move into venture capital.

Scott Meadow: Well, I think if you have sector specific expertise and functional expertise, you can be very valuable in the venture capital arena, right? Because the most important feature besides the technology is the ability to communicate what's different about that technology. And so most of the people that I work with at Chicago Booth, whether it's in the classroom, MBAs, the weekend program, executive education, my older students, there's opportunities for them to move over if they understand the technology, because it's highly likely that they're going to be able to communicate that because what's your job as a new business development person to sit down and say, "Okay, here's the legacy solution that you have, Hal." If you adopt our disruptive concept, it's going to improve things for you in this way. The economics of you buying this product is going to affect you in this way.

And in terms of all the entrenched learning that your staff has in the legacy solution, here's how we're going to solve that particular problem for you. So there's many people that can And can do that regardless of where they sit age wise at Chicago Booth. But if you have a little bit more experience, you're going to be more effective in that job. But where I feel like my older students have their best opportunity with the least disruption is actually in the private equity world, more than the venture capital world.

Hal Weitzman: Well, Scott Meadow, this has been a great discussion. Thank you very much for coming on the Chicago Booth Review Podcast to tell us how to get into venture capital. Thanks.

Scott Meadow: Thank you.

Hal Weitzman: That's it for this episode of the Chicago Booth Review Podcast, part of the University of Chicago Podcast Network. For more research, analysis, and insights, visit our website, chicagobooth.edu/review. When you're there, sign up for our weekly newsletter so you never miss the latest in business-focused academic research. This episode was produced by Josh Stunkel. If you enjoyed it, please subscribe and please do leave us a five-star review. Until next time, I'm Hal Weitzman. Thanks for listening.