Are Hedge Funds Stealing Talent From Venture Capital?

hedge funds venture capital

The Wall Street Journal has an article today claiming that venture firms are concerned about retaining and fostering the next generation of talent.

The first part of the article makes the case that hiring a new generation of young vc’s to augment older partners is vital to firms’ continued successes. From the article:

Venture capital firms that have lasted for decades in an industry not known for longevity say a key factor in building a long-term business is to nurture young venture professionals — and eventually make room for them at the top of the firm.

This much is obvious. Venture folk like Fred Wilson have often written about the difficulties in staying current with all the latest innovations and trends. Here’s a video interview with a partner from Benchmark explaining why he’s so pumped on hiring Matt Cohler, formerly of Facebook, as a young partner. Getting young people into the mix is essential.

The article goes on to suggest that the lack of exists among venture-backed companies means that top young talent might opt for say hedge funds over a venture firm. This assumes that talent skews to the more lucrative industry, which may be true (Note: this was the first quarter without a venture backed IPO).

However, it brings to mind two thoughts.

First, hedge funds and venture capital are very different industries and should attract people of different skill sets and personalities. Yes, venture does involve finance, but overall the venture industry is very different from Wall Street.

For example, I have worked in both private equity and startups and what it takes to be a good investor in a startup has a lot less to do with quantitative analysis and a lot more to do with an ability to execute on an operational level, be creative and have people skills. IMO, many of the venture firms that will fail in the coming years are those who have made the “MBA faux-pas.� If a venture firm wants to hire the next generation of partners, they need to be looking for people who have been on the front lines, talk the language of their sector and have a track record an entrepreneur can buy into.

That said, I do agree that venture firms may increasingly not be attractive the best possible young people — but for different reasons. Based on my personal rolodex of friends who I think would make excellent venture investors, there are two issues at play. Either 1) these friends would prefer to start their own companies or 2) they simply decide to make their own angel investments rather than participate in a culture of red tape and politicing.

In order for venture firms to overcome these two hurdles they must get more creative. For example, incentivizng young talent via entrepreneur-in-residence situations, or allowing them the ability to get involved in more seed-stage opportunities are all possibilities.

However, as the need for startups to access substantial capital decreases, the issue is not at a firm-level, but at an industry level. Venture capital as a whole is undergoing significant disruptions. It will be exciting to see what new hybrid models emerge, a trend I have covered many times of this blog.


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