Venture capital firms can take many forms with various roles and titles, ranging from entities that resemble partnerships to entities that resemble corporations. The majority of venture capital firms have a partnership structure with five key roles:
Managing Partners own the management company of the firm, which owns the brand. Traditionally, Managing Partners direct the long-term strategy of the firm and oversee multiple funds with different investment strategies. They interact with Limited Partners and make final investment decisions, sharing the same responsibilities as Partners. They also make hiring decisions at every level of the organization and are often designed as “key persons” in legal agreements, such as the Limited Partner Agreement (LPA). Managing Partners make the initial capital contribution to the fund, which is typically 1% of the fund size based on their pro-rata ownership. They are compensated with profits from the management company, salary and carried interest from the funds.
Partners are senior members of the General Partner, which is an entity to manage one or more funds. While they report to the Managing Partners, they commonly have the autonomy to source deals, make investment decisions, and secure exit opportunities, which is referred to as check writing power. In situations where Partners lead deals, they often sit on the Board of Directors of portfolio companies for an extended period. Partners have both legal liability and fiduciary responsibility for the firm’s actions, and they may have to contribute to the initial capital contribution of the fund. Partners are compensated with either salary or management fee distributions and carried interest in the funds that they oversee.
Venture Partners are senior individuals with specialized expertise that are part-time contributors to the fund through the General Partner entity. They provide a range of strategic, executive, fundraising, operational, and portfolio support to a fund. Some Venture Partners are in positions to be evaluated to join as Partners in future funds. They are compensated with carried interest and normally do not receive a salary or cash compensation.
Principals are experienced individuals in the venture capital industry on a “Partner track” within a firm. They work closely with one or more Partners of the firm to identify deals, complete due diligence, and support portfolio companies under the direction of a Partner. The Principal role is less common with emerging manager funds and early stage funds, since the deals are less complex and require less work. Principals are normally promoted internally from Associates and Analysts, and they are compensated with a combination of salary and carried interest.
Associates and Analysts
Associates and Analysts do the majority of the detailed work at venture capital firms, and, in many firms, these roles are interchangeable. The roles include entry level positions to more senior specialists. Associates and Analysts commonly do research, modeling and analysis, as well as anything else needed by the Partners and Principals. They often do the work of sourcing deals and evaluating pitch decks. Associates and Analysts do not have the authority to bind the firm with decisions, and they are normally compensated with a salary.
In addition to the five roles above, early stage venture capital firms and emerging managers often have Interns. Students or recent graduates often covet internships at venture capital firms, and the Interns are often asked to do basic research and support activities for the more senior roles. Depending on local regulations, special programs and the type of work, the Interns can be either salaried or free, and they commonly have a term of 3 months that can be extended or expanded to an Associate or Analyst if the internship is successful.
Venture Capital teams are commonly small and team members operate independently from one another, especially at the senior level. The team normally collaborates around a weekly “Partner Meeting,” where investment opportunities are discussed and resources are assigned to help evaluate opportunities.