It is often said that venture capital (VC) is the least entrepreneurial segment of the tech sector. The terms and organisational principles governing it have been left unchanged for decades. Senior personnel don't change much, either, because it takes such a long time to reap the benefits of having embraced such a career. And it’s long been such a minuscule segment of financial markets that nobody interested in financial services in general would consider VC their preferred destination for building a career.
The wheels, however, have started to turn. VC is growing as an asset class, representing $197.7bn of assets under management globally in 2020. It’s also grown in visibility, covered across mainstream and social media. Above all, as investor Majdoline Wahbi writes for Sifted, younger generations are flocking into VC, thus changing it from the inside (or the sidelines) and making it more entrepreneurial than ever before. VC is still a small world that’s hard to access, yet it also feels more familiar and within reach.
The macro factors that will draw Gen Z to VC
I often use a three-point thesis to explain why tech entrepreneurship has been on the rise for many years now. It’s helpful to revisit this thesis with the particular example of VC.
The first factor that contributes to the rise of entrepreneurship is the existence of role models. Role models must be successful enough to inspire, but also relatable enough that you can tell yourself that the same path can be followed, possibly leading to the same success. When Steve Jobs died and was mourned across the world, and when Mark Zuckerberg’s fictionalised life was brought to the big screen in The Social Network, it made people realise that entrepreneurship was desirable and rewarding. But more importantly that maybe they, too, could do it.
These days, the same is happening (albeit at a smaller scale) with VC. Legendary investors such as Bill Gurley and Marc Andreessen have been inspirational for long, and younger newcomers such as Ophelia Brown, Mac Conwell or Harry Stebbings encourage a process of identification. Their success is impressive and still very difficult to match, but who they are and how they entered VC is more transparent, making lots of people think that they, too, can do it and succeed.
The second factor that blows wind into the sails of entrepreneurship is the wider availability of resources. Over the past 20 years, things like open-source software, cloud computing, and now no-code solutions have made the cost of building software products collapse, thus attracting more entrepreneurs to the field. Likewise, the abundance of educational resources for entrepreneurs makes it easier to start on firm ground and avoid the various mistakes that doom so many startups.
There’s a similar trend in VC. In fact, it’s never been easier to become a venture capitalist, hence the multiplication of so-called emerging managers. The reasons are manifold. An ever-growing collection of tools makes it easy to deploy an infrastructure to invest in tech startups. There are more and more programmes to try and learn to be a venture capitalist, from Kauffman Fellows in the US to Newton in the UK and Baby VC in France.
It’s never been easier to become a venture capitalist, hence the multiplication of so-called emerging managers
In the US, AngelList has even introduced tools specifically targeted at newcomers and part-time investors, such as rolling funds and the Deal Partners feature. (Alas, the same has not yet happened in Europe, where regulations are more constraining — and where we simply lack the equivalent of AngelList.)
The third factor that explains why entrepreneurial youth are turning to VC is a highlight of Majdoline’s column: the fact that young people simply have a different perspective on their lives and careers. In the past, a career was straightforward: you needed to stay in the same lane for a long time to earn peer recognition, a stable paycheque (and thus the possibility of buying a home) and the right to a pension. Loyalty and specialisation were rewarded with a good situation.
These days, such things seem to belong to the past, and young people are well aware of it. They know that peer recognition is a game played over social media rather than via office politics. They’re resigned to the idea that, considering housing prices in large cities, a good paycheque is not synonymous with home ownership anymore. And they’ve all but written off the idea of ever earning a pension because they’ve heard for so long that welfare systems are bound to go bankrupt.
Younger investors will accelerate diversity in VC
If staying in line and doing what you’re told isn’t rewarded anymore, you might as well explore new territories, tackle new challenges and cross each new milestone with an entrepreneurial spirit: questioning how things are done, trying new things, enjoying what you do — in short, thinking and acting like a tech entrepreneur, just like many young people are doing these days.
If staying in line and doing what you’re told isn’t rewarded anymore, you might as well explore new territories
Once such people flock to a given sector of the economy, the clock starts ticking. VC is expanding fast — too fast for it to keep relying on the traditional approach. One way of coping with the expansion is for individual firms to scale up — but it’s hard to turn a craftsman's shop into an industrial powerhouse, and many such attempts will fail.
But another, more promising way is with the arrival of new firms and diversifying approaches to how they address the market. And it’s becoming obvious that we can count on the younger investors flocking into VC to accelerate that trend.
