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What Is A Venture Capitalist?

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So what does a venture capitalist actually do?

In basic terms, a venture capitalist must first raise capital to create a fund, then invest it, create liquidity (by selling shares in portfolio companies), and return cash to the fund shareholders. This process involves careful evaluation of the opportunity itself (in this case, biotech companies), management of the investment once it has become a reality, often taking a seat on the board, and ultimately making the company a success. In the VC world, real success means a 5 to 10-fold return on the original investment. A real VC may also sit on three to four boards at any given time.

To give a few specifics, Abingworth was founded in 1973 and is one of the largest independent venture capital groups in Europe, as well as one of the earliest biotech investors in the United States. AML currently has $250 million under management (85% is invested in biotech, including the new $100-million fund). AML has invested almost $100 million in 34 biotech companies (4 in the U.K.) over the last 10 years. Twenty-four have gone public and 5 have been acquired. The new fund will be invested in 15 to 20 new companies and a few public companies, with some emphasis on investing in the United Kingdom and Europe. AML has three directors (one chartered accountant, one Ph.D., and one M.D.), one associate director (myself), and one in-house consultant with many years of experience in the biotech industry.

A typical day in the life of a VC (which in London begins later and ends later to stay in sync with the U.S. stock exchanges based in New York) involves listening to presentations by new or established companies, speaking with consultants, checking stock prices, keeping up with industry news (this requires extensive reading), and making innumerable phone calls to CEOs, potential management hires, other VCs, investors, lawyers, consultants, analysts, and so on.



Phone calls can actually take up 20% of every day! In addition to all of the above, our firm has weekly biotech meetings in which all potential and ongoing investments are evaluated and discussed. Members of the team submit written proposals and must defend investment recommendations to other partners. Although unanimous agreement is preferred, at least two out of three directors must be in favor of moving forward before an investment is made.

What Makes A Good VC?

Interpersonal, creative, and analytical skills all contribute to one's success as a VC. A VC may have to convince other VC organizations to co-invest in a new opportunity and come up with a creative financing that pleases all parties, a VC has to be sensitive to the needs and biases of the academic scientists who are company founders, or sometimes VCs may need to influence and persuade board members to pursue a strategy that is best for the development of a nascent company.

Since business and negotiating skills are a must, a scientist can obtain some of these skills either by working in a business development, licensing, or legal department in industry, or in a technology transfer office in academia. Accounting skills have a limited role in the venture business, and a basic finance course is probably adequate background.

Being a VC is generally a very lucrative position and salaries are in the six-figure range. Overall compensation is much higher (it can be above 7 figures) because VCs receive 20% of the capital gains of the fund over the life of the fund, which is usually 10 years.

But it can take from 7 to 8 years before a VC sees major financial returns. The training phase averages 5 years, but it can be as little as 3 years. It requires the following attributes or milestones: strong people skills, decision-making skills, the ability to identify new ideas and to create opportunities around them, the capacity to attract financing from investors, good problem-solving skills, and the ability to lead.

An extrovert with strong people skills probably has the easiest chance of succeeding in this profession. However, the job is so broad that if someone has some but not all of the attributes described above, he or she can still succeed. The promotion ladder from lowest to highest usually consists of administrators, a manager level (lesser academic degrees and work experience), a director level (non-partner, often technical, more responsibility than managers) and full partner level, although each firm differs. Partners (termed directors in the U.K.) decide who and when someone will be promoted to join their ranks, and this process differs among firms. Junior partners may have a wide variety of backgrounds including business, finance, medical, or scientific degrees. Interestingly, industry experience is not always a prerequisite.

As an associate director, my job involves conducting in-depth due diligence on early-stage companies or "seed" deals, where the actual company may not yet be formed. This includes analysis and assessment of the specific scientific platform, sector (competition), intellectual property, and management team. I frequently submit a written evaluation or proposal to the team for discussion at weekly biotech meetings and sometimes lobby partners prior to a decision-making meeting. Funding recommendations usually range from $2 to $5 million or greater over the life of the investment.

My role also involves assisting companies in our portfolio in a number of ways. For example, I may give advice regarding specifics of the scientific program, contribute to strategic planning, help to find corporate partners, or even help to recruit additional talent. Finally, I try to identify innovative new research areas and/or founding scientists from which new companies can be created. Good communication with colleagues and experts in the field, extensive reading, and attending scientific and industry conferences are important activities in this position.

There are a limited number of VC organizations (especially in the U.K. and in Europe) and the profession has a "club-like" atmosphere. The firms are usually flat organizations and they have a finite number of job slots. Available positions are rarely, if ever, advertised, and job openings are communicated by word of mouth or by professional recruiters. An ex-VC may become a CEO or COO of a start-up or an established company, or he or she may even go into politics!

Among the enjoyable things about being a VC are that one can meet interesting, accomplished people and can learn something new every day. There is a great deal of travel and freedom, each workday is varied and stimulating, and the job is financially well-compensated.

Attending to administrative details (legal documents) is probably the most tedious component of the job. Being a VC requires extensive travel, often as much as 40 to 50% of the time. Also, being a VC usually means wearing formal business attire, literally and metaphorically, and this is something that scientists may not particularly enjoy. Decision making, which is a 6 to 8-week process on average (although there are certainly exceptions) in the VC world, does not require the depth of understanding or proof of principle that scientists are constantly striving for, and this can take some adjustment. The stress level is fairly high, but rarely unbearable.

There are many different paths that can lead to becoming a VC. A Ph.D. gives a scientist the credibility that is often required for a first real job or big break in any industry. Formal scientific training has been absolutely essential in my own career path, which often involved in-depth technology assessment and discussion with world-class scientists in a broad range of research areas. My technical background was vital in enabling me to enter the venture capital profession. Also, timing and a few key personal contacts are invaluable in pursuing and developing any career path.

In conclusion, a good scientific foundation can open doors to any number of rewarding jobs in research, business, finance, or informatics, in the rapidly expanding health care industry. Personally, I am a strong believer that if one has good credentials, vision, courage, and tenacity, almost any career goal can be achieved.
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