I was asked a question on Quora today, about whether it is better to be a venture capitalist or an entrepreneur.
The first assumption behind this question is that you have a choice: there are literally thousands more entrepreneurs (if you count all small businesses) than there are venture capitalists. And some people, e.g., graduates of top business schools, former management consultants and investment bankers can have the choice. I know because two of those three things apply to me, and I have friends, classmates and co-workers who have gone on to lives in venture capital, while I chose the entrepreneurial path.
So which job has a better lifestyle? Which is more fun?
Life as a venture capitalist:
- wins hands down on financial stability: you get paid a good salary, whether you are winning or losing. Contrast this to the entrepreneurs, who may not get paid at all when the business is struggling. (And yes, amusingly the VC is often the one suggesting the entrepreneur not draw a salary.)
- wins on quality of life: it’s true that VCs often take calls on the weekend to discuss a big board meeting on Monday. Guess who is preparing all of the materials for the meeting as well? The entrepreneur. VCs have short, focused interventions. The entrepreneurs do the time-consuming work behind the scenes.
- does have frustrations, because you have a lack of control: as a VC you make your bets in companies, and then you get to watch as most of them screw things up. You really have only one thing you can do, the ‘nuclear option’ of replacing the CEO. Otherwise, you sit on the sidelines, suggesting things, and often watching yourself get ignored.
The only catch is, all of this applies to an operational job as a venture capitalist. VCs also have to raise money themselves, from limited partners. The actual work of going out and raising funds can be very time-consuming, financially insecure, and all the rest. It’s just like fundraising as a CEO. So life as a new VC, without a track record or ‘rain maker’ as a partner, can suck just as badly as the startup phase does in any other small business you’re trying to get off the ground. Before the fund is established, it’s a startup like any other one.
So let’s look at the other side of the coin.
Life as an entrepreneur:
- is horrendously financially risky: entrepreneurship is a game of a handful of big winners, a bunch of people struggling to keep their heads above water, and a mass of losers. It’s much easier to play this game if you have saved up a lot of money, had a previous success, or have a spouse with steady income: otherwise it is crazy risky.
- has a horrible lifestyle: almost by definition you don’t have the resources you require to hire the people to do all the work that needs doing. Some people manage by being incredibly disciplined and focused. Others just muddle through (luck can count for a lot). Most end up sacrificing their home life to some degree. It’s like raising a child. Many times, the child just needs your help and attention, now. And there is very little you can do about that other than give the time, and postpone whatever else you were doing.
- has a high degree of control, which is a big contributor to happiness: you’re not on the sideline watching other people screw up. You get to make the decisions, that allow you to succeed or screw up based on your own choices, not some other idiot telling you want to do.
- has a lot of social recognition … if you’re one of the few big winners: you made the decisions. If it succeeds, you get the glory. Everyone knows who Jobs and Wozniak are. Nobody knows the names of the VCs who invested into them. Just remember that nobody knows who the millions of failures are.
- often has intrinsic happiness and rewards: many entrepreneurs intentionally choose to work in an area they are very passionate about. I know someone who launched a chain of grocery stores in Europe, who liked to visit the US on vacation, and go to stores there to see how they laid out their shelves. If it is more fun to wander around grocery stores and look at the shelves than it is to lie on the beach, then you’re doing something you love. And your ‘work’ doesn’t feel much like work any more. If you’re a smart founder, you’ll pick an area you have that level of passion for, so that working in the business feels like fun.
I actually had a good example of that just a half hour ago. I received a phonecall from a new IncMind customer. She was trying to figure out how to use a feature on our website, and she started telling me about her business. And it was fun for me. I like talking to people about their businesses. I like finding out about them. I like sharing my experience (in this case it was about managing investors). It was fun to hear her ‘aha’ about how much her investors liked to hear from her when she reported to them.
So that’s one joy you get as an entrepreneur: the joy of control, and the intrinsic happiness and rewards that come from running a business in a field you care about.
If what you want is quality of life and financial security, you find entrepreneurship mentally exciting and stimulating in theory, and you have the choice: be a VC instead.