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China’s venture capital industry fails to retain young talents

Written by China Ventures Published on     6 mins read

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Dilemmas, struggles, and contentious culture exist behind the prestige of China’s VC industry.

This article first appeared on China Ventures. Oasis was authorized to translate and publish its contents. Yuqian Shi translated the article for Oasis.

China’s investment sector is cooling after hot runs in the early 2010s, tapered by capital controls and the maturation of many facets of the tech sector. Now, with the pandemic far from over, the Matthew Effect is prevalent in the investment landscape.

Millennials who joined this space with optimism or goals to become the next Masayoshi Son have been a force to contend with, but some are contending with the harsh realities of the sector. China Ventures spoke with three millennial investors and a hedge fund headhunter about their observations of the industry, why they have abandoned investing, and what they’ve learned.

A game for the rich

— Investor A (age 29, with two years of investment experience)

In early 2021, I quit my job because I no longer saw any purpose.

Some of my peers shared my misgivings about the profession. Those working for medium-sized and small funds, as I was, started to realize that their jobs ensured neither stability nor a handsome salary.

Like everyone else, I started my career with clear goals in mind. I was determined to embrace new things, find the next unicorn, and grow with talented entrepreneurs. In the past year, I have discovered a number of startups in the market and had good conversations with their founders. However, none of these projects were approved for various reasons, which caused me to miss out on good opportunities.

Many people in this business are from families with deep pockets and extensive resources, which means they can recover from investment mistakes. Those who are less privileged are more vulnerable to fluctuations in the market and more likely to be forced out, even if their predictions about up-and-coming industries are on the money.

With that said, it has been a rewarding experience. I have developed creative thinking skills and learned to look at things with an entrepreneurial mindset.

Those who are less privileged are more vulnerable to fluctuations in the market and more likely to be forced out, even if their predictions about up-and-coming industries are on the money.

A hypercompetitive industry

— Investor B (age 28, with three years of investment experience)

I joined a small venture capital firm upon completing my master’s degree, with morale running high. What appealed to me most about working in VC is the opportunity to learn about the newest innovations and expand my horizons. Whether or not there’s a profit at the end, the experience might change how I think and adapt to new challenges.

As the novelty of the job wore off, I started to see how the middle- and lower-tier firms were increasingly disadvantaged when the big ones continued to expand. It was a frustrating realization.

I used to entertain the idea of joining a larger firm, but now I don’t think it would make much of a difference. We are all just cogs in a machine; the larger institutions merely have gold-plated ones.

In this industry that implicitly encourages hustling, we find ourselves trapped in meaningless competition, working hard only to lose our sense of purpose. As our salaries climb, we think less and less about stepping out of our comfort zone.

In the past three years of working in VC, I have noticed a common theme where investors believe their knowledge is unsurpassable. However, profit usually isn’t a result of decision-making but a product of luck.

I liken it to a game of poker, where it’s possible to make a mistake and still end up winning a great deal of money. Everyone will evaluate your ability based on your results, but what they are missing is that it could have happened by accident.

Ultimately, I have benefitted from working in investment. My growth trajectory hasn’t pointed consistently upward. Rather, it has been a subtle curve that rises gradually at the beginning before going exponential later on. I can safely say that the constant accumulation of experience has played a vital role in my development.

Sometimes, I feel that I might have finally gotten the hang of it after all these years. Ironically, the path that I’ve taken to reach this point has also made me increasingly weary of the industry.

Investors are like nomads, but not in a romantic way

— Investor C (age 30, with four years of investment experience)

I started to look for jobs in other industries in May and have received several offers so far.

I decided to leave the primary market as I felt overwhelmed by the competitive pressure. If you fail to establish excellent rapport with the founder of the business you want to invest in, you may end up without a deal. In other words, you have to put lots of effort into building relationships. It is a pragmatic and purpose-driven industry, which can be exhausting.

On the one hand, it’s great to have this mutually beneficial situation where investors provide capital to entrepreneurs and receive profits as the business grows. On the other hand, you get tired of maintaining utilitarian relationships with entrepreneurs and the investment committee. There are no shortcuts to earning trust, and your trustworthiness in the eyes of others isn’t simply gauged by the number of deals you secure.

The biggest challenge in the VC industry is dealing with uncertainty. There is significant change in China’s business climate every five years, which is shorter than the average duration of funds. Investors are like nomads who constantly migrate to the newest patch of fertile land, never settling down.

Another discovery I made about the industry is that the competition is no longer about being savvier than others. It is about having more spending power. The bubble is growing, which makes it rather difficult for small funds to survive.

I know many business founders who are my age or even younger, and they have grown their companies to hundreds of millions of dollars in valuation. My progress is in no way comparable to theirs, but that’s not my main concern. I’m just aiming to do well in my job.

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Good sourcing and research are critical to investment success

— Hedge fund headhunter

Investors born between 1990 and 1995 are no longer the youngest in the industry.

In the first half of 2021, we saw more and more investors born between 1995 and 1998 enter the sector, some of whom are full of ideas and actively reach out to headhunters to inquire about the market.

At the same time, investors with over five years of experience are either jumping into other industries or joining the companies they invested in as strategic advisors.

As the Matthew Effect in the VC and private equity (PE) industries accelerates, some millennial investors have begun to join the strategic investment departments of major internet companies, which is an advisable move. After all, most small and medium-sized VC firms don’t pay their employees generously. First-tier VC/PE firms tend to prefer young people who are bright, diligent, and determined to persevere in the primary market.

When choosing a firm to work for, investors aged between 21 and 26, especially those passionate about a particular field, tend to place great importance on having a line manager who is willing to serve as a mentor. As far as they are concerned, who they work with is more important than the company’s stature.

Generally, we can attribute the success of investors in their late 20s to their skills in sourcing and research. It allows them to drill into specific niches and tap into startups that would otherwise go unnoticed.

WRITTEN BY

China Ventures

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