As a growing number of young venture capitalists find themselves out on the street, they're having to get creative. Take Arly Kjellstad. A venture capitalist until April, he's an aspiring film producer today.
"I'm very happy to be out of the private-equity world I feel more alive and at peace than ever," says Mr. Kjellstad, founder of London-based enlighteningfilms, which hasn't yet actually produced a film. In his prior life, Mr. Kjellstad was the European director of 550 Digital Media Ventures, a venture fund backed by Sony Corp. that closed its London office last spring.
People in the private-equity world aren't exactly jumping at the chance to test Mr. Kjellstad's conclusion -- at 3i, for example, staff turnover has recently fallen to less than 2% from a typical 8% -- but many are being pushed. Mr. Kjellstad is just one of hundreds of venture capitalists in their late 20s and early 30s who have recently lost their jobs.
With little experience under their belts, these VC young guns are often the first to be laid off by venture firms feeling the pinch of the economic downturn, and the least likely to find new jobs in the industry. And so they are carving out new careers as everything from telecommunications consultants to would-be real-estate moguls.
At 3i alone, 185 people were laid off across Europe in late September. Jurgen Vanselow, a partner at executive search firm Egon Zehnder in Frankfurt, estimates there are at least 150 venture capitalists looking for work in Germany right now, many of whom lost their jobs in the past few months.
Since summer, the number of VCs knocking on the door at Egon Zehnder has grown threefold. Most have little experience, having catapulted into the sector for the first time during the boom.
"Two years ago, if you could spell 'venture capital' correctly you got a job," is how Mr. Vanselow puts it. Many of these individuals worked for a few years in consulting before being hired by venture firms caught up in the rush to expand their teams, he says. Mr. Kjellstad worked at PricewaterhouseCoopers for just a year before joining Sony.
Today, many of out-of-work VCs would like to stay in private equity, but the outlook is grim for even the best spellers. "I'm telling them very openly they should develop alternatives, because there are very, very few venture-capital jobs," Mr. Vanselow says.
That's when they really need the entrepreneurial drive they were so keen to nurture in their portfolio companies. Alex van der Velden, formerly an investment associate at the private-equity arm of J.P. Morgan Chase in London, decided there's opportunity in San Francisco real estate. (He was inspired while sitting on a beach in Australia during the six-month trip around the world he took after resigning from the bank early this year.)
He reckons the real-estate market in San Francisco is headed for a shakeout prices in the Bay Area exploded during the Internet boom. He's convinced it will be "brutally hard" to get started in a new sector in San Francisco during a recession, but he is just as sure he doesn't want to take a job at large corporation again, a prospect he finds "stifling."
The material conditions facing these former VCs vary. Usually, partners are awarded incremental amounts of the "carry" -- the percentage of profit retained by the firm -- each year they're with the firm. The longer the tenure, the larger percentage of carry they retain. John Carter, a director at 3i who was recently laid off after 14 years, says he will retain all of his. But young associates who aren't partners often are too junior to have been included in these interest-sharing plans.
Not all out-of-work venture capitalists, of course, are looking for a complete change of career. Some seek to capitalize on the experience they gained over the past two years.
Those who want to stay in private equity would do well to start learning the buyout ropes. That segment of the industry hasn't been hit quite as hard as venture-capital funds, many of which focused on technology, says Mr. Vanselow. Biotechnology funds are another option, he says -- most venture firms are jumping on that bandwagon in a big way -- but they're interested only in "very select profiles," such as mature business people who know one slice of biotech inside and out.
The good news is that being a venture capitalist can be a good preparation for many careers -- even making movies. "The similarities between venture capital and film production are huge," maintains Mr. Kjellstad.
Instead of a business plan, investors are being asked to risk money on a script, says Mr. Kjellstad, who's now working on the third draft of a script he hopes to sell to a big distribution company. "Just like in private equity, you've got to get the script as good as possible before you can get funding."