Too often, there is confusion between investment banking and venture capital. This isn’t helped by investment bankers’ occasional assertions that they too do venture capital. They don’t. In light of the attention both of these activities have lately received in Washington, it seems a perfect time to explain what makes them so very different.Venture capitalists work with entrepreneurs to start new companies from the ground up. We earn our reward only when companies become successful.Investment bankers are deal makers. They’re in charge of bringing companies public and advising on acquisitions. Their money is earned by the transaction, and in the fraction of the time it takes a venture capitalist to realize a profit.
I have many IB and VC friends – they’re different breeds.I think some of the confusion comes from the relationship between IB and VC career paths. Some VC’s in Canada and the US have started out in IB as Analysts and Associates. This leads many in IB’s to think a VC career is just one of the divergent paths they can take – and for some it could.But VC’s have also come from Human Resources, Government Labs, Accounting, Marketing/Sales and quite often from the leadership of successful Start-ups. The VC’s require a more ‘eclectic’ group of skills then their IB counterparts and they only make money when Value is actually created. Not a little nick off every transfer.