careers in venture capital and private equity 2008

2008 EDITION

InsIderGuIde

Careers in Venture Capital


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carEErs IN VENTUrE caPITaL

2008 EditionISBN: 978-1-58207-791-8

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All illustrations by mckibillo


chaPTEr

1 VENTUrE caPITaL aT a gLaNcE

5 ThE INDUsTry

6 Overview

6 How Venture Capital Works

9 Venture Capital Today

11 Industry Breakdown

13 Industry Rankings

13 Industry Trends

17 ThE FIrms

18 Profiles of Top Firms

41 Firm Thumbnails

321

2008 EDITION

conte nts


49 ON ThE JOb

50 The Work

50 Key Jobs

52 Real People Profiles

59 ThE WOrkPLacE

60 Lifestyle and Culture

60 Hours

61 Workplace Diversity

62 Travel

62 Compensation

63 Career Notes

63 The Inside Scoop

66 How VC Stacks Up

67 A VC’s View

69 gETTINg hIrED

70 The Recruiting Process

71 What It Takes

72 Breaking In

73 Interviewing Tips

73 Getting Grilled

74 Grilling Your Interviewer

654

conte nts

77 FOr yOUr rEFErENcE

78 Industry Lingo

81 For Further Study

7

1Venture Capital at a Glance

2 WETFEET INSIDER GUIDE

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at a GlanceOPPOrTUNITy OVErVIEW• The venture capital industry is small and admits

only a select few newcomers each year. Typically dominated by seasoned executives, many firms consist of only general partners and an administrative staff.

• It’s a bleak picture for undergrads, though a few larger firms hire young people to do some of the basic legwork and analysis.

• The field is not much better for MBAs, though a few recent MBAs have been recruited right out of business school or have started their own funds.

• Some opportunities for midcareer professionals with excellent track records in operating environments exist—especially since venture capitalists want seasoned industry veterans with bulging networks and specialized knowledge.

maJOr PLUsEs abOUT carEErs IN VENTUrE caPITaL• Work with some of the smartest people in

business.

• Witness the formation of cutting-edge businesses and technologies.

• Be relatively sheltered from politicking and favoritism—it’s the bottom line that counts.

• Make potentially dizzying amounts of money over the life of a fund.

maJOr mINUsEs abOUT carEErs IN VENTUrE caPITaL• Sink or swim. If you don’t produce, you’ll be

kicked out, with skills that are hard to transfer.

• Be prepared for little upward mobility. Advancing to partner level is difficult.

• It’s not a popularity contest. The entrepreneurs won’t always love you.

• It’s a lonely business. Many insiders miss the sense of teamwork within their companies.

rEcrUITINg OVErVIEWThe basic idea is, “Don’t call us. We’ll call you.” Firms rarely interview on campus but will go through business schools’ resume books occasionally. However, your resume alone won’t be enough. Venture capital firms are reluctant to hire someone they don’t know unless they have a strong recommendation from a trusted business associate. The industry is small and firms are very choosy.


3WETFEET INSIDER GUIDE

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2The Industry

Overview....................................... 6

How.Venture.Capital.Works.......... 6

Venture.Capital.Today.................. 9

Industry.Breakdown.....................11

Industry.Rankings....................... 13

Industry.Trends.......................... 13


Careers in Venture Capitalg

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OvervIewSand.Hill.Road,.a sedate four-lane suburban byway, climbs from the Stanford University Golf Course into the coastal hills. On either side, low office buildings cluster behind signs that read Kleiner Perkins Caufield & Byers, Mayfield Fund, and Sequoia Capital. These inconspicuous offices are the heart of the venture capital industry, where companies like Apple, eBay, Google, Sun Microsystems, and Yahoo got the startup money and advice that helped make them Silicon Valley legends.

The industry is a major shaker in the U.S. economy, funding companies developing technological and service innovations long before they become mainstream. Companies that received venture funding between 1970 and 2003 accounted for 10.1 million jobs and $1.8 trillion in revenue—that’s almost 10 percent of the total U.S. jobs and revenue, according to a study conducted by Global Insight. This is an impressive impact for what insiders describe as a “cottage” industry.

Although VC firms are major shakers in the economy, they aren’t major recruiters. General partners within the VC industry achieve wealth and satisfaction funding companies in nascent industries and watching them grow, but breaking into the industry is notoriously difficult. This guide provides a roadmap for those who choose to try.

ThE bOTTOm LINEVenture capital firms are selective, and finding a job with one requires good luck. It’s hard to target a specific VC company for a job, because the firms are small and there’s no formula for landing a position—these guys don’t recruit on campus or set annual recruiting targets like management-consulting firms and investment banks do. To have a shot at a job, you’ll need industry experience, such as operating experience at a software or biotechnology firm. “Go somewhere where you can build a base of judgment and behavior in business, and excel in some capacity,”

says a VC. “Be the product manager of the best, newest PDA. It doesn’t have to be a small company. Interact with thought leaders, take risks, and succeed where there is something to be gained.” Cultivate the contacts you make while in your role and build your Rolodex: Relationships are everything in this industry. Finally, if you’re hell-bent on a career in VC, don’t give up. You’ll need to be strategic and smart about looking for opportunities, but if you are, you will find a way to break in.

INSIDER SCOOP“The way to gain access to this industry is to do something great that’s visible to people in this industry. There’s not a lot on your resume that will tell whether you will do well in venture capital.”

HOw venture capItal wOrksUnderneath.their.moneyed.mystique, venture capitalists are essentially glorified middlemen, and their modus operandi is easily explained. In a nutshell, a VC firm acts as a broker for institutional or “limited partner” investors, such as pension funds, universities, and high-net-worth individuals, all of which pay annual management fees to have their money invested in high-risk, high-potential-yield startup companies.

After amassing a certain sum from the limited-partner investors—usually between $10 million and $1 billion—the VC firm parcels out the fund to a portfolio of fledgling private companies, each of which hands over an equity stake in its business. In other words, the VC industry is predicated on a simple swap of the VC’s financing for an ownership stake in the company’s success, often (but by no means always) before the company has begun generating revenue.

Because the VC firm has a vested interest in the


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startup’s success, partners generally sit on its board of directors, offering advice and additional resources to help the business grow. If the startup merges with or is bought out by a larger company or goes public, any windfall is divvied up between the company, the VC firm, and the limited-partner investors. Typically, the VC firm distributes 70 percent to 80 percent of the return on its investments to the various limited partners and keeps the rest for itself.

a gamE OF rIskAside from the prospect of stumbling upon the next eBay, what makes venture capital so exciting is that it comes with no guarantees. Venture capitalists, institutional investors, and entrepreneurs must all be wary of the risk incurred by investing in startups. Although it’s not unusual for limited partners to double their money through venture investments, they generally entrust only a small portion of their total assets to the VC firm, so that if the fund tanks, they’ll remain solvent.

On the other end of the deal, entrepreneurs who accept venture capital often have to contend with pressure from their VCs, who have their own ideas about what’s best for the startup. VC-funded companies that manage to get off the ground must go through several grueling rounds of fundraising to make it to an IPO. Even then, there’s a chance that they’ll flop. The savviest venture capitalist must be patient if he or she hopes to turn a couple of entrepreneurs

in a garage into a publicly traded company. VCs can generally expect to stick around for four to seven years before realizing a return on their investment.

ThE ENTrEPrENEUr’s PErsPEcTIVEAlthough VCs like to imagine themselves as the heroes of the entrepreneurial world, entrepreneurs often have a different view. To give you a feel for this love-hate dynamic, we interviewed an entrepreneur about her experience working with VC investors.

Shelly (not her real name) conceived of a great idea for a business, put together a plan, borrowed some money from her family to get the business going, and worked with contract employees and suppliers to develop a prototype product. She quickly realized, though, that she would need more capital.

Using contacts she made in graduate school, Shelly sought advice and potential investors. She originally targeted private investors, but a VC who was reviewing her plan called her and said he would match any private financier’s offer. Shelly went for the VC money because she knew funding from the VC firm would bring prestige and credibility and make it much easier to raise future financing.

The VC industry is predicated on a simple swap of the VC’s financing for an ownership stake in the company’s success, often before the company has begun generating revenue.

π Is Vc rIghT FOr yOU?

VC firms look for a specific profile—highly business-oriented individuals with blue-chip backgrounds. If you fit that ideal and aren’t afraid of high-risk investing, venture capital may be for you. Still, once you’re in, there’s no guarantee you’ll succeed: For every eBay, there are plenty of flops most people never hear about. If you do make it, however, you’ll

be involved in some of the most exciting and stimulating work anywhere. You’ll be dealing with bright, motivated people intent on turning visions into successful companies. And you’ll reap major rewards: a hand in launching innovative companies, an intimate view of intriguing industries, and, of course, healthy financial compensation and fringe benefits.



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Why did the VC firm select her project out of the thousands of proposals it received that year? According to Shelly, it believed she had the skills and personality to make it as an entrepreneur. Also, she was introduced to her investor by a credible source, probably someone well known to the investor. (Shelly says that just sending in a proposal to a venture capital firm won’t get you anywhere.)

Negotiations over terms went smoothly, except for a small wrangle over dilution of stocks. She said the lesson here is that, once the initial terms are laid out, VCs will try to do anything to protect their price.

As soon as Shelly got her money, she began hiring. The company got good press and put its product development into high gear. The VCs were pleased and kept pushing her to hire faster and grow as quickly as possible. Shelly saw that she was going to run out of money if she kept growing at this rate, so she got a bridge loan to last her until the next valuation.

Nine months after the first round, Shelly’s board

decided it needed a new round of venture investment. This time it got offers from multiple firms, but all at the same low valuation, suggesting to Shelly that VC firms talk to each other when bidding on the same company. She chose firms that were allied with strategic partners and closed a deal with the partner at the same time she closed the financing.

Armed with more money, the business continued to grow and hire, but problems cropped up. Many of the early employees hired by the board didn’t work out, and turnover increased. Meanwhile, the company’s management thought that the VC firm’s attention was directed elsewhere. Indeed, they complained that the VC’s added value was limited mostly to headhunter introductions.

As the company raised an additional and substantially larger round of funding at a much higher valuation from an outside group of companies, relations with the management team and original VC firm worsened. Despite the fact that these second-

π a cONTEmPOrary hIsTOry OF Vc

From 1980 to 1995, VCs raised $2 billion to $4 billion a year. In the late 1990s, the number and size of venture-backed IPOs soared, reflecting the tremendous performance of the NASDAQ. Rates of return, which had quadrupled for venture-backed companies, seduced even the top VC veterans into a gold-rush mentality. In 2000, some 20 firms were raising $1 billion in funds, thinking the Internet bubble would never burst. There was competitive pressure to do more deals, grow portfolio companies fast, and get them to market as quickly as possible. Suddenly, an industry that had been small for years was huge.

In 2000, VC investments reached a peak of $68.8 billion, up 80 percent from the $35.6 billion

invested in 1999. VCs seemed constitutionally unable to do wrong. From 1996 to 2001, the number of venture capital funds grew nearly 60 percent, from 422 to 669. In 2000, the year the industry peaked, more than 8,000 companies divided more than $106 billion. Then the bubble popped, and the industry contracted.

In the fourth quarter of 2000, the VCs industry saw its first negative quarterly return (–6.3 percent) since 1998. In 2001, venture investments dropped 65 percent as the stock market downturn slammed the IPO window shut and slashed valuations of both public and private companies. In 2002, VC made 3,042 deals compared with 4,643 deals in 2001; this

constituted barely more than half ($21.2 billion) the amount invested in 2001.

VCs felt the pinch. A number of leading firms reduced the size of their funds, returning money to investors. Several investors invoked clawbacks, contractual obligations requiring venture capitalists to pay back the investor’s principal before it could lay claim to the fund’s profits. The number of professionals in the industry shrank in 2002 and 2003, with numerous firms cutting staff and closing offices. Investment banks, including Bank of America, Deutsche Bank, and Goldman Sachs, closed their Silicon Valley offices in 2002 and 2003.


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round companies had provided much more funding, the original VCs held the balance of power on the board (a common frustration at many VC-funded companies).

When sales for the next period came in below forecast, things turned ugly. The company cut staff, and after a period of contentious wrangling between the senior management team (which included a number of people brought in by the board) and Shelly, she gave an ultimatum: “Get rid of some of the executives, or I’m out.” The board backed the other executives, and Shelly left but retained her seat on the board.

When the company was flying highest, it looked as if a public offering or acquisition was on the horizon. These opportunities disappeared when the company ran into problems, but the game is not over yet. The firm may still reach liquidity if it can retrench.

Shelly offers the following advice for others working with venture capital firms:• It’s a great way to go, but make sure you research

your VC firm and board members carefully. Conduct due diligence on them the way you would with top hires.

• Understand that there are times when you and your VCs will have different motivations. VCs are happy only if the company goes public or is acquired; but for an entrepreneur, not selling out to another company can produce significant returns. VCs have a portfolio strategy and want to increase their stake by growing quickly so that winners will pay off in a big way.

• Don’t let your VCs push you around. In the end, the company is your creation—and your responsibility.

venture capItal tOdayFollowing.the.dotcom.bomb, the VC industry suffered a series of subpar years (see the sidebar “A Contemporary History of VC”). But with VC volume investment in the second quarter of 2007 posting at its highest level in six years, The New York Times could report “Silicon Valley is back” in June 2007.

The industry began improving in 2004 when investment figures started a steady climb. Decidedly positive postings in the second quarter of 2007 only confirm the industry’s continued recovery: $7.1 billion in 997 deals—the highest number of deals in a quarter since Q3 ’01. Much of this increase is due to seed and early-stage companies, which saw investment increase 31 percent between the first and second quarters of 2007.

Notably, the deals were spread across industry sectors, from biotechnology to IT services and telecommunications. That’s good news, according to Mark Heesen, president of the National Venture Capital Association. “Not only does the increase in seed and early–stage deals demonstrate the number of young, promising opportunities available, but the diversity of investment strongly suggests that the prospects for innovation are all around us,” he says.

That these investments were for lower average dollar amounts than previous quarters doesn’t worry Heesen. In fact, he implies the decline shows “that venture capitalists are being very measured about how much money they invest per company.” That approach stands in marked contrast to the gold-rush mentality that overtook the VC industry during the dotcom boom.

Other positive signs in venture capital include strong quarterly showings in a number of investment sectors during Q2 ’07. Software had its most robust quarter since 2001, with $1.5 billion going into 248 deals, making it the single largest industry sector for the quarter; biotech had held that title in the preceding three quarters. Activity in the biotech and medical



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devices industries, which are sometimes lumped together as “life sciences,” was also noteworthy. The life-sciences sector displayed the highest quarterly dollar amount at $2.6 billion, and deal volume hit an all-time high. The “clean-tech” sector, which incorporates the alternative energy, recycling, and conservation industries, also reported gains, with $451 million feeding 44 deals.

A decrease in deals and dollars for Internet-specific companies was heralded as good news. Fears of a

new “bubble” had been stoked when $1.4 billion went into 177 deals in the first quarter of 2007, but the downturn in the second quarter ($897 million into 160 deals) quieted nerves. The media and entertainment sectors, along with financial services and health care, also saw declines in deal and dollar volumes—the third consecutive quarter in which the media and entertainment industry posted a slide.

The following table breaks down the industry by investment sector.

Top Four U.s. Vc Investment sectors in second Quarter 2007

Industry amount ($m) share of Total Vc Invested (%) No. of Deals

software 1,529 21.5 248

biotechnology 1,177 16.5 120

medical devices and equipment 995 14.0 103

Industrial/energy 552 7.8 67

Sources: MoneyTree Report (PricewaterhouseCoopers/NVCA/Thomson Financial), WetFeet analysis


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Industry BreakdOwnThe.venture.capital.world comprises only a few hundred small firms, usually employing two to 40 people. These firms include the famous players—such as Bessemer Venture Partners, Kleiner Perkins Caufield & Byers, and Mayfield Fund—and others, some of which are listed in the “Industry Rankings” table that follows this section. At first glance, these firms appear to be remarkably similar. They have few employees and lots of money to invest in entrepreneurial ventures, and they all want to be part of the next phenomenally successful startup. Although the firms compete aggressively for deals, they also often combine into syndicates and invest in favored startups as teams.

Despite these shared characteristics, each firm has adopted its own approach to succeeding in the competitive and risky world of startup financing. Firms differ in fund size, regional focus, industry focus, and stage of investing.

You can find venture capital firms in cities as varied as Austin, Texas; Fort Lee, New Jersey. and Kirkland, Washington But northern California (Silicon Valley) VC firms have been responsible for the greatest number of investments, followed by those in greater New York and New England.

Although some firms specialize in low-tech investments, most VC firms have focused on technology-intensive fields, such as software, biotechnology, and telecommunications—forgoing traditional investment areas, such as manufacturing—with alternative energy and Web 2.0 technologies, including social networking, gaming, and entertainment, gaining ground in 2006.

Divisions of large corporations, affiliates of investment banks, buyout firms, venture-leasing companies, small-business investment companies, and other wealthy private investors also evaluate, fund, work with, and sell entrepreneurial organizations looking for capital. Here’s a breakdown by investment stage and firm type.

INSIDER SCOOP“This is a relationship business. It’s knowing entrepreneurs; it’s knowing venture capitalists, so that when something interesting comes along, you’re in the deal.”

PrIVaTE Vc FIrms Early- to Midstage Firms in the early- to midstage segment follow the classic VC model: Find an entrepreneur with a great idea for a business in a fast–growing sector of a large market, bake for several years, then sell for a hefty chunk of change. VCs have various ways of weighting the timing, technology/processes that offer a competitive edge, and quality of the team. Early-stage (or seed) investments are the riskiest, since many startups tank. Still, they often provide the highest returns, because investors coming in early can pay a lower price for a given share of equity.

Mid- to Late-Stage Mid- to late-stage firms, many of which also operate at the seed level, provide funds to established companies—those that have a product, sufficient employees, and perhaps even revenue. At these stages, firms inject more capital into the company to help it become profitable so that it will attract enough interest to be acquired by a larger company or to go public.

grOWTh bUyOUT FUNDsSome VCs have moved into growth buyouts of larger private companies or divisions of public companies. These funds invest larger amounts of capital—up to $100 million—in exchange for a significant minority or majority position in the company. By focusing on stable, growing (and often profitable) companies, buyout funds don’t have to wait long before they can cash in on the company’s IPO or sale. There’s less risk, unless market factors cause the delay of an IPO, for example. The funded company and its earlier investors benefit from having a prestigious late-stage investor add credibility on Wall Street come IPO time.



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FINaNcIaL sErVIcEs FIrmsWhere there’s money, of course you’ll find investment bankers. Banks such as Citicorp and Morgan Stanley will invest in the later stages. The aim is pretty much the same as that of the VCs: Make a killing through an IPO or an acquisition.

cOrPOraTE FUNDsAs opposed to private funds, whose primary goal is monetary gain, corporate funds have the added goal of strategically investing in companies whose business relates in some way to the corporation’s own. Microsoft, for instance, invested in Qwest Communications, a telecom company that was building a fiber-optic network, to help it deliver Windows NT–based software.

The following tables break down the industry by stage of development.

Investments by stage of Development, 2005–06

stage 2005 ($m) 2005 Deals 2006 ($m) 2006 Deals

startup/seed 813 216 1,109 326

Early stage 3,708 810 3,981 897

Expansion stage 8,798 1,105 11,484 1,341

Later stage 9,774 996 9,772 989

Source: MoneyTree report (PricewaterhouseCoopers/NVCA/Thomson Financial)

Vc Investment by stage, second Quarter 2007

stage amount ($m) share of Total Vc Invested (%)

startup/seed 221 3.1

Early stage 1,388 19.5

Expansion stage 2,377 33.4

Later stage 3,142 44.1

Sources: MoneyTree report (PwC/NVCA/Thomson Financial), WetFeet research


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Industry rankInGsCompanies.in.the.venture capital arena aren’t as easily ranked as companies in other industries are. One reason is that VC firms are fairly secretive about their results and, as privately held companies, aren’t required to disclose them.

This table shows which firms were most active in the second quarter of 2007.

Industry trendssTarTUP aND LaTEr-sTagE INVEsTINg UPIn the second quarter of 2007, startup and early-stage investments were stronger than at any time since 2001, in terms of both dollars and number of deals. This continues a trend that began in 2005, when startup and early-stage investments almost doubled from 2004, and shows an improving market for startups.

Despite increasing investment going to early-stage companies, companies looking for later–stage and expansion funding received the lion’s share of investment—44 percent and 33 percent in the second quarter, respectively. This trend remained consistent from 2006, when expansion and later-stage investments took the majority of dollars invested—$11.5 billion and $9.8 billion, respectively. Combining dollar amounts from the first two quarters of 2007, expansion-stage investments total $5.3 billion, with later-stage investment totals at $6.3 billion.

ExIT markETs EVOLVEAlthough there were memorable IPOs in 2006, such as Northstar Neurosciences’ $106 million offering and Vonage Holdings’ $531 million one, they were sporadic, with VCs primarily seeking profits through the sale of their portfolio companies. This is partly because standards for IPO exits are higher than they have been in the past. VCs want $20 million in revenue, not $2 million. That kind of profit typically demands more capital up front, and more capital up front requires higher exit valuation to produce the same return on investment (ROI).

Companies that don’t go public are priced lower because buyers aren’t competing with public market valuations, which are usually higher than private ones. With biotech companies, where clinical-trial processes can slow the IPO track considerably, exit times are even longer, lowering ROI. VCs invest more cautiously

most active Venture Investors, Q2 07

Firm Number of Deals

Draper Fisher Jurvetson 25

Intel capital 24

New Enterprise associates 17

Foundation capital 16

InterWest Partners 16

sevin rosen Funds 16

U.s. Venture Partners 15

VantagePoint Venture Partners 14

Venrock associates 14

sequoia capital 13

alta Partners 13

accel Partners 13

menlo Ventures 12

kleiner Perkins caufield & byers 12

Domain associates 12

khosla Ventures 12

highland capital Partners 12

Pequot capital management 12

morgenthaler Ventures 12

Source: MoneyTree report (PwC/NVCA/Thomson Financial)



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in these businesses, analyzing more closely their strengths and weaknesses.

On the plus side, this kind of careful approach lessens the chances of a bubble ballooning—and bursting—in today’s economy. It also creates a level playing field for entrepreneurs. Unlike the dotcom days, no one industry sector is hogging investment dollars. This means entrepreneurs in a range of industries, and who boast solid management teams and business plans, stand a greater chance of securing funds.

cOzy TEmPEraTUrEs acrOss ThE bOarDIs an industry hot? Is it not? Those kinds of questions aren’t as prevalent in today’s VC circles. Investors now tend to distribute fewer dollars across more industries, and single-industry domination (dotcom startup, anyone?) is no longer the rule. To be sure, certain sectors are more popular than others—clean-tech investments between 2005 and 2006 increased 45 percent, with investment totals in 2005 double those of 2004. Clean tech looks to be just as strong in 2007, so clearly some industries are fashionable investments.

But even within those industries, diversification is occurring. For example, life sciences, a strong sector for many quarters running and which includes the biotech and medical devices industries, saw medical devices investments increase 58 percent between Q1 and Q2 ’07, with biotech investments equally robust. Diversification can be tracked in clean tech as well, with investments in advanced specialty materials and chemicals gaining more attention, suggesting clean–tech investments are expanding beyond producers of energy and energy products.

Diversification in venture capital extends to geography as well, with China and India continuing to attract attention. Sequoia Capital made headlines in 2007 when its India office raised a $300 million fund, but that kind of financing remains the exception to the rule. Contrary to popular belief, U.S.-based firms aren’t rushing to invest overseas. Citing the 2007 Global Venture Capital Survey, Heesen told EE Times Asia that U.S.-based respondents to the survey claimed less than 5 percent of their capital is invested overseas. They’re “essentially dabbling in global markets,” he said.

tIp>Read the blogs written by venture capitalists—you’ll find a list in the “For Your Reference” section of this guide. Burnham’s Beat, Due Diligence, Feld Thoughts, and others will show you how VCs think, as well as what’s hot in the industry.


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3The Firms

Profiles.of.Top.Firms................... 18

Firm.Thumbnails........................ 41



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arcH venture partnersARCH Midwest8725 West Higgins Road, Suite 290Chicago, IL 60631Phone: 773-380-6600Fax: 773-380-6606

ARCH Northwest1000 Second Avenue, Suite 3700Seattle, WA 98104Phone: 206-674-3028Fax: 206-674-3026

OVErVIEW With offices in Austin, Chicago, San Francisco, and Seattle, ARCH goes where few venture firms dare to tread—the ivory towers of academia and the cluttered realms of national laboratories. The firm, which was spun out of the University of Chicago, builds companies on ideas that emerge from universities. The firm also has been successful doing deals with research programs at large corporations, such as Array BioPharma, which ARCH helped spin out of Amgen.

ARCH currently manages six funds totaling more than $1 billion, with investments in more

than 110 companies. Its most recent fund of $350 million was closed in 2004 and focuses on seed and early-stage companies that come out of universities. ARCH counts among its success stories Alnylam Holdings, which makes RNA interference–based pharmaceuticals; Nura, a biopharmaceutical company acquired by Omeros in September 2006; and Xcyte Therapies, a biotech company that develops therapeutic products designed to enhance the immune system for cancer treatments.

π aT a gLaNcE

Key Factsπ Focuses on information technology, life sciences,

and physical sciences.π 95 percent of investments are at seed or startup

stage.π Initially was a part of ARCH Development Corp.

Key Financial Stats Capital under management: More than $1 billion Minimum investment: Not available Preferred investment: Expects to commit $10 million to $15 million to a company over the life of a deal

Personnel Number of professionals: Seven managing directors, two principals, four venture partners, one scientific adviser, and one affiliate

prOfIles Of tOp fIrmsThe venture capital firms listed here are merely representative of the many firms in business. For information on others, see Pratt’s Guide to Private Equity Sources at your library or visit www.nvca.org.

ARCH Southwest6300 Bridgepoint ParkwayBuilding One, Suite 500Austin, TX 78730Phone: 512-795-5830Fax: 512-795-5849

ARCH West 1700 Owens Street, Suite 535 San Francisco, CA 94158 Phone: 415-565-7103 Fax: 415-565- 7101 www.archventure.com


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accel partners428 University Avenue 16 St. James’s Street Palo Alto, CA 94301 London SW1A 1ER Phone: 650-614-4800 United Kingdom Fax: 650-614-4880 Phone: +44-20-7170-1000 Fax: +44-20-7170-1099 www.accel.com

OVErVIEW With Jim Breyer and J. Peter Wagner leading the way, Accel Partners has enjoyed spectacular returns with several successful IPOs, including that of UUNet, a Web service provider and one of the first Internet companies backed by a VC firm. Accel has been in business for more than 20 years and has had a hand in more than 200 companies. With investors that include prominent companies—such as Dell, Disney, General Motors, and Microsoft—it has worked with a variety of IT startups, including RealNetworks, and enterprise software players, such as Agile Software and Remedy. Accel’s software portfolio includes BB&T, Lightspan (now a part of Plato Learning), and Walmart.com.

In 2001, Accel Partners closed its Accel Europe Fund of $500 million and, with private equity firm Kohlberg Kravis Roberts, formed a venture, called Accel-KKR Telecom, to focus on telecommunications industry investments. Accel-KKR filed to form its second fund in early 2005, with a $400 million target. Accel closed its ninth fund in 2004, with $400 million in limited–partner commitments, and in 2005 Cisco acquired Accel-backed Topspin Communications, while Juniper Networks acquired Accel-backed Kagoor Networks.

In 2005, Accel invested $13 million in the popular social networking site Facebook.

π aT a gLaNcE

Key Factsπ Focuses on only two sectors: networking and

software.π Invests in all stages.π Three partners from Accel made the Forbes

2007 Midas List of top tech VC investors: James Breyer (ranked 43rd), Arthur Patterson (64th), and J. Peter Wagner (68th).

Key Financial StatsCapital under management: More than $4 billion Minimum investment: Less than $100,000 Preferred investment: No preference

Personnel Number of professionals: 12 investment partners in Silicon Valley and seven in London; nine development partners in Silicon Valley and two in London



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Battery venturesReservoir Woods 930 Winter Street, Suite 2500 Waltham, MA 02451 Phone: 781-478-6600 Fax: 781-478-6601

OVErVIEWA midsize firm, Battery was founded back in 1983. Unlike some of its major competitors, which rely heavily on partners for deal flow, Battery Ventures has an active group of associates and analysts pounding the pavement to generate and evaluate a large number of investment leads. It has invested in more than 180 companies, including Allegiance Telecom (acquired by XO Communications), Akamai Technologies, Infoseek (now a part of Disney), Fore Systems (merged into Marconi Communications), Nextel, and Witness Systems. In 2007, Battery closed its $750 million eighth fund, and saw MetroPCS, which it invested in early, go public in a $1.15 billion IPO, the largest IPO of the year at the time.

Battery takes a balanced approach to investing in all stages of a company’s growth. Currently, about a third of its capital goes to startups, a third to emerging companies, and a third to later-stage deals such as buyouts.

π aT a gLaNcE

Key Factsπ Focuses on communications, software,

infrastructure technologies, Internet and digital media, semiconductors, financial services, tech-enabled businesses, and clean-tech sectors.

π Two-thirds of all Battery investments have yielded profitable returns, resulting in a record of consistent top-quartile performance within the VC industry.

π In 2007, general partners Scott Tobin and Kenneth Lawler made the Forbes Midas List of top tech VC investors, ranked 50th and 61st, respectively.

Key Financial Stats Capital under management: $2.9 billion Minimum investment: $300,000 Preferred investment: $5 million to $25 million

Personnel Number of professionals: 12 general partners, five partners, one venture partner, 13 investment professionals, four family office professionals, and eight operations professionals

2884 Sand Hill Road, Suite 101Menlo Park, CA 94025Phone: 650-372-3939Fax: 650-372-3930www.battery.com


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BencHmark capItal manaGement2480 Sand Hill Road, Suite 200 Menlo Park, CA 94025 Phone: 650-854-8180 Fax: 650-854-8183

OVErVIEW One of a new breed of VC firms, Benchmark was founded in 1995 to challenge the industry status quo. Among its founders are Andy Rachleff, a veteran VC of AOL and Nortel Networks, and Robert Kagle, who made $170 million on eBay. The Benchmark partners work as a team, rather than in the typical model in which partners invest and operate independently. Benchmark immediately hit the big time with Ariba, eBay, and Palm. Today its high-profile clients include Yelp, Zillow.com, and Zipcar.

Most of the firm’s limited partners are drawn from charitable foundations and university endowments, including the Ford Foundation, the Hewlett Foundation, and Yale University. In 2000, it raised a $220 million Israeli fund and a $750 million European fund, later reducing the amount of its European fund to $500 million. Its fifth U.S. fund, for $400 million, was oversubscribed and closed in June 2004. Cofounder Andy Rachleff went part-time with this fund, taking on the title of partner and reducing his activity in its investments.

In 2006, Peter Fenton from Accel Partners joined Benchmark as a general partner and has been instrumental in doubling the size of the firm’s entrepreneurs in residence.

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Key Factsπ Invests in early-stage companies in the enterprise

software and services, communications, semiconductor, mobile computing, consumer, and financial services industries.

π Maintains a high partner-to-capital ratio by limiting the number of companies in which it invests.

π Two partners—Bill Gurley and Peter Fenton—made the Forbes 2007 Midas List of the best tech investors (ranking 53rd and 94th, respectively).

π In 2006, won the WilmerHale Venture Capital Fund of the Year award, from the Investor AllStars.

Key Financial StatsCapital under management: $4 billion Minimum investment: $100,000 Preferred investment: $3 million to $5 million initially; $5 million to $15 million over the life of a company

PersonnelNumber of professionals: 17 general partners, three partners, one venture partner, four entrepreneurs in

20 Balderton StreetLondon W1K 6TLUnited KingdomPhone: +44-020-7016-68-00Fax: +44-020-7016-68-10www.benchmark.com



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Bessemer venture partners83 Walnut Street Wellesley Hills, MA 02481 Phone: 781-237-6050 Fax: 781-237-7576

535 Middlefield Road, Suite 245 Menlo Park, CA 94025 Phone: 650-853-7000 Fax: 650-853-7001

1865 Palmer Avenue, Suite 104 Larchmont, NY 10538 Phone: 914-833-9100 Fax: 914-833-9200 www.bvp.com

OVErVIEWComfortably ensconced in the leafy suburb of Wellesley, Massachusetts, Bessemer traces its roots back to 1911, when steel titan Henry Phipps founded Bessemer Securities. Phipps, Andrew Carnegie’s business partner, left behind a sizable stash of money to be invested. Today, the partners don’t have to spend any time raising cash, since funds come from the Phipps family’s endowment.

Bessemer prefers to lead the first institutional round of equity, but sometimes participates in later rounds and makes seed-stage investments. Some of its successes include Blue Nile, HotJobs, Skype, and VeriSign, but it’s also had some notable mistakes; check out its website for its “anti-portfolio”—companies including Apple, eBay, FedEx, and Google—that it could have invested in but didn’t. Current investments include LinkedIn, Silicon Valley Solar, and Yelp. Its seventh global fund, for more than $1 billion, was oversubscribed and closed in July 2007.

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Key Factsπ Focuses on network security, multienterprise

software, financial software, storage, wireless data, components and semiconductors, and network systems.

π One of the longest-standing VC firms in the country, Bessemer has invested in a wig company, a french fry company, and the Lahaina, Kaanapali & Pacific Railroad.

π The firm played a role in establishing or building such heavyweights as Ingersoll-Rand, International Paper, and W.R. Grace.

π In 2005, David Cowan was named one of the Top 5 Web 2.0 Venture Capitalists by TechCrunch for investing in companies such as Flock, Revver, Skype, and Yelp.

π Four partners from Bessemer made the Forbes 2007 Midas List of top tech VC investors: Felda Hardymon (5th), Robert Stavis (6th), Robert Goodman (51st), and David Cowan (54th).

Key Financial Stats Capital under management: More than $2 billion Minimum investment: $100,000 Preferred investment: $4 million to $10 million

Personnel Number of professionals: Five managing partners, nine partners, seven operating partners, two vice presidents, three entrepreneurs in residence, 11 associates, five analysts, and five operations


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ccmp capItal advIsOrs245 Park Avenue, 16th Floor New York, NY 10167 Phone: 212-600-9600 Fax: 212-599-3481

OVErVIEWFormerly serving as the buyout and growth equity arm of J.P. Morgan Partners, CCMP Capital was spun off from its parent in August 2006 (along with Panorama Capital, which focuses on biotech and high-tech investments). The firm still specializes in private equity, and focuses on six core industries: consumer, retail, and services; energy; health care; industrial; and media and telecom. Since 1984, the principals of the firm (under the J.P. Morgan Partners banner until this year) have invested more than $10 billion in more than 375 buyout and growth equity transactions.

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Key Factsπ Key investments include AMC Entertainment,

JetBlue Airways, Kinko’s, and Seagate Technology Holdings.

π Invests in companies in North America, Europe, and Asia.

Key Financial StatsNot available

PersonnelNumber of professionals: 15 managing directors, six principals, one president, eight vice presidents, one chairperson, two senior members, one general counsel, 16 associates, three analysts, and one office manager

Almack House 28 King Street London SW1Y 6XA United Kingdom Phone: +44-207-389-911 Fax: +44-207-839-2192www.ccmpcapital.com



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crOsspOInt venture partnersThe Pioneer Hotel Building 2925 Woodside Road Woodside, CA 94062 Phone: 650-851-7600 Fax: 650-851-7661www.cpvp.com

OVErVIEWCrosspoint was founded by John Mumford in 1970, while he was still in business school at Stanford. The company saw major profits from many of its Web-related ventures, including Juniper Networks, though unlike many other funds it had the foresight to stay away from consumer e-commerce companies.

Mumford is on record saying he hopes to retire soon, and there have been some questions about the firm’s succession planning. Currently, Crosspoint is not accepting new project proposals.

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Key Factsπ Prefers to invest in early-stage e-business

services and broadband infrastructure companies.

π Crosspoint’s values include “Seek the truth no matter how painful,” “Do something inspiring,” and “Our dreams are ridiculous, so laugh and enjoy them.”

π With offices in Northern and Southern California, the firm concentrates its investments on the West Coast.

Key Financial Stats Capital under management: $2 billion Minimum investment: Not available Preferred investment: Up to $50 million

Personnel Number of professionals: Five partners, one chief administrative partner, and one general partner emeritus

18552 MacArthur Boulevard, Suite 400 Irvine, CA 92612 Phone: 949-852-1611 Fax: 949-852-9804


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GreylOck manaGement880 Winter Street, Suite 300 Waltham, MA 02451 Phone: 781-622-2200 Fax: 781-622-2300

OVErVIEW Greylock was founded in 1965 by Bill Elfers and Dan Gregory. Initially, six prominent families and seven universities—Dartmouth, Duke, Harvard, MIT, Princeton, Stanford, and Yale—committed $9 million to Greylock. In 2005, the firm closed its 12th fund, the $500 million Greylock XII Fund. Portfolio successes include DoubleClick, Red Hat, Vertex Pharmaceuticals, and Xros (acquired by Nortel).

The firm takes an approach in which the entrepreneur is the “star” and the firm is the “invited guest,” focusing on capital-efficient businesses. Greylock’s current focus is on early-stage investments in communication, consumer, Internet, and enterprise information technologies. It invests in Israeli, European, and U.S. companies. Recent investments include CipherTrust, LinkedIn, Oodle, and Tabula.

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Key Factsπ Greylock partner David Strohm was ranked 44th

on the Forbes 2007 Midas List of top tech VC investors.

π Greylock has supported 300-plus companies, more than 125 of which have become publicly held and 100 of which have merged with other companies.

Key Financial Stats Capital under management: More than $2.2 billion Minimum investment: $500,000 Preferred investment: $20 million

Personnel Number of professionals: 14 partners, one recruiting partner, one principal, three associates, one administrative partner, one analyst, and a chairperson

2929 Campus Drive, Suite 400San Mateo, CA 94403Phone: 650-493-5525Fax: 650-493-5575www.greylock.com



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1 Lombard Street, Suite 300 San Francisco, CA 94111 Phone: 415-979-9600 Fax: 415-979-9601www.humwin.com

OVErVIEW Established in 1989 by John Hummer and Ann Winblad, Hummer Winblad Venture Partners was the first venture capital firm to invest solely in software companies. Yet, in addition to working with many companies that develop applications, infrastructure, business and consumer networks, retailers, and utility software, Hummer Winblad joined the e-commerce rush as well. The firm suffered some highly visible failures, such as Gazoontite and Pets.com, and Hummer is on record as calling the firm’s 1999 fund “a disaster.” The firm’s fifth and current fund, with $428 million, closed in 2001, and as of spring 2005, $153 million had been invested. Hummer Winblad is not planning to raise more money for another two years and has focused again primarily on software.

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Key Factsπ Invests in software companies at all stages,

though prefers early stage.π Portfolio company Omniture went public in May

2007.

Key Financial StatsCapital under management: More than $500 million Minimum investment: $100,000 Preferred investment: $100,000 to $5 million

Personnel Number of professionals: Six partners, one CFO, and two principals

Hummer wInBlad venture partners


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InstItutIOnal venture partners3000 Sand Hill Road Building 2, Suite 250 Menlo Park, CA 94025 Phone: 650-854-0132 Fax: 650-854-2009www.ivp.com

OVErVIEWBack in 1952, after receiving his MBA from Stanford, Reid Dennis invested $20,000 in Redwood City’s Ampex. Twenty-two years later, Dennis raised $19 million from six institutions and formed the firm Venture Associates, which later became IVP. IVP has backed more than 200 companies, including more than 80 that have completed IVPs and 25 that have been successfully acquired. The firm closed its 12th fund in May 2007, a $600 million later-stage fund and the largest in the firm’s history.

IVP boasts a historical portfolio of successes like the chip companies Cirrus Logic and MIPS Technologies, hard drive company Seagate Technology, networking company Wellfleet Communications (absorbed into Nortel Networks), and Foundry Networks. It has backed startups that include Ask Jeeves (bought out by IAC/InterActiveCorp), Biopsys (acquired by Johnson & Johnson), LSI Logic, and Transmeta. In 2005, it invested in Business.com, and in 2006 portfolio company Vonage went public.

π aT a gLaNcE

Key Factsπ Invests in early-stage and select late-stage

companies.π Focuses on communications and wireless,

Internet and digital media, and enterprise IT companies.

π Has funded more than 200 companies, with more than 80 IPOs.

π IVP partner J. Sanford Miller was ranked 49th on the Forbes 2007 Midas List of top tech VC investors.

Key Financial Stats Capital under management: More than $2.2 billion Minimum investment: Not available Preferred investment: $5 million to $10 million

Personnel Number of professionals: Six general partners and three investment professionals

2 Embarcadero Center, Suite 1680 San Francisco, CA 94111 Phone: 415-765-9393 Fax: 415-434-1903



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Intel capItal2200 Mission College Boulevard, RN6-37 Santa Clara, CA 95052-8119 Phone: 408-765-8080

Carrington House 126-130 Regent Street London W1B 5SE United Kingdom Phone: +44-0-207-292-8782 www.intel.com/capital

OVErVIEWIntel Capital, Intel Corp.’s investment arm, has developed into a powerhouse in technology investment since the 1990s. Since its founding, it has invested $4 billion in approximately 1,000 companies. Of those, approximately 160 have been acquired and approximately 150 have gone public. Originally backing only companies that would create demand for Intel processors, Intel Capital has taken on a broader purpose: to grow the Internet economy—in particular technologies that provide rich content, such as gaming deals, optical components, network management, and Web services. Today, Intel Capital has investments around the world in more than 500 companies.

After write-downs in 2001 and 2002, Intel Capital launched a new $200 million fund in 2004 to invest in companies developing technologies for the digital home (a home in which all electronic devices connect wirelessly through a PC). In 2005 and 2006, Intel Capital created $50 million venture capital funds for Brazil and the Middle East and Turkey, as well as a $250 million venture capital fund for India. It also boosted its investment in China. Investments NetIndex and Clearwire went public in March and June 2007, respectively.

π aT a gLaNcE

Key Factsπ Invests in communications and computing

companies at all stages.π Invests just about everywhere: the U.S., Asia,

Europe, South America, and Israel.π In 2005, invested $265 million in 140 companies.

Key Financial Stats Capital under management: $1.2 billion Minimum investment: Not available Preferred investment: Not available

Personnel Not available

32 Floor Two Pacific Place 88 Queensway Central, Hong Kong Phone: +852-2844-4555


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2750 Sand Hill Road Menlo Park, CA 94025 Phone: 650-233-2750 Fax: 650-233-0300www.kpcb.com

OVErVIEW Established in 1972 by Eugene Kleiner, a founder of Fairchild Semiconductor, and Thomas Perkins, a Hewlett-Packard veteran, Kleiner Perkins Caufield & Byers (KPCB) emerged as the premier name in venture capital during the tech boom at the end of the 20th century, when it racked up annualized returns of more than 30 percent over some two decades. With early investments in Genentech and Tandem (acquired by Compaq), it has shown a knack for picking winners. Over the years, its portfolio has included just about every marquee name in technology, including Intuit, Lotus, Macromedia, Sun Microsystems, and Sybase.

Today, three of the founding partners have retired to partner emeritus status, and VC heavyweight Vinod Khosla (founding CEO of Sun Microsystems) is going to part-time on the newest fund. Other partners include Brook Byers, founder of the first life sciences practice in the VC industry; Will Hearst, former editor and publisher of the San Francisco Examiner; and Bill Joy, the heralded chief scientist and cofounder of Sun, who came on as a partner in January 2005. In July 2005, former Secretary of State Colin Powell became a strategic limited partner in the firm.

A very big fish in the VC pond, KPCB has scored with such high-profile IPOs as Amazon.com, Extreme Networks, Google, Juniper Networks, Netscape, and PalmOne. In April 2004, Kleiner closed its $400 million 11th fund, and made 45 deals over the whole year—60 percent more than in 2003.

π aT a gLaNcE

Key Factsπ Invests in green technologies, information

technologies, life sciences, and pandemic and biodefense companies at all stages.

π Believes its keiretsu—a Japanese term for its network of more than 100 companies and thousands of executives who share resources and knowledge—distinguishes it from other VC firms.

π Partner L. John Doerr was ranked second in the Forbes 2007 Midas List of top tech VC investors.

Key Financial Stats Capital under management: $2 billion Minimum investment: $500,000 Preferred investment: $1 million to $5 million

PersonnelNumber of professionals: 22 partners, four affiliated partners, six partners emeriti, and one strategic limited partner

kleIner perkIns caufIeld & Byers

In 2006, KPCB announced a new $200 million KPCB Pandemic and Bio Defense Fund that focuses on surveillance and detection, diagnostics, vaccines, and drugs for pandemic illnesses, as well as the formation of its $600 million KPCB XII fund.



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Bay Colony Corporate Center 1000 Winter Street, Suite 4500 Waltham, MA 02451 Phone: 781-890-2244 Fax: 781-890-2288www.matrixpartners.com

OVErVIEW Founded in 1977 by Paul Ferri and Warren Hellman, the firm had early success with a late-stage investment in Apple that returned $16 million. In 1982, it opened a Silicon Valley office and became Matrix Partners. In the 1990s, Matrix narrowed its investment focus to technology, including software, communications equipment, semiconductors, storage, Internet, and wireless. In May 2001, the firm closed a $1 billion fund, Matrix Partners VII, and in August 2006, it was the first leading VC firm to establish a fund in India, closing the multistage, multisector fund at $150 million. Portfolio companies include Aruba Wireless Networks, Diligent Technologies, Kalido, Mazu Networks, and Netezza.

π aT a gLaNcE

Key Factsπ Prefers to invest in seed and early-stage

companies.π Matrix was one of the most profitable VC firms

through the 1990s; only six of the 60 companies it backed were losers. Its 1997 fund produced a 516 percent internal rate of return.

π Matrix paid 20 cents a share for the optical networking company Sycamore Networks, then sold it two years later at $107 a share—a 53,400 percent gain.

π One partner from Matrix, Rob Soni, made the Forbes 2007 Midas List of top tech VC investors, ranking 42nd.

Key Financial StatsCapital under management: More than $2.5 billion Minimum investment: $100,000 Preferred investment: From $100,000 up to $10 million

Personnel Number of professionals: 12 partners in the U.S. and five in India

matrIx partners2500 Sand Hill Road, Suite 200 Menlo Park, CA 94025 Phone: 650-854-3131 Fax: 650-854-3296


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mayfIeld fund2800 Sand Hill Road, Suite 250 Menlo Park, CA 94025 Phone: 650-854-5560 Fax: 650-854-5712www.mayfield.com

OVErVIEW Founded in 1969 by the late Tommy Davis, the Mayfield Fund has invested in more than 470 health–care, Internet, and communications companies, taking more than 100 of them public. Mayfield has strong ties to universities, including MIT, Stanford, and UC Berkeley. The Mayfield Fellows program at Stanford and Berkeley selects engineering students to learn about entrepreneurship and leadership through coursework and internships with Silicon Valley startups.

The firm has made successful investments in Advent Software, BroadVision, Citrix Systems, Compaq (acquired by Hewlett-Packard), LSI Logic, Millennium Pharmaceuticals, Redback Networks, Silicon Graphics, and 3Com, among others. Portfolio companies include Actona Technologies, BeVocal, Cytokinetics, Elemental Security, and Tribe.net.

Mayfield also emphasizes a global approach, with investments in Europe, China, and India.

π aT a gLaNcE

Key Factsπ Focuses on incubation, seed, and early-stage

communications, semiconductor, consumer, and enterprise software companies.

π Founded the Entrepreneurs Foundation, which helps entrepreneurs develop a plan to give back to their community; has contributed more than $250,000 to the community since its inception.

π One general partner, Janice Roberts, is a woman.

Key Financial StatsCapital under management: $2.4 billion Minimum investment: $1 million Preferred investment: $1 million to $3 million

Personnel Number of professionals: Nine managing directors, one venture partner, two principals, one marketing director, one CFO, and four partners emeriti

Tsinghua Science Park Bluilding. 8, SP Tower A, Suite 907 No. 1 Zhongguancun East Road, Haidan District Beijing, 100084, China Phone: +86-10-8215-1166 Fax: +86-10-8215-1018



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3000 Sand Hill Road Building 4, Suite 100 Menlo Park, CA 94025 Phone: 650-854-8540 Fax: 650-854-7059www.menloventures.com

OVErVIEWOne of the original Sand Hill venture firms, Menlo Ventures has invested in more than 300 companies since 1976. It closed its $1.5 billion Menlo Ventures I fund in July 2000, with plans to target communications, Internet, and software companies. Successful investments include Ascend (acquired by Lucent), Hotmail (now a part of Microsoft), LSI Logic, and UUNet (absorbed into MCI, now part of Verizon). The firm’s most recent fund, its 10th, capitalized at $1.2 billion and will focus on emerging growth companies within the technology sector. Its investments include Digital Path, Mobius, PassMark Security, Rivulet, and Tentoe.

π aT a gLaNcE

Key Factsπ Invests in communications, Internet

infrastructure, software, semiconductor, data storage, and computer hardware companies at all stages.

π Takes pride in being active with its portfolio companies, serving on more than 85 percent of the companies’ boards.

π Partner John W. Jarve made the Forbes 2007 Midas List of top tech VC investors, (62nd).

Key Financial StatsCapital under management: More than $3.9 billion Minimum investment: $1 million Preferred investment: $5 million to $10 million at startup stage, $10 million to $25 million at later stages

PersonnelNumber of professionals: Nine managing directors, one venture adviser, one associate, two investment analysts, one CFO, and one controller

menlO ventures


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mOHr davIdOw ventures3000 Sand Hill Road Building 3, Suite 290 Menlo Park, CA 94025 Telephone: 650-854-7236 Fax: 650-854-7365www.mdv.com

OVErVIEW Mohr Davidow Ventures is a prominent Silicon Valley venture capital firm focused on early-stage investments, primarily in IT startups. Mohr Davidow prefers to take an active role in the companies in which it invests. After investing in a company, Mohr Davidow provides hands-on help in three areas: strategy development, management-team recruiting, and strategic-partner development. The firm also offers its portfolio companies workshops in areas such as marketing, product design, and employee benefits. Two of the firm’s partners are well-known authors of business books: Bill Davidow wrote Marketing High Technology and cowrote Total Customer Service and The Virtual Corporation. Geoffrey Moore wrote Crossing the Chasm, Inside the Tornado, and Living on the Fault Line. In 2003, Mohr Davidow was the first firm to shrink its fund (MDV Fund VII), setting off a wave of similar activity among other firms. In 2005, Mohr Davidow closed its eighth fund at $400 million. Successful investments include Agile Software, Brocade, ONI Systems (acquired by Ciena), Pivotal Technologies, and Rambus. In 2006, Mohr Davidow invested in the development of the world’s largest factory for making solar–power cells.

π aT a gLaNcE

Key Factsπ Mohr Davidow was an investor in WetFeet (which

was acquired by Universum in 2007). π Focuses on health care, data storage, and clean-

tech and digital technologies.

Key Financial StatsCapital under management: $1.4 billion Minimum investment: Not available Preferred investment: Not available

Personnel Number of professionals: 24 partners, two entrepreneurs in residence, and two executives in residence



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OVErVIEWFounded in 1978, New Enterprise Associates (NEA) has established itself as a major player in health care/life sciences and IT. Some 150 NEA companies have gone public, and more than 225 have been successfully acquired. The firm counts among its success stories Ascend Communications (now part of Lucent’s InterNetworking Systems unit), Juniper Networks, multimedia software vendor Macromedia, workstation manufacturer Silicon Graphics, TiVo, and Internet service provider UUNet (absorbed into MCI, now part of Verizon).

In 2004, NEA raised a $1.1 billion fund, bucking a trend toward smaller funds. In 2006, it closed its 12th fund at $2.5 billion, which plans to invest in the technology and health-care industries. Investments in 2007 include $25 million in ISGN Technologies, a leading provider of knowledge-process outsourcing services, and along with Lightspeed Venture Partners, $11 million in 23andMe, a genetics company.

π aT a gLaNcE

Key Factsπ Prefers to invest in early-stage companies.π Unlike many VC firms, NEA has been known to

give associates who have spent a few years at the firm 15 percent to 20 percent of a partner’s share of the proceeds from a deal.

π Typically invests in 20 to 30 companies per year; has 500 companies in its portfolio.

π Five partners from NEA made the Forbes 2007 Midas List of top tech VC investors: Peter Barris (32nd), Scott Sandell (41st), Harry Weller (46th), Ryan Durant (47th), and Sigrid Van Bladel (80th).

Key Financial StatsCapital under management: $8.5 billion Minimum investment: Less than $200,000 Preferred investment: More than $200,000 to $40 million

PersonnelNumber of professionals: 22 investment partners, 25 investment professionals, and three operations professionals

new enterprIse assOcIates 2490 Sand Hill Road Menlo Park, CA 94025 Phone: 650-854-9499 Fax: 650-854-9397 5425 Wisconsin Avenue, Suite 800 Chevy Chase, MD 20815 Phone: 301-272-2300 Fax: 301-272-1700www.nea.com

1119 St. Paul Street Baltimore, MD 21202 Phone: 410-244-0115 Fax: 410-752-7721


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nOrwest venture partners525 University Avenue, Suite 800 Palo Alto, CA 94301 Phone: 650-321-8000 Fax: 650-321-8010www.nvp.com

OVErVIEW Since its inception in 1961, Norwest Venture Partners has invested in more than 400 companies. The Wells Fargo affiliate’s successes include Brocade Communications Systems, PeopleSoft (acquired by Oracle), and Siara Systems (merged with Redback Systems). In 2006, the firm closed its 10th fund at $650 million—its largest to date. It also began investing in India, with software company Persistent Systems, and Yatra, India’s first travel booking website.

π aT a gLaNcE

Key Factsπ Focuses on seed and early-stage investments

in information technologies, from infrastructure software and services to semiconductors and consumer Internet and media.

π Norwest general partner Matthew Howard made the Forbes 2007 Midas List of top tech VC investors, ranking 59th.

Key Financial StatsCapital under management: More than $2.5 billionMinimum investment: $3 millionPreferred investment: $10 million to $15 million

PersonnelNumber of professionals: Two managing partners, six general partners, two principals, two associates, one controller, one CFO, one director of marketing, and one marketing communications manager



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OVErVIEW Oak Investment Partners has invested in more than 435 companies since it was founded in 1978. The firm started investing when integrated-circuit and office-automation technologies were hot, taking stakes in companies such as Compaq, Parametric, Seagate, and Synopsis. In the 1980s, the firm invested in Genzyme, Office Depot, PetSmart, and ViroPharma. Portfolio companies include Baja Fresh Mexican Grill (a brand of Wendy’s International), Exodus Communications (dissolved in 2002), Filene’s Basement, Genzyme, Inktomi (acquired by Yahoo), and Qpass. In 2006, an oversubscribed Oak Investment Fund XII raised $2.56 billion, the largest VC fund ever raised.

π aT a gLaNcE

Key Factsπ Invests in enterprise software, communications

equipment and services, storage infrastructure, financial services information technology, outsourced services, health sciences, and retail companies at all stages.

π Has a network of 250 affiliates, including entrepreneurs and technical and industry experts.

π Venture partner John D. Beltic made the Forbes 2007 Midas List of top tech VC investors, ranking 55th.

Key Financial Stats Capital under management: $8.4 billion Minimum investment: Not available Preferred investment: $10 million to $60 million, depending on stage

Personnel Number of professionals: Four managing partners, four general partners, nine venture partners, and seven investment professionals

Oak Investment partners525 University Avenue, Suite 1300 Palo Alto, CA 94301 Phone: 650-614-3700 Fax: 650-328-6345

4550 Wells Fargo Center 90 South Seventh Street Minneapolis, MN 55402 Phone: 612-339-9322 Fax: 612-337-8017www.oakinv.com

One Gorham Island Westport, CT 06880 Phone: 203-226-8346 Fax: 203-227-0372


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panOrama capItal2440 Sand Hill Road, Suite 302 Menlo Park, CA 94025 Phone: 650-234-1420 Fax: 650-234-1437 www.panoramacapital.com

OVErVIEWFormerly the biotech and high-tech investment arm of J.P. Morgan Partners, Panorama Capital was spun off to form its own firm in August 2006. It focuses on life sciences and technology investments, combining companies from both sectors into one portfolio. The firm chooses investments based on what it calls a “stage-agnostic” approach, meaning it looks for companies to invest in that show the greatest promise of return, regardless of what stage the company is in.

π aT a gLaNcE

Key Factsπ Investments include Aristos Logic, Cedar Point,

FlowCardia, and Yipes.π Investment portfolio valued at $800 million.π Managing director Srinivas Akkaraju was

included in the Forbes 2007 Midas List of top tech VC investors, ranking 84th.

Key Financial StatsNot available

PersonnelNumber of professionals: Five principals, five managing directors, three associates, one venture partner, and one senior adviser.



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redpOInt ventures

OVErVIEWAlthough Redpoint Ventures is among the newer VC firms on the block, its founders are anything but inexperienced. Redpoint was started in 1999 by three partners (including industry heavy hitters John Walecka and Geoff Yang) from two of VC’s most respected firms: Institutional Venture Partners and Brentwood Venture Capital. This was an important merger of the Internet infrastructure departments of two firms that between them backed 30 of the top 50 infrastructure deals of the 1990s, including Avici Systems, Juniper Networks, and Netflix.

Rather than investing in companies that develop niche products that can be sold to Cisco Systems or Intel, Redpoint seeks the next blockbuster startups. Foundry Networks, MySpace (acquired by News Corp.), TiVo, and WebTV (acquired by Microsoft) are some of its previous investments. Current investments include Apogee, HomeAway.com, MobiTV, Networks in Motion, Obopay, and Zing.

π aT a gLaNcE

Key Factsπ Invests in seed and early-stage broadband

infrastructure; enterprise systems and software; interactive media; content and advertising; Internet services and applications; and mobile and wireless companies.

π Redpoint’s first and second funds posted internal rates of return of -13.9 percent and -7.9 percent, respectively, yet raised $400 million for its third fund in 2006.

Key Financial StatsCapital under management: Not available Minimum investment: $100,000 Preferred investment: $100,000 to $20 million

Personnel Number of professionals: ten partners, one principal, one associate, and one CFO

3000 Sand Hill Road Building 2, Suite 290 Menlo Park, CA 94025 Phone: 650-926-5600 Fax: 650-854-5762 11150 Santa Monica Boulevard, Suite 1200 Los Angeles, CA 90025 Phone: 310-477-7678 Fax: 310-312-1868www.redpoint.com

1366 Nanjing Road West Plaza 66, Tower 2, Suite 2904 Shanghai 200040, China Phone: +86-21-6288-0058 Fax: +86-21-6288-3988


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3000 Sand Hill Road 50 Ramat-Yam Street Building 4, Suite 180 Oceanos Hotel Menlo Park, CA 94025 Herzliya 46851, Israel Phone: 650-854-3927 Phone: +972-9-957-9440 Fax: 650-854-2977 Fax: +972-9-957-9443www.sequoiacap.com

OVErVIEW Founded in 1971 by Don Valentine, one of the fathers of VC, Sequoia established itself by backing Apple Computer, Cisco Systems, and Oracle. Partner Michael Moritz raised the profile of the firm by backing Yahoo, which used Sequoia’s offices as its original headquarters. Having financed more than 350 companies, including Google, MP3.com, and PayPal, Sequoia is one of the Sand Hill Road mainstays. Along with Matrix and Kleiner, it is one of three firms that produced two funds boasting an internal rate of return in excess of 100 percent—its 1992 fund returned 110 percent and its 1995 fund returned 175 percent, according to information released by the University of Michigan. (The firm’s 1999 fund did poorly, with a –11 percent internal rate of return in early 2003 thanks to investments in eToys, Scient, and Webvan.) In 2003, Sequoia was the first veteran VC firm to raise a fund since the tech bust—the $385 million Sequoia XI fund—with many following it since. That same year, Sequoia made news by barring the University of Michigan and University of California from future investments in its funds because they’d be open to public scrutiny. Recent investments include Great Dreams, NetShops, Worksoft, and YouTube.

In the past year, Sequoia has branched out in both China and India. In 2005, the firm raised $200 million for its Sequoia Capital China Principals Fund

I and has invested in 10 Internet-related companies there; however, the firm has said it would shift its focus to semiconductor companies during the next few years. In mid–2006, Sequoia merged with a top Indian venture capital firm, which took Sequoia’s name, and, in May of that same year, closed its Growth Fund III at $861 million.

sequOIa capItal

π aT a gLaNcE

Key Factsπ Invests in semiconductors, systems, software,

and Internet startup companies at all stages.π Two partners made the Forbes 2007 Midas List

of top tech VC investors: Michael Moritz (1st) and Roelof Botha (23rd).

π Keeps 30 percent of a fund’s profits, the most in the industry.

Key Financial StatsCapital under management: Not available Minimum investment: $50,000 Preferred investment: $50,000 to $10 million

PersonnelNumber of professionals: 22 partners, one CFO, one director of partnership operations, one executive director, two associates, two executive assistants, and nine administrative assistants



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sutter HIll ventures755 Page Mill Road, Suite A-200 Palo Alto, CA 94304-1005 Phone: 650-493-5600 Fax: 650-858-1854 www.sutterhillventures.com

OVErVIEWSutter Hill brings a dignified presence to Silicon Valley venture capital, having invested in more than 300 companies since 1964. Although Sutter Hill likes early-stage startups, it takes a decidedly conservative approach to investing. The firm took only 12 companies public in 1999 and 2000, when the rest of the industry was IPO–crazed. Sutter Hill’s partners have engineering backgrounds and significant industry experience. The firm’s portfolio companies include Farecast, FeedBurner (acquired by Google in 2007), Overstock.com, and Shutterfly (went public in 2006).

π aT a gLaNcE

Key Factsπ Paul Wythes, founding partner of Sutter Hill,

received the Venture Capital Association’s Lifetime Achievement Award in 2003.

π Invests in information technology and health-care services companies at the startup and early stages.

π Two partners made the Forbes 2006 Midas List of top tech VC investors: Bill Younger (36th) and Tench Coxe (75th).

Key Financial StatsCapital under management: $500 million Minimum investment: Not available Preferred investment: Not available

Personnel Number of professionals: Eight managing directors,


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fIrm tHumBnaIlsaPax ParTNErs153 East 53rd Street, 53rd Floor New York, NY 10022 Phone: 212-753-6300 Fax: 212-319-6155 www.apax.com Locations: New York, Europe, Hong Kong, India, IsraelStage: Buyout, growth capital, late ventureIndustry focus: IT, media, telecom, health care, financial services, retail, consumer

aDVaNcED TEchNOLOgy VENTUrEs485 Ramona Street Palo Alto, CA 94301 Phone: 650-321-8601 Fax: 650-321-0934 www.atvcapital.comLocations: Silicon Valley; Waltham, Mass.Stage: EarlyIndustry focus: IT infrastructure, biopharmaceuticals, medical devices, communications, software, information-management services

aDVENT INTErNaTIONaL75 State Street Boston, MA 02109 Phone: 617-951-9400 Fax: 617-951-0566 www.adventinternational.comLocations: Boston, Europe, Asia-Pacific, Latin AmericaStage: AllIndustry focus: Late-round investments in all industries; VC investments in technology; health care and life sciences; energy; business services

aLTa ParTNErs1 Embarcadero Center, 37th Floor San Francisco, CA 94111 Phone: 415-362-4022 Fax: 415-362-6178 www.altapartners.comLocation: San FranciscoStage: EarlyIndustry focus: Life sciences, IT

aUsTIN VENTUrEs300 West 6th Street, Suite 2300 Austin, TX 78701-3902 Phone: 512-485-1900 Fax: 512-476-3952 www.austinventures.comLocation: Austin, Tex.Stage: AllIndustry focus: Software, hardware, Internet, semiconductors, information-management services

baNc OF amErIca caPITaL INVEsTOrs100 North Tryon Street, 25th Floor Charlotte, NC 28255 Phone: 704-386-4710 Fax: 704-386-6432 www.bacapitalinvestors.comLocations: Charlotte, N.C.; Chicago; New York; Silicon Valley; Latin America; London; Milan; MumbaiStage: AllIndustry focus: Media and entertainment; communication services; health care; IT; consumer products; industrial; business services; financial services; energy and power



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cmgI @VENTUrEs1100 Winter Street, Suite 4600 Wilmington, MA 01887 Waltham, MA 02451 Phone: 781-663-5001 www.cmgi.comLocations: Boston; New York; Portola Valley, Calif.; Wilmington, Mass.; Waltham, Mass. Stage: EarlyIndustry focus: Clean-energy technologies, enterprise software, IT, Internet, security

cLEarsTONE VENTUrE ParTNErs1351 4th Street, 4th Floor Santa Monica, CA 90401 Phone: 310-460-7900 Fax: 310-460-7901 www.clearstone.comLocations: Santa Monica, Calif.; Silicon Valley; MumbaiStage: Seed, early, lateIndustry focus: Enterprise software, consumer-oriented technologies, communications, data center management, wireless, semiconductors

crEscENDO VENTUrEs480 Cowper Street, Suite 300 Palo Alto, CA 94301 Phone: 650-470-1200 Fax: 650-470-1201 www.crescendoventures.comLocations: Silicon Valley; Minneapolis, Minn.; LondonStage: EarlyIndustry focus: Communications, enterprise infrastructure

DraPEr FIshEr JUrVETsON2882 Sand Hill Road, Suite 150 Menlo Park, CA 94025 Phone: 650-233-9000 Fax: 650-233-9233 www.dfj.comLocation: Silicon ValleyStage: Seed, earlyIndustry focus: IT; nanotechnology and life sciences; clean-energy technologies

FOUNDaTION caPITaL70 Willow Road, Suite 200 Menlo Park, CA 94025 Phone: 650-614-0500 Fax: 650-614-0505 www.foundationcapital.comLocation: Silicon ValleyStage: EarlyIndustry focus: Enterprise software, semiconductors, telecommunications, clean-energy technologies, data networks

gENEraL aTLaNTIcThree Pickwick Plaza Greenwich, CT 06830 Phone: 203-629-8600 Fax: 203-622-8818 www.generalatlantic.comLocations: Greenwich, Conn.; New York; Silicon Valley; Washington; Düsseldorf; Hong Kong; London; Mumbai; São Paulo; Singapore; Tokyo Stage: Early, mid, lateIndustry focus: IT, health care, finance, communications


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grEaT hILL ParTNErs1 Liberty Square Boston, MA 02109 Phone: 617-790-9400 Fax: 617-790-9401 www.greathillpartners.comLocation: BostonStage: All Industry focus: Communications, IT, media, business services

kODIak VENTUrE ParTNErs1000 Winter Street, Suite 3800 Waltham, MA 02451 Phone: 781-672-2500 Fax: 781-672-2501 www.kodiakvp.comLocation: Waltham, Mass.Stage: Seed, earlyIndustry focus: Communications, IT, semiconductors, software

LIghTsPEED VENTUrE ParTNErs2200 Sand Hill Road Menlo Park, CA 94025 Phone: 650-234-8300 Fax: 650-234-8333 www.lightspeedvp.comLocation: Silicon ValleyStage: EarlyIndustry focus: Infrastructure software, enterprise software, networking systems, networking software, wireless, e-commerce, digital media, consumer electronics, semiconductors, information-management services

mObIUs VENTUrE caPITaL1050 Walnut Street, Suite 210 Boulder, CO 80302 Phone: 303-642-4000 www.mobiusvc.comLocations: Boulder, Colo.; Silicon ValleyStage: EarlyIndustry focus: Communications, infrastructure software, consumer products and services, enterprise software, health care, IT, information–management services

POLarIs VENTUrE ParTNErs1000 Winter Street, Suite 3350 Waltham, MA 02451 Phone: 781-290-0770 Fax: 781-290-0880 www.polarisventures.comLocations: Waltham, Mass.; SeattleStage: Seed, earlyIndustry focus: Technology, health care, digital media, e–commerce, consumer products/services, business service sectors

sEVIN rOsEN FUNDs2 Galleria Tower 13455 Noel Road, Suite 1670 Dallas, TX 75240 Phone: 972-702-1100 Fax: 972-702-1103 www.srfunds.comLocations: Dallas; Austin, Tex.; San Diego; Silicon ValleyStage: EarlyIndustry focus: Telecommunications, software, semiconductors, health care



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sIErra VENTUrEs2884 Sand Hill Road, Suite 100 Menlo Park, CA 94025 Phone: 650-854-1000 Fax: 650-854-5593 www.sierraven.comLocation: Silicon ValleyStage: EarlyIndustry focus: IT, semiconductors, software, energy

sPLIT rOck ParTNErs10400 Viking Drive, Suite 550 Minneapolis, MN 55344 Phone: 952-995-7474 Fax: 952-995-7475 www.splitrock.comLocations: Minneapolis; Silicon ValleyStage: EarlyIndustry focus: Health care, software, information-management services

sPrOUT grOUP11 Madison Avenue, 13th Floor New York, NY 10010 Phone: 212-538-3600 Fax: 212-538-8245 www.sproutgroup.comLocation: New YorkStage: All Industry focus: Communications, health–care technology, software

sUmmIT ParTNErs222 Berkeley Street, 18th Floor Boston, MA 02116 Phone: 617-824-1000 Fax: 617-824-1100 www.summitpartners.comLocations: Boston; Silicon Valley; LondonStage: LateIndustry focus: Software; communications technology and services; semiconductors and electronics; information services; business services; financial services; health care and life sciences; industrial products; consumer products

Ta assOcIaTEsJohn Hancock Tower, 56th Floor 200 Clarendon Street Boston, MA 02116 Phone: 617-574-6700 Fax: 617-574-6728 www.ta.comLocations: Boston; Silicon Valley; LondonStage: All Industry focus: Technology; internet; communications; financial and business services; health care; consumer industries

TgF maNagEmENT111 Congress Avenue, Suite 2900 Austin, TX 78701-4098 Phone: 512-322-3100 Fax: 512-322-3101 www.tgfmanagement.comLocation: Austin, Tex.Stage: LateIndustry focus: Manufacturing, distribution, business services


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TrIDENT caPITaL505 Hamilton Avenue, Suite 200 Palo Alto, CA 94301 Phone: 650-289-4400 Fax: 650-289-4444 www.tridentcap.comLocations: Silicon Valley; Westport, Conn.Stage: All Industry focus: Business process outsourcing; security and wireless infrastructure; marketing services; health care; software; communications

U.s. VENTUrE ParTNErs2735 Sand Hill Road Menlo Park, CA 94025 Phone: 650-854-9080 Fax: 650-854-3018 www.usvp.comLocation: Silicon ValleyStage: EarlyIndustry focus: Internet; semiconductors; health care; software; communications; branded consumer products

VENrOck assOcIaTEs30 Rockefeller Plaza, Room 5508 New York, NY 10112 Phone: 212-649-5600 Fax: 212-649-5788www.venrock.comLocations: New York; Cambridge, Mass.; Silicon Valley; IsraelStage: EarlyIndustry focus: IT, health care, life sciences

VErsaNT VENTUrEs3000 Sand Hill Road Building 4, Suite 210 Menlo Park, CA 94025 Phone: 650-233-7877 Fax: 650-854-9513 www.versantventures.comLocations: Silicon Valley; Newport Beach, Calif.Stage: EarlyIndustry focus: Medical devices, health-care services, health-care IT, life sciences

VEsbrIDgE ParTNErs1700 West Park Drive Westboro, MA 01581 Phone: 508-475-2300 Fax: 508-475-2399www.vesbridge.comLocations: Boston; Minnetonka, Minn.Stage: EarlyIndustry focus: Networking, IT

VILLagE VENTUrEs430 Main Street, Suite 1 Williamstown, MA 01267 Phone: 413-458-1100 Fax: 413-458-0338www.villageventures.com Locations: Williamston, Mass.; Lexington, Mass.; Denver; Bloomington, Ind.Stage: EarlyIndustry focus: Communications; life sciences; media and consumer markets; software



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J.h. WhITNEy & cO.130 Main Street New Canaan, CT 06840 Phone: 203-716-6100 Fax: 203-716-6101www.whitney.comLocation: New Canaan, Conn.Stage: Mezzanine, lateIndustry focus: Consumer products specialty retail, health-care services, specialty manufacturing, business services

WOrLDVIEW TEchNOLOgy ParTNErs2207 Bridgepointe Parkway, Suite 100 San Mateo, CA 94404 Phone: 650-322-3800 Fax: 650-322-3880www.worldview.comLocations: Silicon Valley; Frankfurt; TokyoStage: All; focus on early Industry focus: Communications, semiconductors, enterprise infrastructure, software


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4On the Job

The.Work.................................... 50

Key.Jobs...................................... 50

Real.People.Profiles..................... 52



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tHe wOrkA.venture.capitalist’s.work can be broken down into three different phases:1. Sourcing and picking investments

2. Doing deals

3. Managing investments

Finding potential investments has never been a problem for venture capitalists; most firms are approached constantly by entrepreneurs trying to raise capital. Finding the best investments before your competitors do, however, is much trickier. That’s why venture capitalists must have an especially strong web of contacts. When the VP of engineering at a big Silicon Valley firm leaves to start her own company, the best venture capitalists know about it before the entrepreneur’s family does.

Picking the best investments is what separates the wheat from the chaff among venture capitalists. Unlike investment bankers, venture capitalists don’t spend a lot of time building complex financial models to assess potential investments. After all, for those who are investing at early stages, revenue estimates are guesswork at best. Instead, venture capitalists must know everything about the market, the technology, and the entrepreneurs. One of the most important aspects of due diligence is uncovering the emotional and intellectual makeup of the people in whom the venture capitalist is investing.

INSIDER SCOOP“There’s no limit to the number of great ideas VCs hear about every day. The question is: Are you the person or company that can build the great idea into a great business? VCs choose the plans they do because of the team and the validation of the company’s ability to execute.”

Doing the deals is a tricky, complicated process, but it can be learned without too much difficulty. That’s why partners will let up-and-coming associates do deals with supervision (or support, depending on your viewpoint). Deals can be structured in many different ways. Venture capitalists learn how to negotiate things like the percentage of equity they get, antidilution clauses, and number of board seats, with an eye toward protecting their investments and preserving win-win propositions with their entrepreneurs.

Managing their investments is the stage where venture capitalists can sometimes make the difference between the success and failure of a startup. Venture capitalists with years of experience and a stable of investments can create relationships among companies, help startups find professional management, introduce companies to potential customers, and help companies raise further financing. Having a John Doerr sitting on your board of directors is somewhat akin to having a wise uncle help you along the road to a successful IPO.

key JOBsStaffing.needs.and.titles vary greatly from one firm to the next. Many consist solely of partners and support staff. Others hire a limited number of undergraduates and MBAs as analysts and associates, with the expectation that most will return to get their business degrees or join startups within a few years. (Keep in mind that while the terms analyst and associate usually refer to undergrads and MBAs or experienced hires, respectively, at some firms the titles are reversed.)

gENEraL ParTNErThese are the people with their names on the door. General partners raise the money for the fund and decide which companies to invest in. General partners, the professional members of a venture capital firm, usually are required to contribute a small amount of their own money to their fund. They manage the fund’s investments and generally take a 20 percent to


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30 percent cut of the carry from the fund. General partners are expected to provide a wealth of business advice and industry contacts to the entrepreneurs they back. They often sit on the boards of many companies and are deeply involved in decisions about exit strategies—that is, when to cash out by taking the company public or selling it.

The work of a partner depends very much on the phase the investment fund is in. When a fund has just been raised, partners spend most of their time trying to track down and analyze new investment opportunities. When most of the fund has been invested, partners will spend more than half their time managing portfolio companies. Our industry insiders break down the workload of a partner who is in a steady state (some funds invested, but still actively seeking other investments) as follows:• Managing existing portfolio (50 percent):

Talking to other potential investors, interviewing potential executive staff hires, studying company financials, talking to customers, discussing IPO timing with I-bankers, and attending board meetings. A heavy load of boards for a partner would include six or seven early-stage companies that require more oversight, or 10 to 12 later-stage companies.

• Sourcing and doing new deals (30 percent): Reading business plans, doing background research on the entrepreneurs, visiting the companies, socializing with the company founders, listening to pitches, and putting together syndicates for investments.

• Keeping abreast of industry (10 percent): Attending industry conferences, keeping up with trade publications, and talking to experts in the field. This is good weekend work.

• Firm administrative work (10 percent): Working on quarterly reports to the limited partners (investors), working on the firm’s website, and attending partners’ meetings.

JUNIOr ParTNErJunior partners are just that—junior versions of the general partners. Usually, junior partnerships are viewed as training for general partnerships, and junior partners perform similar duties, albeit on a reduced scale. Their personal stakes in the funds also are reduced.

VP Or assOcIaTESome firms hire MBAs or people with business experience (usually in leveraged buyouts or investment banking) as vice presidents or associates. The work of an associate can vary. In some firms, the work they do is similar to that of analysts—they screen business plans, make cold calls on prospective investments, and occasionally make on-site visits to portfolio companies. In other firms, associates do work similar to that of partners, but they don’t make final decisions or take a major share of the carry. At this level, compensation, while still tied to the overall performance of the fund, can take the form of a flat bonus rather than a percentage of the fund. Before taking a job, make sure you know if it’s on the partner track—not all are.

INSIDER SCOOP“Some associate roles are explicitly not partner–track. You should be clear on whether it is or not before moving in.”

aNaLysTMost venture capitalists have advanced degrees. However, a very few venture capital funds—generally those that are more established or are later-stage investors—hire undergraduates as analysts. Analysts screen business plans before passing them on to senior staff, and conduct due diligence, or research, on promising industries and entrepreneurs. A background in finance and an outstanding college internship or business experience are musts, but venture capitalists also stress the interpersonal and networking skills that are essential to anyone working in VC. The typical stay for an analyst at a VC firm is three years, after which most get an MBA, work for a portfolio company, or move over to another VC firm.



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Analysts do a lot of the background work on potential investments. According to one insider, there are two paths for undergrads: most typically focus on sourcing, but those with some consulting or I-banking experience may add duties related to those of their previous jobs. Keep in mind that VC firms tend to be small, so you can expect to wear a lot of hats.

INSIDER SCOOP“At the end of the day, venture capitalists back management and markets. The responsibility of an analyst is to evaluate markets both quantitatively and qualitatively.”

Undergrad HiresAs they learn the VC business, people straight out of college typically focus on deal sourcing. They attend trade shows such as Comdex, the Consumer Electronics Show, or Internet World to search out new companies or meet with prospective entrepreneurs. In addition, they often attend investment bank—sponsored industry conferences, which help them stay ahead of industry trends. Analysts read industry journals to learn about markets and possibly discover new companies. Working from lists of startups gathered from a wide variety of sources, they also cold–call and screen potential investment targets before passing them on to higher-ups. As analysts become more experienced, they start performing due diligence and working more closely with portfolio companies.

I-BankersIn addition to the previously listed analyst responsibilities, people coming from investment banking put their analytical skills to work crunching numbers for partners in preparation for deals. At the later stages of investment, they might gather Dun & Bradstreet data on private companies and do some basic financial modeling.

ConsultantsFormer management consultants have problem-solving

skills that may be used when a portfolio company needs advice. They also focus on due diligence to gauge an investment opportunity’s industry position. Naturally, they also do many of the deal-sourcing activities that other analysts do.

real peOple prOfIlesmaNagINg ParTNEr PrOFILEYears in business: 7 Age: 36 Education: BS in electrical engineering, MS in electrical engineering, MBA Hours per week: 75; 7:00 a.m. to 8:00 p.m. at office and 9:30 p.m. to 11:30 p.m. at home; working lunch Size of company: 7 employees Annual salary: Total compensation of $185,000

INSIDER SCOOP“If you’re not excited by that merging of great people, great ideas, and growth capital, venture capital will never get your juices flowing.”

How did you get your job?I worked at a consulting firm that catered to private-equity firms. I developed a lot of relationships there, and eventually went to work with one of my clients. From there, I transferred to a VC firm as a principal. Finally, a B-school classmate at my current partnership called me to join him and his partners in raising a new fund. He and I have known each other for several years and had worked together on a couple of transactions while I was at my first private-equity firm.

What are your career aspirations?To be a great investor. If I had as much money in the bank today as I could ever spend in my life, I would still do what I’m doing today. I might be getting more sleep, but I’d be doing exactly the same thing. Now I just focus on building great companies. Most of this


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is finding great entrepreneurs who need and want my help and with whom I would enjoy working.

What kinds of people do well in this business?You’ve got to be a team participant. If you’re going to help companies through your advice, you’ve got to be good at delivering that advice in such a way that they’ll listen. You can’t be driven to have your name plastered all over The Wall Street Journal. Ninety-nine percent of the people in this business you’ve never heard of. Your job is to help CEOs become heroes. You’re not the hero. You’ve also got to be inspired by the whole notion of capitalism, because what we’re doing is at the root of what makes this whole system work: the American Dream.

What do you really like about your job?The best part about it is the people I get to work with—from CEOs and management teams, to other investors, to bright and creative lawyers and other service providers.

What do you dislike?The travel can sometimes be difficult. So is removing somebody who has put their heart into a business but who isn’t suited to lead it. That’s the worst. Even when everyone agrees that it’s the right thing to do, it’s not easy.

What is the biggest misconception about your job?People outside of the money world sometimes use the phrase “vulture capitalist” to describe us. This implies that we’re stealing businesses away from entrepreneurs. Nobody is ever going to agree to sell a company or a portion of one unless they want to. Our firm doesn’t do turnarounds or bankruptcies or other distressed investment situations. In 95 percent or more of the investments by private-equity firms, both sides are dealing from a position of some strength to reach a reasonable deal. Portrayals like Barbarians at the Gate just make us all look like idiots in private equity, like it’s all about ego and doing the biggest,

highest–visibility deal and treating people like they don’t mean anything. If we find people like that, we don’t ever do business with them. For bankers, the common misconception is that the principal people like me don’t work a lot of hours. Sure, I don’t have the stresses of a client hanging over me, but I don’t get any extra sleep.

How can someone get a job like yours?I think there are two common routes. One is a consulting or operating background: Figure out how businesses work, how to improve them, and how to recruit and motivate management teams. The other is the financial side: Spend a couple of years as an analyst at an investment bank. In either avenue, try to begin developing your relationships with people in the private-equity world. Get to know other entrepreneurs’ investors. If you’re in I-banking, get to know the private-equity firms your bank does business with. Plan on getting an MBA if you don’t have one. Consider it a long-term job search process. It’s probably going to take you years before your contacts and an appropriate opening come together.

Describe a typical day.6:00 a.m. Put on my new running shoes and run

the Dish behind Stanford. As I reach the top of the hill and look back toward the smog hovering over the Valley, my mind becomes clear, and I start sifting through potential deals.

7:00 a.m. Breakfast meeting at Hobee’s to interview a marketing VP candidate for Pheremonix, my latest project. The guy is late and half asleep. I’m not impressed.

8:00 a.m. Hop in my Lexus and drive down Sand Hill to the office. I call my voicemail from the cell phone as I am driving. There are four messages from Jim, the CEO of Acute, begging for help rounding up some new financing. I figure that Acute has



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finally run its course, and Jim had better understand that the well is dry.

8:20 a.m. Pull out my BlackBerry to check my appointments for the day. Plug it into my PC and update my schedule. Then check email. I plow through the usual messages until I get to one titled “Danger, Danger,” from the CFO of Amaze, the Internet game company that I am encouraging to go public in three months. I read through her worries about cash flow and am not alarmed; I’ve been in this situation countless times before. I give her a call and calm her fears.

9:00 a.m. Pitch meetings. The first pitch is a dud. Strong engineers, but their business plan has no barriers to entry, and they have never done a startup before. Lack of experience can be overcome, but a weak business plan spells doom. The second pitch is more promising—an intranet service firm started by some ex-IBMers. They will need help refining their plan, but they have some promise. The third is compelling: a new consumer electronics technology. It’s not an original idea, but the management team has strong experience, and they’ve spelled out in excruciating detail how they were able to get their cost of goods down enough to hit a consumer price point and still return the required margins—the best pitch I’ve heard in three months.

12:00 p.m. I rush out of the pitch meeting and head over to the Woodside Bakery for lunch with Pheremonix’s CEO. Before the board meeting this afternoon, I want to put some ideas in his head about slowing down his growth and his burn rate.

1:00 p.m. Drive over to Mountain View for the Pheremonix board meeting. On the way, I’m paged by one of my colleagues, who wants to get my reactions to the pitch meetings. I call him back and tell him to wait for the partner meeting on Friday, though I can’t help but express some enthusiasm for the third pitch I heard today.

1:30 p.m. Pheremonix board meeting. The meeting starts with the engineering VP conducting a demo of the prototype. He walks in wearing cutoffs and Birkenstocks. He looks exhausted, but rises to the occasion and gives an energetic demo. I am pleasantly surprised with how much progress they have made in just three weeks. I realize I had better get the marketing VP on board fast, as the product is on schedule and the marketing and selling effort must begin.

4:00 p.m. Drive back to the office. Spend an hour on the phone returning phone calls from management of my portfolio companies.

5:00 p.m. Leave early today to catch my daughter’s soccer game.

aNaLysT PrOFILEOccupation: Associate Years in business: 6 months Age: 26 Education: BS in business administration Hours per week: 55; 8:30 a.m. to 7:00 p.m.; working lunch Size of company: 18 professionals Annual salary: $75,000 plus deal bonuses

INSIDER SCOOP“You can’t just throw money at a startup and expect it to succeed.”


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How did you get your job?While I was in I-banking, I told a friend at another private-equity firm that I wanted a job in VC. He told me about an opening at this firm, and I sent in my resume.

What are your career aspirations?To become a partner in a venture firm or to take the knowledge that I’ve learned through my involvement at a VC firm to get involved with an early-stage company.

What kinds of people do well in this business?You have to marry three abilities: You have to know the tech and business side to evaluate new technologies; you have to have a basic understanding of how financing and growing a company works; and most important, you have to be very good at talking and listening to people to draw on their knowledge to increase your own. You can’t hope to learn everything by reading things off the Web or in magazines.

What do you really like about your job?The very high level of independence. I am really responsible for a lot of what happens to get deals in front of the partners. The only thing I’m judged on is whether I’m bringing quality deals to the partnership. How I do that and how I spend my time day to day is completely up to me. I also like the number of incredibly intelligent and motivated VCs and entrepreneurs I get to talk to at every turn.

What do you dislike?There are not enough hours in the day. It can be very hectic, especially when there’s travel. Honestly, there can often be many more things to do than you have time for, and that causes you to pass up opportunities you don’t have the time to devote enough attention to.

What is the biggest misconception about your job?That every deal you do is a winner, and that it’s easy to

get good deals. There’s a lot of hard work and dumb luck that goes into making an Amazon or an eBay. It’s not easy to take an unpolished startup and have it turn into a big name.

How can someone get a job like yours?There are two tracks. First, the analytical side: Get experience at an I-bank, a top-tier consulting firm, or a research firm like Gartner or Yankee. Then there’s the industry side, especially technology: a lot of VCs have experience in industry, either at a startup or a big player. Most hiring is done by personal introduction and on a case-by-case basis. VC openings are few and far between. Find opportunities to meet VCs through personal introductions or at VC events. VCs often talk to other VCs about possible hires, so the important thing is to meet some and network from there.

Describe a typical day.7:15 a.m. Take the T from my one-bedroom in

Harvard Square to downtown Boston, where I walk past the Freedom Trail on the way to the office. I try to slam through back issues of Fast Company and Business 2.0 on the way.

8:00 a.m. Get into the office and check email to see what the partners have in store for me today. Messages include a new cold-call list from one of the partners, a request from another partner for a Comdex writeup by the end of the day, and a note from my father asking how my business school applications are going.

9:00 a.m. Take a 15-minute break to check out People.com.

9:15 a.m. Work my way down the latest cold-call list. I need to leave a message at about half of the firms. At three of them, I talk to one of the founders, but I rule out these companies’ potential 10 minutes into



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each call. Finally, I have a breakthrough: I talk to the CEO of a new startup that has a caching technology that lets mobile Internet users access the most popular websites exceedingly fast.

10:30 a.m. Secretary brings in five FedEx packages. They are filled with new business plans that I will not get to until tomorrow, so I toss them into my inbox and keep calling.

12:00 p.m. Head down to the building cafeteria and grab a turkey sandwich and a low-fat brownie for lunch. I head back to my computer and spend some money on Amazon.com while eating lunch at my desk.

12:30 p.m. I call everybody I know who might know about caching: MIT classmates, my neighbor’s dad, a guy I got drunk with at Comdex. I then go to the library and search the online databases on this company and its technology to see what I can bring up.

2:30 p.m. Run downstairs again to get a latté before the cafeteria closes.

2:45 p.m. Knowing that I have a deadline, I put aside research and get to work on that Comdex report. I grab the huge folder of brochures I collected and pull out my detailed notes. I try to bring all of the information together in some kind of coherent fashion.

6:30 p.m. I finish a draft of my Comdex report. I spend the next 90 minutes finishing up the Comdex report, then email it to the partner who is waiting for it. At the end of my email, I attach a reminder that the recommendation he’s writing for me is

due at Stanford Business School by the end of next week.

8:00 p.m. Trudge back to the T. The wind has picked up now and is blowing the red and orange leaves around. On the train, I wonder what microwave masterpiece I can pull together tonight.


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5The Workplace

Lifestyle.and.Culture................... 60

Hours.......................................... 60

Workplace.Diversity.................... 61

Travel.......................................... 62

Compensation............................. 62

Career.Notes............................... 63

The.Inside.Scoop......................... 63

How.VC.Stacks.Up..................... 66

A.VC’s.View................................ 67



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lIfestyle and cultureThe.lifestyle.of.venture capitalists varies widely. The field is filled with workaholics who toil around the clock to stay ahead of fast-changing technology industries. “Your calendar is a slight representation of what you end up doing. My entire day is interrupt-driven,” says one venture capitalist. “My time is my most valuable asset. You’ve got to switch contexts, issues, and frameworks all the time. Some people like that; some people hate it.” Insiders say once a venture capitalist is established, the lifestyle can be better than in similar hard-driving, high-paying industries.

The VC culture is much harder to peg. Because most VC firms are small, the partners set the tone, so culture at firms varies widely. Partners more focused on doing deals will take a hard-line, almost I-banking approach. Partners who spend more time working with entrepreneurs might have a more informal attitude. However, since there is so much competition—and since moving to another firm isn’t the easiest thing to do—make sure you know the culture and that you can fit into it.

HOursHours.are.completely.self-determined and based on what you think you need to do to bring in a good IRR (internal rate of return) on your investments. Some VCs work as many as 20 hours a day managing their portfolio companies and staying ahead of the industry. Others lead a more sane life, fitting in lots of golf, tennis, and skiing.

In general, the junior members of the firm work more hours than the partners, though there are plenty of workaholic partners. Industry insiders tell us that if there were a “typical” workweek, it would be 10 to 12 hours per day on weekdays. One partner calls time management the most challenging aspect of venture capital, saying: “VCs are barraged with email, voicemail, and business plans. You can’t be completely reactive. You have to manage the flow of business plans and requests.”

Another insider calls the hours manageable for anyone who can thrive in a cyclical, multitasking work environment. “Unlike investment banking and business consulting, where you’re more or less working on a single project but the work is heavy, in a VC firm you’re working on several projects. With startup businesses, there are certain times when they need lots of attention and lots of help, and other times where you don’t hear from them for a week or two. The phone doesn’t turn off; your email doesn’t turn off.”

On weekends, you are likely to work at home reading business plans and industry publications. Sometimes you may need to spend a half day of your weekend traveling to or from an industry conference. However, in most cases, your work life will leave some room for a personal life. You’ll just have to make the latter fit around the former.

“My time is my most valuable asset,” says a venture capital-ist. “You’ve got to switch con-texts, issues, and frameworks all the time. Some people like that; some people hate it.”


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wOrkplace dIversItyVC.is.one.of the WASP-iest industries. “African-Americans and Latinos are largely absent,” says one partner in a Silicon Valley firm. In fact, the only minorities that appear even nominally represented are Asians and Indians. One partner blames an educational system that fails to give minorities the tools they need to make it into the MBA club in numbers sufficient to have an impact on the rarefied VC industry: “We’re at the end of the pipeline.”

The Kauffman Fellows program at the Center for Venture Education in California, designed to train future VCs and company leaders, is slowly remedying that situation. In 2006, it counted eight minorities and two women among its 11 fellows—the most diverse group to date—and claims eight black VC general partners as former fellows. At least one Kauffman graduate, an African-American male, credits the program for his success. As he told The New York Times in 2007, Kauffman’s ability to place him at a VC firm let him circulate within the industry’s generally closed circle. “Without access to these networks,” he said, “I would not be in this industry. Period.”

Welcome news: VC leaders understand that today’s globalizing market demands a diversified workforce. Steve Jurvetson of Draper Fisher Jurvetson has said that his firm consciously works to diversify by partnering with organizations like Kauffman, and that there are clear and compelling reasons to do so: If the VC industry is about connections, then a greater mix of people and networks both add and deepen the entrepreneurial class, ensuring the industry’s enhanced future on the world stage.

OPPOrTUNITIEs FOr WOmEN VC is a predominantly white, male industry—a classic “old boys” club—but women we’ve talked to in the field don’t cite discrimination. “I don’t feel like it’s a disadvantage or an advantage to be a woman,” says

one. Some female venture capitalists—including Anne Winblad of Hummer Winblad, Mary Jane Elmore of Institutional Venture Partners, and Nancy Schoendorf at Mohr Davidow—are major players in the industry. But according to a March 2004 report (the most recent available) released as part of the Diana Project, a multiyear, multiuniversity study of women in business, opportunities for women are not equal to those for men. Titled Gatekeepers of Venture Growth: The Role and Participation of Women in the Venture Capital Industry, the study found that women accounted for about 10 percent of VCs from 1995 to 2000, despite a 62 percent increase in the number of venture capitalists. During the period of the study, female representation in management positions declined from 27 percent in 1995 to 25 percent in 2000, and women left the industry at roughly twice the rate that men did. National Public Radio’s Marketplace Entrepreneurship Desk added to the grim statistics during a 2006 broadcast when it reported that women-led businesses receive less than 10 percent of all venture capital, despite heading roughly 30 percent of all U.S. companies.

While these are depressing numbers, there’s room for cautious hope. The Gatekeepers report had concluded that more female VCs would increase



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networking opportunities between VCs and female entrepreneurs. That, in turn, would introduce more proposals to VC firms, give women-led businesses greater access to capital, ensure the VC industry sees promising leads it might otherwise miss, and provide women forward movement in business history. At least some of these suggestions are being taken to heart. As Mina Sooch, founder and general partner of Apjohn Ventures in Kalamazoo, Michigan, pointed out to Crain’s Detroit Business in 2007, women have entered the VC ranks only recently, while men have had a consistent presence in the field. “In the last five years, I’ve seen more women in venture capital than I’ve seen before,” she said. And if Janice Roberts, a managing director at the top-tier VC firm Mayfield Fund, has anything to do with it, the number of women in VC will only increase. Describing the Forum for Women Entrepreneurs & Executives for Forbes in 2007, she wrote, “You could call it the New Girls Network.” And because VC recruiters typically hire from an elite group of colleges and universities, the number of female graduates in the Harvard Business School class of 2007 (40 percent) is also encouraging.

Still, women lag behind in other key areas. As Linda Paullin-Hebden, a partner with Michigan-based Warner, Norcross & Judd, noted, “There tend to be fewer women in the hard sciences, which is often the background of a founding entrepreneur.” Recent developments in VC, like the establishment of the Forum for Women Entrepreneurs & Executives, may indicate a desired shift in the industry paradigm.

travelTravel.is.the.one area where venture capitalists have a large advantage over other hard-driving businesspeople, such as management consultants. Many firms restrict their investments to a regional area near their offices. Silicon Valley VC firms, for instance, generally invest only in Silicon Valley or Pacific Northwest companies. Other regional firms, like the Texas Growth Fund, are chartered to invest in

a given region. East Coast VC firms tend to spread out investments more, because the opportunities in their region are not so geographically concentrated. When firms decide to invest in new locations, they often open new offices in those areas, reducing travel time. Firms also often invest in tandem with other firms; the firm closer to the portfolio company generally takes a more hands-on approach so the other firm needn’t make the trek to the company’s offices.

That said, partners often spend their days moving among their portfolio startups in their given regional areas. One insider says that a typical day might involve six meetings in different locations. Although you won’t spend four days each week living out of a suitcase, you may spend four hours a day in your car.

cOmpensatIOn VC.firms.are.tight-lipped about salary ranges for specific roles. Analysts are likely to start out in the range of $70,000 to $125,000 in total compensation; associates in the $90,000-to-$300,000 range, including bonuses; and senior associates, vice presidents, and principals somewhere in the $200,000-to-$400,000 range. An executive assistant might start in the $50,000-to-$80,000 range, and a CFO brings in around $400,000 in total compensation, after bonuses. This is good money, but pales in comparison to what partners can make.

Compensation for partners is relatively standard in the venture capital industry. Partners split an annual management fee paid by limited partners equal to 2 percent to 3 percent of the assets of the fund. They also split 20 percent to 25 percent of the returns on their investments. (The limited partners or investors get the rest.)

Let’s work out some of these figures to see how much a venture capitalist can make. Take a firm that has six partners and $200 million under management. The 2.5 percent management fee amounts to $5 million. Expenses of about $1 million are paid out of that $5 million, leaving $4 million to be split among


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the six partners. That works out to $667,000 in annual salary per partner, regardless of how their investments perform.

Venture capitalists make their really big money in the profit-taking from successfully performing funds. This compensation is cyclical and not spread evenly from one firm to another, but let’s take a look at what an accomplished partner can make in carry. Again, assume our firm has six partners and $200 million under management. A successful fund might return three times the investment, so let’s say that our fund nets $400 million. Our firm takes 25 percent of $400 million, or $100 million, and returns the other $300 million to the investors. Let’s assume the $100 million is paid out over six years, an average fund length, so profits work out to $16.7 million per year. Finally, we need to divide the carry among our six partners, so they each get $2.8 million annually. That’s a nice chunk of change.

Of course, a firm’s profits can vary wildly depending on how well the investments do. But as a general rule today, VCs are looking at a return ranging from three to 10 times the original investment.

INSIDER SCOOP“You’re working with extremely bright, incredibly motivated, driven people. You’re not going to find that in the masses of the Fortune 500.”

career nOtesUNDErgraDUaTEsWorking at a venture capital firm as an analyst can be a great way to get a toehold in the industry. You’ll learn from extremely smart, experienced businesspeople in a smaller, more humane work environment than you would on Wall Street. Insiders tell us that you shouldn’t expect to stay more than a couple of years, but it’s a good way to learn about entrepreneurship from the financing side before you go back to business school or into industry.

mbasVenture capital has become a much-sought-after career for MBAs, especially for those who have industry experience. The intellectual challenges, the mixture of financial and strategic skills practiced, and the potential financial rewards have made this a top job choice for the few who are lucky enough to get in. An MBA is a must for a partnership in venture capital, unless you have a proven business track record in a specific industry. Insiders tell us that you can expect to make partner in three to five years. If you don’t, you’ll have to take another associate position at another firm or move on to a different career.

tHe InsIde scOOpWhaT EmPLOyEEs rEaLLy LIkEIntellectual Stimulation Industry insiders tell us they love working with some of the smartest people in the world. Not only are your colleagues the best and the brightest, some of the entrepreneurs are too. “It’s capitalism at its purest,” one insider says. “I run around finding great people to hitch my wagon to. I’m not making a widget or writing software. I work with people so passionate about a vision that they’re not going to put up with failure.” In VC, you’ll be exposed to a broad range of interesting ideas—it’s rarely dull.

INSIDER SCOOP“VC firms tend to be small and have tangible goals. There’s a lower degree of politics: They tend to be meritocracies.”

Focus on the Bottom Line Venture capitalists, unlike management consultants, have a financial stake in the success of the companies with which they work. There are no gray areas in determining the IRR of your investments, so there’s less room for politicking and favoritism.



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It’s an individual effort in a team context, with the team being a fairly small group of people, and with meritocratic advancement. At the same time, though it may be hard to get a venture capitalist to admit, a good deal of satisfaction comes from telling entrepreneurs how to run their businesses.

Cutting-Edge Exposure In venture capital, you see the formation of cutting-edge businesses and technologies daily. And if you’re lucky or good at what you do, you get to play a role in making them successful. “The best part of the job is working with the companies we’ve funded,” an insider says. “I am always learning new things.”

Helping Build Firms The greatest feeling for a venture capitalist is to see a firm that she has backed for years complete a successful IPO or grow into a thriving company. Not only does this confirm that she backed the right horse, it’s also exciting to be around a startup when it takes off. One insider speaks for many when he says: “I get to observe and participate in the growth of startups, the excitement of watching one get its first customer, make its first million, have a successful IPO. All along, I can make a meaningful impact.”

Bird’s-Eye View Since you don’t have to deal with the operational details of running a business and are evaluating new business proposals in a given industry constantly, you get a broad view of how an industry is changing and developing. As one insider says: “You come out of business school thinking that running a business will be your main function in the business world. In venture capital, that’s not the case.”

Money Although the income can be more deferred than in other industries, it’s pretty darned good. One insider says dryly, “It might take a few years before a venture capitalist gets wealthy.” Successful venture capitalists can make huge amounts of money with less risk, and less chance of burnout, than entrepreneurs can.

WaTch OUT!Not The O.C.As one partner put it to a group of starry-eyed MBAs: “Many of you will choose not to believe me, but I assure you that VC is not a glamorous industry. We watch our own costs closely; unlike investment banks or consulting firms, we have no clients to whom we can pass on travel and entertainment costs. So if creature comforts are what you crave as a sign of success, there are alternatives, but VC is not one of them.”


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No Vacancy It’s really hard to break into the VC industry. Although MBAs can and do find homes in venture capital and there are more openings than ever, many people spend a lot of time chasing jobs that never materialize. If you don’t have some stellar credentials to begin with, you might be better off pursuing other career opportunities.

Concrete Ceiling Venture capitalists are measured by the return on the investments they back and may find themselves out of work if they don’t produce in the early years. “If you don’t have the returns, you’ll totally disappear,” one insider bluntly says. Furthermore, the skills picked up in VC are not easily transferred to other industries. “It’s difficult to go on and take an operational role [after leaving VC]. There’s a fork in the road, and you have to be confident that you want to take [the VC] path,” one insider says.

Necessary Evils It’s hard to find a venture capitalist who doesn’t firmly believe that he has “added loads of value” to entrepreneurial startups and to the world at large. But it’s relatively hard to find a true entrepreneur who doesn’t look at venture capital with some significant reservation, if not worse. Starting and funding companies is a high-stakes business. Venture capitalists are often criticized for pushing companies too hard to grow too fast and go public too soon. It’s not uncommon for them to step on toes and use their ownership stake to force a company to make controversial moves.

In a Lonely Place Many insiders report that this can be a lonely business, not unlike sales, as it is up to you to discover and

nurture new investments—sometimes in competition with your partners. One insider says that, even at portfolio companies where you’ll expend a good amount of your energies, “you won’t directly witness success. You’re in a sense, an outsider.”

INSIDER SCOOP“You take care of your own board seats, and you don’t get pats on the back. It’s like we’re all coaches on staff at Stanford, but we each coach a different sport—one coaches swimming, one tennis, one basketball, and so on.”

It’s a Man’s, Man’s, Man’s World A haven of diversity VC is not. Although some firms do have female partners, venture capital has been a club for white males.

Not Every Idea Flies VCs have a real financial stake in their business. And among the many startup successes, there will always be failures. “People are less aware of it in the good times,” says one insider, “but losses are a reality. There are painful stories of layoffs and dreams that didn’t work out. They’re the ones that keep you up at night.”

A Different Kind of Operator As a venture capitalist, you’re advising companies, but you’re not operating them. Some people may prefer the hands-on work that goes on within an organization. “People with operating backgrounds may not be satisfied in the role. They may miss working on products and having an impact. You’re not in there running the company on a day-to-day basis,” an insider says. “If you like to have that impact, it might not be as satisfying [to go into venture capital].” It’s an interesting quandary for VC associates, because you need that operating background to break in.



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Venture capital management consulting I-banking

Work with entrepreneurs Work with clients Work with numbers

Make the right deals Don’t make any deals Make a lot of deals

Work alone or in partnership Work in teams Work late

Satisfaction: growing companies Satisfaction: promoting change Satisfaction: finding time for a nap

Work five days a week Work seven days a week Work 24/7

Little travel Lots of travel Don’t budge

Work with young companies Work with struggling companies Work with numbers and lawyers

Learn about several industries Learn about several industries Learn about I-banking

Reputation develops over time Quick impression, then move on Don’t screw up

Compensation deferred Compensation great Compensation mind-blowing

No time for lunch or dinner No time for lunch No time to go to the vending machine

Exit at age 56 Exit at age 49 Exit at age 28

Check to see if the dogs will eat the dog food Suggest the dog eat different dog food Dog eat dog

HOw vc stacks upIndustry.insiders.say.that what they like about venture capital is that it combines the financial analysis of investment banking with consulting’s knowledge of a company’s inner workings. Most of our insiders compared venture capital favorably with management consulting, stressing that your financial rewards are directly linked to the success of the companies with which you work. And the travel burden is considerably lighter than that of consulting.

Although investment banking and venture capital may seem similar, insiders tell us that they are very different. In investment banking, a premium is placed

on the number of deals made, whereas in VC choosing the right deals is the key. In investment banking, companies are judged mostly on the numbers, and financial modeling skills are key. In venture capital, it is more important that you understand the main changes in a given industry and be able to read the entrepreneurs. Financial analysis mostly comes into play when the deal is actually being cut. The financial rewards in venture capital are more delayed and more dependent on the success of the fund, but can be larger in the long run. Here’s a tongue-in-cheek breakdown of the three careers:

Majority


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a vc’s vIewOne.perspective.on.venture capital is to consider it against the context of other routes one may follow in financial services. The following 2x2, devised by a partner at a prominent Silicon Valley VC firm, provides a window into how venture capital investors compare with other types of investors. “If you like subjective, nonconsensus decision-making, you’re probably a VC type of person,” the VC says. Those who prefer hard facts are better suited for Wall Street. “The best venture capitalists lead with their nose and intuition. The best bankers lead with financial accounting.”

TyPE OF INVEsTOr

subjective, consensus; momentum investing

Type of investor: public/private

subjective, nonconsensusType of investor: VC

Objective, consensusType of investor: public markets, long positions

(buy and hold)

Objective, nonconsensusType of investor: public

markets, short positions (short sellers)

Instinct

Hard data

Majority Minority

6Getting Hired

The.Recruiting.Process................ 70

What.It.Takes............................. 71

Breaking.In................................. 72

Interviewing.Tips........................ 73

Getting.Grilled............................ 73

Grilling.Your.Interviewer............ 74



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tHe recruItInG prOcess

Venture capital firms’ hiring needs, unlike those of investment banks or consulting firms, are so specialized and limited that VC firms don’t really have to do much recruiting. When they are looking to hire, they often keep it quiet so they won’t be bombarded with resumes. A few of the larger firms may show up at a specific campus (Stanford, Harvard) and conduct some interviews, but generally, VC firms will approach people with the specific skill sets they want, based on referrals from sources they trust. Remember that, in many ways, the venture capital business is all about networking, and this applies as much to the firms’ hiring procedures as it does to their business practices.

That said, insiders report getting venture capital jobs through a few methods. One insider with a pre–business school venture background had a fortunate meeting with a private investor who was looking for some MBAs to start a firm and manage a fund he was putting together. Another insider reports that a Silicon Valley VC firm called her based solely on her resume, which it had gotten from her business school’s job office. She also says the firm hired her after interviewing more than 200 people over a five-year period.

One person we talked to started as an analyst only a couple of years out of college, then was promoted to associate. Another insider moved up from the minors to the majors, starting right after business school as an associate with a smaller, less elite firm in New Jersey, then moving to Texas to become a partner in a new fund, and then getting hired by one of the elite Boston firms. An executive we spoke with in a technology law firm was offered a partnership without any previous experience in VC. Another insider used an old-fashioned method to land a Silicon Valley position: He sent out cover letters that included a credible reference known to the firm’s partners and followed up with a series of phone calls. “A lot depends on the specifics of the venture firm,” one insider says. “Every venture firm is different. There’s definitely a track going into consulting, getting an MBA, getting into startups, and jumping in on the associate level. That’s one way to do it.”

“If you’re in a position that’s not a partner track, and the vast majority are not partner-track, then you need to figure out where this is a stepping stone to—a big corporation, a startup, or another role in private equity,” says an insider.

“The time to join a VC firm is soon after it has raised a new fund. That’s when partners leave and firms hire.”

π WhO DO You kNOW?

VC is a small industry—some insiders refer to it as a cottage industry—and gaining entry depends largely on who you know. “When we look for an associate, our process is very simple,” one VC told us. “We think of all the people we know, we put together a list of job requirements, and we

send it to them. Some people respond, and we run them through an interview process. So the trick is being top of mind for us while we’re writing up the specifications, or being one degree removed from the people we just sent that mail to. That’s how you’re going to get a shot at the job.”


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INSIDER SCOOP“Down cycles have been a good time, albeit with a rare set of opportunities, to enter this business. If asked to grow in a partner direction, you learn all the right skills at the right time.”

UNDErgraDsNone of the venture capital firms we contacted reported hiring undergraduates right out of college. Instead they tended to poach their analysts from consulting firms, brokerage houses, or investment banks that do work in the area in which they were trying to hire.

mbasIt’s possible to get a venture capital job right out of business school. But don’t be too picky; it’s almost unheard of to get multiple offers from VC firms. Firms tend to be interested in the same five to seven resumes—specifically, in those people that show strong technology operating experience with clear progress and success. If you desperately want to get into the industry and you get an offer from a second-tier firm, take it. Another option is to get an operating role and excel. “You need a lot of years of experience with private equity, or a lot of startup experience, or a senior role in a large corporation,” says a VC. “If you’re in business school today and you’re a year or two from graduating, find a firm that just raised a new fund. There’s always going to be a need for associates, analysts, even a principle, depending on your background. The time to join a firm is soon after it’s raised a new fund. That’s when partners leave and firms hire.”

wHat It takesINSIDER SCOOP“Young people going into VC require a special attitude. You have it or you don’t; it’s not something that can be taught. In this business, you take a lot of hits. You need a certain emotional maturity or stability to take a hit. It’s like rock climbing—you can’t let your emotions get in the way of the tactical and strategic decisions to be made.”

Venture capital isn’t the type of industry that hires a slew of college grads each year. Rather, most firms are top-heavy. Many have only general partners and administrative staff, though some larger firms also have associates and analysts. However, even large firms may have only one associate for every three partners.

The venture capital industry typically has been open only to people with certain elite characteristics: a technical BS, an MBA from Harvard or Stanford, ten or more years of high-tech or other industry experience, and previous business dealings with the VC firm that hires them. If you have an MD or PhD combined with high-level industry experience, you might be able to get your foot in the door.

VCs looking to take on new people also look for a host of personal characteristics. Intelligence, good judgment, a quality network, and the ability to promote yourself are essential. An excellent educational background and track record in your jobs—as well as a well-regarded champion who is known to members of the VC firms—are critical for establishing credibility. Intuition also is important.

Remember that there are opportunities beyond the top-tier private Silicon Valley and Boston funds. Chicago, Los Angeles, New York, Philadelphia, and many small cities also offer opportunities in venture capital. Don’t forget to look in areas with high entrepreneurial growth, such as Colorado, Minnesota, North Carolina, Texas, Utah, and the Pacific Northwest. Also, your horizon will broaden if you

tIp>Many firms hire when they raise money for a new fund. One strategy for landing a job is to find out where firms are in their fund raising cycles, and start building relationships at those likely to hire soon.



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include university funds, small–business investment companies (known as SBICs), and venture divisions of corporations in your job search.

If you have a choice of firm, pick one where you can learn from experienced VCs. “When you look at venture capital, the base material that it shares is people who are trying to do something very hard,” a VC says. “Venture is a craft business.” You want to learn from people who know how to do it well and have a track record to prove it. “What history says is that people who have been successful in our business will continue to be successful,” an insider says. Firms that have closed new funds and are deploying money are the best bets for jobs. Study the websites of the firms and the backgrounds of the partners. One entry strategy is to identify firms that lack the specific expertise you can bring them, such as optical networking or biotech, and sell them on how you can fill this gap.

Once in, people skills are paramount. VC is a service industry. “If you lack the ability to schmooze, you’ll have a hard time convincing investors to put their money where your mouth is.” As one VC puts it: “I know a lot of VCs who aren’t gregarious, but they must be real go-getters. You can’t take ‘no’ for an answer. VCs tend to be impatient.”

INSIDER SCOOP“Where most people make the mistake is confusing our industry with other industries. We are a high-touch, high-service craft. It takes years to learn the business.”

Almost all the venture capitalists we talk to offer the same piece of advice for people who want to get into VC: Get some specific industry experience before you try to work in venture capital. It is the network

of contacts and the insider’s knowledge of technology trends that really make the difference in being a good venture capitalist. If you can’t get a job in venture capital, go work for a venture-backed startup. You’ll get great industry experience and, if you’re lucky and take the initiative, you’ll get to know some VCs in the meantime.

BreakInG InGetting.a.job.at a VC firm is notoriously difficult; here are three tips for positioning yourself to get an interview: 1. Do a project. Because VC firms don’t hire many

people on a full-time basis, you may need to get your foot in the door by doing a project for one of them. Alternatively, you might use a class project as a pretext to get an interview.

2. Get industry experience. The best way to get into a VC firm may be to have a meaningful experience in a specific industry. Insiders tell us that people at middle or senior levels in high-tech firms, usually with engineering backgrounds, are the most attractive candidates.

3. Apply to and network with firms that genuinely interest you. Being liked can be a big factor in getting a job at a VC firm. To save yourself the trouble of having to fake it, make sure you choose firms that are genuinely interesting to you. Chances are you’ll get along better with people who have similar interests. Having a passion for whatever the firm’s focus is will come across in an interview and make you someone they’ll want to have on their team.


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IntervIewInG tIpsBecause.VC.firms.hire so few people, you must be a standout or have exceptional connections. Insiders who did find their way in offer the following suggestions:1. Show off your research abilities. A lot of the

work at a venture capital firm involves gathering information about companies and industries, so this should be part of your interview prep. At a minimum, know the VC world’s terrain like the back of your hand, and nail the characteristics that distinguish the firm with which you are talking.

2. Know why you want to work at that firm. Your research will come in handy here. Make sure your story is compelling and explains why the firm’s style, culture, and approach match where you want your life to go.

3. Demonstrate your facility with numbers. You’ll be expected to have strong skills working with numbers and a thorough familiarity with financial models. You should be able to understand and work with IRRs, ROIs, and NPVs without batting an eye.

4. Demonstrate your initiative. VC involves a lot of long-term projects with not much close supervision, so you need to impress upon your interviewer that you are an independent self-starter.

GettInG GrIlledVenture.capitalists.hire.people who will make good investing decisions. Unlike consulting interviews, which focus on seeing how your mind works, venture capital interviewers want to find out how well you understand a particular industry, how good a judge of people you are, and what your instinct is for picking the right horses. Expect specific questions about your opinion of particular startups and about the industry in which you have expressed an interest. Here are some samples:• Tell me about the industry segment or

segments in which you’d like to work, and what your background is in this industry. (The key is specialization. Rather than saying “communications,” zero in on optical switching technology or something equally arcane. The theory is that you can always broaden, but true depth is more useful and more difficult to obtain. Depth is knowing a field inside out: the key players, historical developments, products and customers, informed theories on the future of the business, pets owned by industry leaders…you get the idea.)



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• I’ve got people from the best business schools in the country who want to work here. Why should I hire you? (This question is from a venture capitalist who made $7 million one year.)

• What has your reaction been to the other people who have interviewed you so far? (Remember that being a good judge of people is an important VC skill.)

• What will your sources of deal flow be? (More than any other industry, VC thrives on connections. If you can bring in networks not already available to the firm but within the appropriate lines of business, your value to the firm skyrockets. Your sources can be relatives, friends from your MBA program, or customers and suppliers from previous jobs.)

• Where is the best place to invest right now? (That’s the bottom line.)

• What do you think about Company X, Company Y, and Company Z? (Shows how up to date you are on startups.)

• How many deals do you expect to work on during the first six months you would be working here? What do you expect your level of responsibility to be? (They want to make sure you have realistic expectations—don’t expect to make big investment decisions right away.)

• Why do you want to work in venture capital? Why do you want to work at this firm? (In venture capital, as in other industries, enthusiasm goes a long way.)

• Give me an example of a team on which you have served and the role you played. (VC firms are small, so team chemistry is key.)

GrIllInG yOur IntervIewerThe.following.are.good generic questions that will fit most venture capital interviews. However, you should devise others that specifically pertain to the company with which you’re interviewing. A word to the wise: We have grouped our questions according to risk. Those in the “Rare” section are meant to be innocuous (if boring), while the questions in the “Well Done” section will put fire to your interviewer’s feet.

rarE• What are the most successful investments you’ve

been involved in, and why do you think they succeeded?

• Where are you in your fund cycle?

• What do you like best about your job, and what do you dislike?

• When you decide to back a company, how much are you backing the industry opportunity, and how much are you backing the track record of the founders?

• Which do you enjoy most: picking new investments, doing deals, or managing your portfolio?

• How often are you the lead investor as opposed to the follow-on investor?

• Is the fundraising duty shared by partners or carried out by one person?

mEDIUm• If you were competing with three other firms to

be the lead investor in a hot deal, how would you pitch yourself to the entrepreneurs?


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• How many boards does each partner sit on?

• What do you see as the biggest strategic challenges for your firm over the next three to five years?

• How often do you need to replace company founders with professional management?

• If you hire me as an associate, what are the chances I’ll ever make it to partner?

WELL DONE• Will I get any partner’s carry?

• What is the worst investment decision you have ever made, and why do you think it worked out badly?

• Have you ever invested in a firm and discovered that the pressure on it to return your investment caused it to act against its own long-term interests?

7For Your Reference

Industry.Lingo............................ 78

For.Further.Study........................ 81



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Industry lInGOAngels An important alternative to a VC for startup financing. Angels typically have made a killing somewhere else and now are investing in seed-stage entrepreneurial ventures, typically at $25,000 to $250,000 a pop. Note to entrepreneurs: Before you jump on the VC bandwagon, consider angels. They are an attractive alternative for many funding needs.

At the end of the day Venture capitalists love this expression, because at the end of the day they are judged on bottom-line results. “At the end of the day, it doesn’t matter that Rex is a college buddy of Carter’s. We’ll still take a big hit on that one if the supercomputer market is as dead as I think it is.”

Bandwidth Capacity or time. Its bastardized use is as follows: “Genex’s CEO needs to focus better. His people just don’t have enough bandwidth to implement all of his crazy ideas.” In other words, Genex’s people don’t have the time or capacity due to workload or other constraints to carry out his ideas.

Burn rate How fast a company is using up its capital. “They’ve got $2.4 million cash in the bank and no more coming in the near future. At their current burn rate of $800,000 per month, they’ve only got three months left.”

Carry The portion of returns from an investment fund that is distributed among the general partners (non-VCs would probably use the more mundane word “profits” instead). Possible usage: “When you are interviewing for an associate position, find out if you will get any carry in the fund.”

Cash-on-cash return The total cash return from a fund. If a $50 million fund returns $75 million, the cash-on-cash return is $75 million. (See “Internal rate of return.”)

Check if the dogs will eat the dog food Determine whether customers will buy a startup’s product or service. An ironic phrase, since dogs will eat pretty much anything.

Clawback A clause often buried in the contracts investors and venture capitalists sign that requires VCs to give back past profits if a fund loses so much money the investor’s original investment is jeopardized.

Deal flow Venture capitalists and serious private investors love to talk about deal flow, meaning the number of deals/business plans they are regularly seeing. “Since I funded Yahoo, I’ve had more Internet deal flow than I can handle.”

Deliver against What venture capitalists want their startups to do. When talking to a CFO, you might say: “Well, Bill, do you think your team can deliver against those projections?”

Dial for deals Some larger venture capital firms have been hiring young sharpies to do a lot of the initial scut work to get an edge on the competition. One of these tasks includes calling up hundreds of startup companies to discover potential winners. A partner might say: “I heard that Summit just hired four more 23-year-olds away from McKinsey so they can dial for deals.”

Due diligence The research that must be done to fully understand and determine the worth of any investment opportunity. Critical factors include the state of the


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industry (including competition) and the strengths and weaknesses of the management team. VCs will sometimes hire consultants to conduct due diligence, but it is also a routine internal function.

Exit VC firms (and investors in general) tend to fixate on a company’s exit, or “liquidity event.” This event, typically an IPO or acquisition, lets the VC firm realize a return on investment.

General partners and limited partners General partners, the professional members of a venture capital firm, are usually required to contribute a small amount of their own money to their fund. They manage the fund’s investments and generally take a 20 percent to 30 percent cut of the carry from the fund. Limited partners are the passive investors in a venture capital fund who ante up the cash. They often include wealthy individuals and organizations, such as pension funds and universities. Prohibited from playing an active role in the management of the fund, they generally get 70 percent to 80 percent of the carry.

Getting traction Generating ideas for good investments and then successfully executing them; generally used as a term of praise. “She’s only been at Smith Ventures for eight months, but she’s been getting good traction. One of the companies she brought to us had a fantastic IPO, and we’re excited about two others she’s brought to our attention.”

Hockey stick What the graph of projected revenue looks like in most business plans submitted to venture capitalists, with initially flat revenues (the blade of the hockey stick) suddenly enjoying a sustained, sharp rise (the handle). “Have a look at this business plan. This company’s hockey stick is supported by both existing sales and a strong management team.”

Internal rate of return The IRR is the most common measure of the success of a fund or a partner. It’s the discount rate at which the present value of future cash flows of an investment equals the cost of that investment. More simply, think of it as the profits of the fund or investment expressed in percentage terms.

Kick the tires Perform due diligence—the implication being that performing due diligence is as routine as buying a Mercedes. A partner might say to an associate: “I’ll need you to really kick the tires on this prospect before I present it to the rest of the firm.”

Liquidation/liquidity How fast you can get the cash. Even if you own 40 percent of a company worth $100 million, it doesn’t mean much until you can get somebody to pay for that 40 percent. From the VC perspective, liquidity usually comes from going public with an IPO or being acquired by a third party.

Living dead Companies in which VCs have invested that don’t have a chance of going public or being bought out, but which won’t die, either.

Long tail The “long tail” refers to a trend in e-commerce that makes it profitable to serve niche markets. Think iTunes or Amazon, which vastly expand the array of consumer choices and carefully target products to highly specialized audiences. In this way, e-commerce makes it possible to offer more choices for less while helping people filter out what they don’t want and find what they do want. The long tail refers to this shift away from mass markets toward niche ones—theoretically increasing demand and unlocking new sources of revenue without adding costs by creating better options for more people.



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Mezzanine (or bridge) financing Financing for companies with imminent IPOs, usually within six months or a year, the proceeds of which may be used to repay it.

Move the needle Impact earnings. An opportunity that can’t generate sufficient play doesn’t move the needle. “Strangely enough, Company X didn’t even move the needle—we sold it for only $50 million.”

Net present value NPV is one of the most common measures for evaluating an investment.

New money In the second and subsequent rounds of investment, an entrepreneurial firm will often bring in new investors, generally referred to as “new money.” Keep in mind that new money generally hates to buy out the shares of old money (early-round investors) because doing so doesn’t contribute to the financing of the business itself.

Over the transom The generic arrival route of all unsolicited opportunities. “Usually I get my leads from my friends, but Philinx came in over the transom and turned out to be one of the greatest deals I ever made.” Most venture capitalists are not interested in information that comes in over the transom; they’d rather get referrals from their network of contacts.

Paradigm shift A change in basic assumptions. You’ll hear this term in many business contexts, but it’s particularly overused in venture capital, because it’s what all venture capitalists yearn to recognize and exploit. “The movement to direct sales of memory upgrades represents a paradigm shift in distribution for this industry.” The idea here is that companies that successfully anticipate a paradigm shift will reap exceptional financial rewards.

Preferred stock Corporations have several types of stock, referred to as classes, with different rights attached to them. From the investor’s perspective, the most significant of these is the preferred stockholder class, which has higher-priority claims on a company’s assets, both at dividend time and in the event of a bankruptcy. Venture capitalists almost always take their equity as preferred stock.

Premoney and post-money Let’s say a company is valued at $4 million and you invest $1 million for a 20 percent share in the company. The premoney valuation would be $4 million, and the post-money valuation would be $5 million.

Return on investment The ROI is generally an indicator of a company’s profits or savings. ROI is often used to measure how well a company is doing.

Rounds Financing for startup ventures usually comes in rounds. “I hear that Network Devices is having trouble raising its third round, because its second-round lead investor is balking at the new valuation.” It’s not unusual for an entrepreneurial firm to raise several rounds of capital before reaching profitability or going public.

Seed investment An investment in the early stages of a startup, typically when the company is little more than an entrepreneur with an idea and a plan.

Source Used as a verb: to find likely candidates for investment. Methods include wading through piles of business plans submitted by entrepreneurs, devouring stacks of trade journals, scouting trade shows, and scouring your Rolodex for brains to pick.


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Type 1 errors Investments a VC made that don’t pay off.

Type 2 errors Investments a VC passed on that hit the jackpot.

Valuation The dollar value of a company, as determined by the price investors are willing to pay for the stock. Assigning a value to a startup is notoriously subjective. “I hear that Zipdot raised its valuation from $5 million to $10 million in six months. That shows you what the addition of a marketing guy on the investor relations team will do!”

fOr furtHer studybOOks aND JOUrNaLsThe Venture Capital CycleThis book is for entrepreneurs, venture capitalists, and investors who are looking for an illuminating, scholarly study of the form and function of venture capital funds. Including an historical overview of entrepreneurial finance and comparisons of VC firms, it emphasizes the intrinsically cyclical character of venture capital—from raising funds to growing investments and choosing an exit strategy. First published in 2001, the book is now available in a second edition and often required reading for venture capital courses nationwide.

Paul Gompers and Josh Lerner (MIT Press, 2006)

Venture Capital and the Finance of InnovationWritten by Andrew Metrick, a Wharton professor of finance, this book received strong reviews from The New York Times and industry insiders such as Ted Schlein, a partner at Kleiner Perkins Caufield & Byers, and B-school instructors at Harvard who

describe it as an “excellent bridge between finance theory and venture capital practice.” Readers with no knowledge beyond what may be covered in the first year of an MBA course will find helpful explanations of the relationships between risk and return in venture capital, between strategy and finance, and possible frameworks for modeling R&D investments.

Andrew Metrick (Wiley, 2006)

Venture Capital: The Definitive Guide for Entrepreneurs, Investors, and PractitionersThis book is for both entrepreneurs and small–business owners who are trying to increase their business. It provides a view of venture capital from the inside, and is based, for the most part, on interviews with major players in the industry. In addition, it provides insight into how to make a business attractive, how to negotiate, and how to manage an investor relationship.

Joel Cardis et al. (Wiley, 2001)

Pratt’s Guide to Private Equity SourcesThe bible of the industry, this guide is not far from the fingertips of anyone seeking or providing VC funding. Pratt’s contains a series of essays by industry experts on various VC-related topics: identifying a good business plan, the VC role after financing, investor relations, and mezzanine financing, among others. Even more important than these pearls of wisdom are the names and addresses of VC firms throughout the U.S. The tome also provides the names of partners and staff and the type of financing the firm typically provides (seed, second-stage, leveraged buyout). A caveat: Since Pratt’s surveys a broad range of firms, each of which measures its business differently, the guide’s quantitative analysis of industry trends is not as meaningful as it might be. For instance, when asked by Pratt’s which industries it invests in, a VC firm may list a dozen or more, even when the majority of its investments are concentrated in only one or two sectors. Pratt’s is available in most business school libraries and is updated yearly.



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The Entrepreneur’s Guide to Business LawThis book, primarily aimed at informing budding entrepreneurs of the myriad legal issues they may face, contains a chapter on venture capital useful for entrepreneur and VC alike. The chapter details the legal considerations specific to the negotiation process, as well as the rights and protections afforded the venture capitalist obtaining equity through preferred stock. These protections include liquidation preference, antidilution provisions, redemption rights, and others. One venture capitalist is quoted as saying: “It is extremely rare for people looking for positions in the industry to have any grasp of the legal issues of VC. Being able to talk intelligently about some of the important issues could be a big leg up in an interview.”

Constance Bagley and Craig Dauchy (International Thomson Publishing, 1998)

Venture Capital JournalThis is a monthly industry journal published by Securities Data Publishing and can be found in most business school libraries. It takes a slightly more academic view of the industry. Visit www.vcjnews.com for more information.

WEbsITEsThe Angel Capital AssociationThe Angel Capital Association brings together some 200 angel organizations in North America for networking, to share best practices, and to develop the field of angel investing. Check out its website for its collection of research papers on angel investing.

www.angelcapitalassociation.org

The National Association for Seed and Venture FundsThe National Association for Seed and Venture Funds has an excellent news section that collects articles on the industry every week. It also hosts an annual conference, which is a great place to network.

www.nasvf.org

The National Venture Capital AssociationThe NVCA lobbies Congress on legislation pertinent

to the VC industry and hosts a variety of networking events around the country (and the globe). This site provides an excellent overview of the VC industry; it should be your first stop online. It also provides news updates on VC-related legislation and links to firms and resources.

www.nvca.org

PwC MoneyTree ReportPricewaterhouseCoopers, Thomson Financial, and the National Venture Capital Association put together the quarterly MoneyTree report covering VC nationwide, the only such report endorsed by the industry. Check it out for the most comprehensive and up-to-date firm rankings and industrywide statistics.

www.pwcmoneytree.com

VCFodderVCFodder aims to provide entrepreneurs with “advice, resources, products, and stuff.” The well-organized, personable site offers plenty of articles and information relevant to folks going into VC.

www.vcfodder.com

VentureOneVentureOne is an online resource for information on and analysis of the VC industry. The company provides a free statistical overview of venture investments and other industry news. For a substantial fee, VentureOne also offers data of interest to venture investors, including a searchable database of companies seeking venture capital.

www.ventureone.com

vFinancevFinance provides a listing of business plans and various links and resources for VCs and entrepreneurs.

www.vfinance.com

bLOgsVC blogs open up new vistas for the job seeker. Read some of the more high-profile VC blogs listed below to find out what folks within the industry are thinking and doing.


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Burnham’s BeatA VC investor who focuses on infrastructure software with Celsius Capital, Burnham writes almost exclusively about business themes directly or indirectly related to VC.

billburnham.blogs.com

Due DiligenceThis blog is written by Tim Oren, a partner at the Pacifica Fund.

due-diligence.typepad.com

Feld ThoughtsWritten by Brad Feld, a managing partner at Mobius Venture Capital, Feld Thoughts covers trends in business and regularly offers book reviews on an impressive range of topics and genres.

www.feld.com/blog/

The J CurveA J-curve is the IRR curve over time for an early–stage VC fund, except when it’s a blog—in this case, one written by Steve Jurvetson of Draper Fisher Jurvetson. This blog tends toward cerebral discussion of scientific concepts behind new technologies and can be fascinating if you lean that way.

jurvetson.blogspot.com

TechCrunchStarted in 2005 by Michael Arrington, this blog focuses on Web 2.0 companies and products. It consistently appears on Technorati’s list of most popular blogs and now counts a number of websites (TechCrunch Japan, Mobile Crunch, and Crunch Gear, for example) among its affiliates.

www.techcrunch.com

Venture Blog A number of different contributors post at Venture Blog, which is subtitled “a random walk down Sand Hill Road.” Check out the helpful links to news sources and other VC blogs for more to read.

www.ventureblog.com



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acE yOUr casE - cONsULTINg INTErVIEWsAce Your Case® I: Consulting Interviews, 3rd ed. Ace Your Case® II: Mastering the Case InterviewAce Your Case® III: Market-Sizing Questions Ace Your Case® IV: Business Strategy Questions Ace Your Case® V: Business Operations Questions

INTErVIEWINgAce Your Interview! Beat the Street® I: Investment Banking InterviewsBeat the Street® II: I-Banking Interview Practice GuideThe Wharton MBA Case Interview Study Guide: Volume IThe Wharton MBA Case Interview Study Guide: Volume II

rEsUmEs & cOVEr LETTErsKiller Consulting ResumesKiller Cover Letters & ResumesKiller Investment Banking Resumes

JOb hUNTINgGetting Your Ideal InternshipThe International MBA Student’s Guide to the U.S. Job SearchJob Hunting A to Z: Landing the Job You WantJob Hunting in New York CityJob Hunting in San Francisco

FINaNcIaL sErVIcEs carEErs25 Top Financial Services FirmsCareers in AccountingCareers in Asset Management and Retail BrokerageCareers in Investment BankingCareers in Venture Capital

FINaNcIaL sErVIcEs cOmPaNIEsDeutsche BankGoldman Sachs GroupJPMorgan Chase & Co.Merrill Lynch & Co.Morgan StanleyUBS AG

cONsULTINg carEErs25 Top Consulting FirmsCareers in Management ConsultingCareers in Specialized Consulting: Information TechnologyConsulting for PhDs, Lawyers, and Doctors

cONsULTINg cOmPaNIEsAccentureBain & CompanyBooz Allen HamiltonBoston Consulting GroupDeloitte ConsultingMcKinsey & Company

carEEr maNagEmENTBe Your Own BossChanging Course, Changing CareersFinding the Right Career PathNegotiating Your Salary and Perks Networking Works!

INDUsTrIEs aND carEErs: gENEraLIndustries and Careers for EngineersIndustries and Careers for MBAsIndustries and Careers for UndergraduatesMillion-Dollar Careers

INDUsTrIEs aND carEErs: sPEcIFIcCareers in Advertising and Public Relations Careers in PharmaceuticalsCareers in Brand ManagementCareers in Consumer ProductsCareers in Entertainment and SportsCareers in Health CareCareers in Human ResourcesCareers in Information TechnologyCareers in MarketingCareers in Nonprofits and Government AgenciesCareers in Real EstateCareers in RetailCareers in SalesCareers in Supply Chain Management

wetfeet InsIder GuIdes serIes

careers in venture capital and private equity 2008

Documents