venture capital
TRANSCRIPT
Venture Capital & Beyond – Other people’s money
Student Seminar 5
Group 5 (Aditya, Sumit & Vivek)
(Venture Capitalists, through time)
“The average duration of a
relationship between a venture
capitalist and the entrepreneur is
probably longer than the average
duration of a marriage in
California, and rarely less intense.”
The Myth
Roadblocks to new businesses• Lack of business experience
• Several ways to fail with only a few roads to success
• Extreme amounts of required commitment
• Fierce competition
• Scarcity of capital
Venture Capitalism!
Terminology: Entrepreneurs
Is a person who undertakes and
operates a new enterprise or
venture and assumes some
accountability for the inherent
risks
Terminology: Venture Capital
A type of private equity capital typically
provided by professional, outside investors
to new, growth businesses. Generally made
as cash in exchange for shares in the
invested company, venture capital
investments are usually high risk, but offer
the potential for above-average returns.
Terminology: Venture Capitalist
A person who makes such investments
Terminology: Venture Capitalism
Professionally managed, equity-
like financing of young, growth-
oriented private companies.
Terminology: Angel Investor
Is an affluent individual who provides
capital for a business start-up, usually
in exchange for ownership equity.
They typically invest their own funds,
unlike venture capitalists, who
manage the pooled money of others
in a professionally-managed fund
What is Venture Capitalism?• Venture Capitalist Firms:
– Raise pools of capital
– Finance young growth-oriented companies
– Secure role in management through equity securities
– Aid in the development of companies through shared experience, guidance and networks
– Not afraid to take risks
– Long-term orientation
Differences with Alternate forms of Equity Financing• First, high level of expertise to perform
technological monitoring and to actively manage the companies they finance.
• Second, the capital infusions in the firms financed by venture capital are staged in several rounds.
• Third, VCs have extensive control rights (e.g., board rights, voting rights). This form of financing is in contrast with standard bank debt.
(banks traditionally perform accounting monitoring but no technological monitoring and, outside
default, their control is limited to assets used as collateral)
Origins of Venture Capitalism
The Participants
The Process
Our Analogy
Our Analogy
Failures
Shevchenko Ashley Cole SWP
Successes
Terry Peter Cech Lampard
Failures
Ramos Cannavaro Diarra Baptista
Successes
Beckham Casillas
Our Analogy
Our Analogy
Venture Capital in the Valley
Venture Capital in Silicon Valley
Shaped by successive waves of innovation and entrepreneurship, emergence of new
forms of financing (venture capital), and the evolving military and commercial demand for
electronic and biomedical products
1930s
2005
Evolution of Venture Capital in Silicon Valley• Venture capital in Silicon Valley grew by a process of
combination, division, and incessant networking:
Venture Capital in Silicon Valley• VC activities in Silicon Valley started much later than in
Boston
• American Research and Development (1946): First non-family VC organization
• Draper, Gaither & Anderson (1958): first west-coast VC firm
• During the 70’s and 80’s, the availability venture capital exploded mainly due to two reasons:
– emergence of the venture capital industry on Sand Hill
Road
– the successful $1.3 billion IPO of Apple Computer
Silicon Valley & Route 128
• Why are there differences between the VC industries in Silicon Valley and Route128 in Boston?
Access to venture Capital in the Valley
• Start-ups receiving VC at a younger age are more likely to go out of business, be it acquired by another firm, to go public, to attain profitability, and tend to have more employees.
• Simply More Money or More than Simply Money
• Joint investment partnership
• Concentration of well-developed innovation supporting industries
Access to Venture Capital and performance of start-ups
(Saxenian, 1994)
“When I started Convergent
[Technologies], I got commitments
for $2.5 million in 20 minutes from
three people over lunch who saw
me write the business plan on the
back of a napkin. They believed in
me. In Boston, you can’t do that.
It’s much more formal.”
Sand Hill Road
KLEINER PERKINSCAUFIELD & BYERS2750 Sand Hill Rd.,
REDPOINT
VENTURES
3000 Sand Hill Rd.,
NEW ENTERPRISE
ASSOCIATES
2490 Sand Hill Rd.,
BENCHMARK
CAPITAL
2480 Sand Hill Rd
SEQUOIA CAPITAL3000 Sand Hill Rd.,
Top-notch freeway (the scenic and relatively uncongested Highway 280), ultra-exclusive residential areas (adjacent Atherton and Woodside), a leading research institution (Stanford), a nearby cultural center (San
Francisco) and a booming industrial corridor (Silicon Valley).
HP Garage Google
Microsoft
Research
Advanced Micro
Devices
Xerox Corporation
Sand Hill Road
Future of Venture Capital
Future of Venture Capitalism
• Are there limits of to the growth?
• Success of a few well-known ventures
• Capital firms have created a large number of imitators
• New-Comers Do not Realize the subtleties in the Business
• Why should it not be possible to have venture capital funds offered to the general public through mutual fund?
Note: While it is easy to increase the amount of funds by a tenfold, the number of good coaches cannot be
increased at the same rate
So what’s the
secret to Venture
Investing?
Take some geeks to lunch.....
...and don't forget to pay!
Agenda• Roadblocks to new businesses
• Origins of Venture Capitalism
• What is Venture Capitalism?
• Participants
• The process of Venture Capitalism
• Analogy
• Venture Capital in SV
• Evolution of VC in SV
• Silicon Valley & Route 128
• Access to Venture Capital and performance of start-ups
• Future of Venture Capitalism