Nink's Guide to Career in Venture Capital

What is Venture Capital (VC)?

Venture capital (also known as VC or Venture) is a type of private equity capital typically provided to early-stage, high-potential, growth companies in the interest of generating a return through an eventual realization event such as an IPO or trade sale of the company. Venture capital investments are generally made as cash in exchange for shares in the invested company.

Venture capital typically comes from institutional investors and high net worth individuals and is pooled together by dedicated investment firms.

Venture capital is most attractive for new companies with limited operating history that are too small to raise capital in the public markets and are too immature to secure a bank loan or complete a debt offering. In exchange for the high risk that venture capitalists assume by investing in smaller and less mature companies, venture capitalists usually get significant control over company decisions, in addition to a significant portion of the company's ownership (and consequently value).

What is Venture Capitalist?

A venture capitalist (also known as a VC) is a person or investment firm that makes venture investments, and these venture capitalists are expected to bring managerial and technical expertise as well as capital to their investments.

What is VC fund?

A venture capital fund refers to a pooled investment vehicle (often an LP or LLC) that primarily invests the financial capital of third-party investors in enterprises that are too risky for the standard capital markets or bank loans.

Source: Wikipedia
https://en.wikipedia.org/wiki/Venture_capital

VC in Detail

VC firms are buy-side capital firms that control a fund/pool of money to spend on buying an equity interest or assets of operating companies.

With venture capital you can sometimes obtain large quantities of money, and this money can help businesses with big start-up expenses or businesses that want to grow very quickly.

VC firms have many ways to cash out. However, 2 preferred ways to cash out are;

1) IPOs
2) Sale to other companies (usually bigger corporations)

However, due to the current state of the economy, IPO market has dried up. Many corporations are reducing their plans in VC investment/purchase to some degree.
However, appetite for investment/purchase in companies specializing in software, semiconductors, bioinformatics, biotech, medical devices, and security technologies are steady even in dismal economy. (as of March 2009)

Typically the VC will invest the entire fund and then anticipate that all of the investments it made will liquidate in few years. (3 to 7 yrs???) That is, the VC expects each of the start-up it invested in to either go public or to be acquired by another company. In either case, the cash in-flows from the IPO or sale to another company lets the VC firm to cash out and place the proceeds back into the fund. When the whole process is over, the goal is to have more money than the original investment amount in the fund. The fund is then reimbursed back to the investors based on the amount each one originally invested.

Various Stages of VC Investment


The VC invests the fund in some number of start-ups. Each firm and fund has an investment profile. For example, a fund might invest in technology startups. Or the fund might invest in electric car start-up seeking their second round of financing. Or the fund might try a mix of companies that are all preparing to do an IPO in the next few months. The profile that the fund chooses has risks and rewards that the investors know about when they invest the money.

Stage 1: Seed Stage

Initial stage where investment offers are first made to a start-up. Start up might be just an idea. Or it can also be a company with little or no revenue. For example, a start up enterprise submits a business plan or overview to a VC firm. After the initial review, if the VC firm is interested, the firm invites the individuals involved in the start-up for a meeting.

Stage 2: Institutional Round - Initial

At this stage, the company is running an actual business. However, their revenue stream isn't as impressive. Further investment/financing is required. Company is currently running on a small scale, and plans to expand nationally or globally. With further financing, the company hopes to expand the size of their staff/dept. They might even hope to open more offices around the country.

Stage 3: Institutional Round - Follow up

At this stage, the start-up has successful business with customers, products, and revenue. Further financing is needed in order to support operations to grow customer base, invest in R&D, spend money in advertising, and expand headcount. At this point, the company is big enough to be recognized by the public, and covered by the press.

Stage 4: Growth Stage

Major financing is required to support a huge expansion at this point. The company is now a very structured organization with a CFO, CEO and etc. IPO is possibly considered at this point. The company has shown a steady record of revenue, and kept expenses down to show a strong profit. If IPO is viable, then the company will not use VCs or other seed investors in order to finance operation in the future.

However, the company can turn to bridge financing before pursuing IPO. It's a round of financing from private investors to bolster its balance sheet to look more attractive for future IPO. It's also a good way to protect the company in case the IPO plan fails. Banks and other institutions often supply bridge financing for upstart companies, sometimes in exchange for taking a bigger role later on when that company goes public.

Sources of Capital


You often read about VCs funding Dot Com companies, and they fund all sorts of other ventures as well. The traditional approach is for a VC firm to open a fund. A fund is a pool of money that the VC firm will invest in start-ups. The VC gathers money from wealthy individuals and from companies, pension funds, etc that have money which investors wish to invest. The VC will raise a fixed amount of money in the fund.

Capital is mostly derived from pension funds (set aside by corporations for employee retirement etc). Other sources include endowments of non–profit institutions (universities, museums, foundations, insurance companies, banks, wealthy individuals, and corporations).

Major source of money is from pension funds' "alternative investment" portfolio. Small portion of total pension fund (between 5-10%) is allocated to "alternative investment" portfolio in order to diversify its investment. Pension fund investment managers need to invest in a way that the pension funds' values will be large enough to cover the needs of the client corporations and other institutions. To maximize return and minimize risk, the pension money is invested in many places such as stocks, bonds, currencies, real estate and “alternative investments". Typical expected ROI on "alternative investment" portfolio is about 15-30%. However, this high ROI is associated with bigger risk compared to stocks, bonds, currencies, and other type of investments.

Recently, PE firms increased their investment in VC funds. Some are even investing directly into start-up companies.

Prototype: Try, Try Again, or Maybe Not

IF at first you don’t succeed, it doesn’t matter that you tried.

The basic idea behind the embrace of failure is this: Entrepreneurs who have built and then tried to save a company have seen what does and doesn’t work. This experience is viewed as excellent preparation for tough situations that might arise in a new venture.

Already-successful entrepreneurs were far more likely to succeed again: their success rate for later venture-backed companies was 34 percent. But entrepreneurs whose companies had been liquidated or gone bankrupt had almost the same follow-on success rate as the first-timers: 23 percent.

In other words, trying and failing bought the entrepreneurs nothing — it was as if they never tried. Or, as Professor Gompers puts it, “for the average entrepreneur who failed, no learning happened.”

https://www.nytimes.com/2009/03/22/busin ... f=business

List of Top VC Firms

A - K
Atlas Venture
Located: Waltham, MA
Founded: 1980
Partners / Directors: Barry Fidelman
Specialty: Technology and Life Sciences

Azione Capital
Located: Singapore
Founded: 2006
Partners / Directors: Nicholas Chan, Soon Choo Teck, Lee Keh Sai
Specialty: Interactive digital media, mobile communications, wireless technology, energy, maritime

Benchmark Capital
Located: Menlo Park, CA
Founded: 1995
Partners / Directors: Neel Das (executive officer)
Specialty: Technology & Financial Services

Bessemer Venture Partners
Located: Menlo Park, CA; Larchmont, NY; Boston, MA; Herzliya, Israel; Mumbai, India;
Founded: 1911
Partners / Directors: David Cowan, Rob Chandra, Rob Stavis, Ed Colloton, Robert Goodman (managing partners)
Specialty: Technology & Services

Canaan Partners
Located: Menlo Park, CA; Westport, CT; Gurgaon, India; Herzliya, Israel
Founded: 1987
Partners / Directors: Eric Young, Deepak Kamra, John Balen, Maha Ibrahim, Brent Ahrens, Wende Hutton, Stephen Bloch (general partners)
Specialty: Technology and Healthcare

Clearstone Venture Partners
Located: Santa Monica, CA; Menlo Park, CA; Mumbai, India
Founded: 1998
Partners / Directors: Bill Elkus, Jim Armstrong, Erik Lassila, William Quigley, Sumant Mandal (managing directors)
Specialty: Internet, consumer, communications, software

Draper Fisher Jurvetson
Located: Menlo Park, CA
Founded: 1985
Partners / Directors: Timothy C. Draper
Specialty: Technology and Technology Services

Enterprise Partners
Located: San Diego, CA
Founded: 1985
Partners / Directors: Jim Berglund, Bob Conn, PhD, Carl Eibl, Drew Senyei, Kleanthis Xanthopoulos, PhD (managing directors)
Specialty: Technology and Life Sciences

Fidelity Ventures
Located: Boston, MA
Founded: 1970
Partners / Directors: Rob Ketterson
Specialty: Information Technology

Highland Capital Partners
Located: Boston, MA; Menlo Park, CA; Geneva Switzerland and Shanghai China
Founded: 1988
Partners / Directors: Sean Dalton, Bob Davis, Bob Higgins, Paul Maeder, Dan Nova
Specialty: Consumer, Healthcare, Info & Comm Technology and Internet & Digital Media

Insight Venture Partners
Located: New York, NY
Founded: 1995
Partners / Directors: Larry Handen, Jeff Horing, Jeff Lieberman, Ben Levin, George McCulloch, Jerry Murdock, Deven Parekh, Peter Sobiloff, Mike Triplett
Specialty: Software and Internet

Kleiner, Perkins, Caufield & Byers
Located: Menlo Park, CA
Founded: 1972
Partners / Directors: Brook Byers
Specialty: Alternative energy, technology & Life Sciences

M - W
Mayfield Fund
Located: Menlo Park, CA
Founded: 1969
Partners / Directors: James Beck, Navin Chaddha, Yogen Dalal, Kevin Fong, Raj Kapoor, David Ladd, Allen Morgan, Janice Roberts, Robin Vasan (managing directors)
Specialty: Wireless, Consumer, Software, Semiconductors

New Enterprise Associates
Located: Menlo Park, CA; Baltimore, MD & Reston, VA
Founded: 1978
Partners / Directors: Peter Barris
Specialty: Information Technology and Healthcare

Oak Investment Partners
Located: Westport, CT; Palo Alto, CA; Minneapolis, MN
Founded: 1978
Partners / Directors: Bandel Carano, Ed Glassmeyer, Fred Harman, Ann Lamont (managing partners)
Specialty: Information Technology and Healthcare

Point Judith Capital
Located: Providence, RI
Founded: 2001
Partners / Directors: Sean Marsh, David Martirano, Gina Raimondo (general partners)
Specialty: Communications, Internet, Healthcare and Software


Quicksilver Ventures
Located: Saratoga, CA
Founded: 2001
Partners / Directors: Maury Domengeaux, Randall Meals, Steve Schlossareck (Managing Directors)
Specialty: Secondary Venture Capital (acquire existing corporate and venture portfolios). Investment Focus: Emerging Technologies such as Video and Imaging; Networking and Mobility; Data Management, Services and Security; Storage Components and Systems; Enterprise Applications

Scottish Equity Partners
Located: London, UK; Glasgow, Scotland
Founded: 1991
Partners / Directors: Calum Paterson (Managing Partner), Andrew Davison, Brian Kerr, Gary Le Sueur, Fearghal Ó Ríordaín, Stuart Paterson, David Sneddon, Richard Sparrow
Specialty: Information Technology, Healthcare and Energy technology

Sequoia Capital
Located: Menlo Park, CA
Founded: 1972
Partners / Directors: Kui Zhou (principal), Don Valentine (founder), Neil Shen (founding managing partner)
Specialty: Components, Systems, Software and Services

Sevin Rosen Funds
Located: Dallas, TX; Palo Alto, CA; Austin, TX; San Diego, CA
Founded: 1981
Partners / Directors: Jon Bayless, Steve Domenik, Steve Dow, Dave McLean, Al Schuele, Charles Phipps, John Jaggers, Jackie Kimzey, John Oxaal, Nick Sturiale (general partners)
Specialty: Technology

Sigma Partners
Located: Boston, MA; Menlo Park, CA; San Ramon, CA
Founded: 1984
Partners / Directors: Robert Davoli, Lawrence Finch, Gregory Gretsch, Clifford Haas, John Mandile, Mark Pine, Peter Solvik, Bob Spinner, Wade Woodson (managing directors)
Specialty: IT: Software, Hardware, Semiconductors

Village Ventures
Located: Williamstown, MA
Founded: 1999
Partners / Directors: Matt Harris, Bo Peabody
Specialty: consumer media and retail, health care and financial services

Wellington Partners Venture Capital
Located: Munich, Germany
Founded: 1991
Partners / Directors: Rolf Christof Dienst, Frank Böhnke
Specialty: Technology, Digital Media, Life Sciences

John Doerr's Startup Manual


If you could ask only one person for advice about starting a company or joining a startup, chances are you'd pick John Doerr.

The 46-year-old partner at Kleiner Perkins Caulfield & Byers (KPCB) is, by all accounts, the most influential venture capitalist of his generation. Over the last 16 years, he has built an unrivaled record of backing industry-defining start-ups in fields as diverse as computing, (Sun Microsystems, Compaq), software (Lotus, Intuit), biotechnology (Genentech, Millennium) and the Internet (Netscape, Amazon.com). But for all of those past triumphs, Doerr says, "there's never been a better time than now to start a company. In the past, entrepreneurs started businesses. Today they invent new business models. That's a big difference, and it creates huge opportunities."

https://origin-www.fastcompany.com/magaz ... doerr.html

Bschool - How to Position Yourself for a VC Job


Once you are in bschool, first thing you should do is to join VC clubs at your school. This will allow you to attend PE?VC related conferences, meetings, and workshops available exclusively to club members.

Once you get yourself familiarized with different types of VCs, you should check out which VC firms recruit at your school and typical candidates they look for.

East Coast VCs look for students with technical background with finance/accounting concentration or experience. West Coast VCs tend to look for students with plenty of experience under their belt with sharp operations background. (mainly because West Coast VCs are mainly from Silicon Valley - where operations management is in demand)

Then, take classes or acquire skills that VC firms look for:

1) Data Mining, Industry/Company Research - positions at VC firms will require you to do due diligence on a company or to do extensive research in certain market/industry. You must be able to find the right information you need and then extract the only the required/key information from all the data available in front of you.

2) One would need to give strategic advice to portfolio companies regarding HR related issues, technical analysis, execution, sales strategy, logistics & distribution, growth strategy, SWOT analysis and product mix.

3) If you work at a VC firm, you will get plenty of face time with various individuals. Theirfore, relationship management is everything and one's communication/socialization skills will be key to success.

4) One should be able to perform superb financial analysis. This requires an extended knowledge of accounting. Because you will invest in the start-ups in specific industry, you will need to be aware of latest industry trend and info in order to get the credibility that you need to do the job. You need to know the latest hot companies, top managers, the industry history, and the latest rumors and trends. This is required in order to give advice in competitive positioning, alliances and partnerships, and executive hiring.

5) If a VC firm is looking for operations managers, they value one's experience in Fortune 500 companies - especially rotational or managerial experience in areas such as marketing, finance, sales, and business development.

6) Trained Business Mind - this is required to make sound investment decisions. Deep rich
experience is less important than strong intuition, a curious mind, and vision.

Typical Backgrounds of VC Candidates:

1) MC or IB experience after undergrad.
2) Experienced professionals from Fortune 500 companies in areas related to the VC's specialty such as IT, healthcare, biotech, etc.

Very few VC firms hire undergrads. Otherwise, MBA grads with science/engineering undergrad degree are prime candidates for VCs. A strong candidate will have a winning personality, an analytical mind and keen business judgment. VC firms are tiny compared to most other
professional outfits. They are high-pressure partnerships where the alchemy of strong personalities becomes critical to the success of the firm. VC candidates often interview with every professional at a firm—and typically, everyone in the firm has veto power. Recruiting at VCs are not in large numbers as IB/MC. VC firms are small in headcount and employee turnover rate is relatively low.

To get interviews:

1) Use Bschool On Campus Recruiting
2) Networking or Use Your Own Contacts
3) Private Fellowships for Bschool Students

VC interviews are not tricky. Usually, there are no brainteasers or case questions. (if you can do GMAT Word Problems, then you will be fine) A VC interview is a chance for VCs to get a sense of you, the same way they do when meeting with Start-ups. That’s how VCs make investment decisions—by gut instinct. Hiring is no different.

The interviews are often very personal in nature. You may be asked questions about your family, your friends, your former co-workers and bosses, even your romantic relationships. The VC wants to know if the candidate can bear to work closely with them and depend on you while at work.

However, finance related VC interviews are completely different. Be prepared to answer questions about company strategy, investments that should be considered, or new directions
and paths to be taken. You should therefore do enough research to understand the corporation’s lines of business, current strategic direction and challenges that it faces.

Venture capital suffering from IPO, acquisition drought

The venture capital industry in the U.S. is suffering from the worst liquidity drought on record, according to new data released by Dow Jones VentureSource. With no IPOs in eight months, the report also concludes that M&A activity isn’t much help either.

https://www.masshightech.com/stories/200 ... ought.html

Angel Investors’ Wings Are Being Clipped

Entrepreneurs had a harder time getting angel funding to get their start-up idea off the ground last year, according to a new report from the Center for Venture Research at the University of New Hampshire. In 2008, angel investors funded young companies at the same pace as they did the year before, but they invested significantly less in each start-up.

https://bits.blogs.nytimes.com/2009/03/3 ... g-clipped/

Start-Up Gets Course in Survival

In October, when Wall Street was already wallowing in the financial crisis, many in the technology industry still thought they might be insulated from the worst of it.

Sequoia Capital, the venture capital firm that backed Google, Yahoo and YouTube, scared them straight when it hastily gathered the chief executives of the 100 American companies in its portfolio for a stark wake-up call that rocked Silicon Valley as well as start-ups elsewhere.

https://www.nytimes.com/2009/04/08/techn ... ss&emc=rss

After the upheaval at Jive, the buttoned-up Mr. Hersh promised employees that if they sold $8 million worth of software in the fourth quarter, he would commemorate it with a tattoo.

They succeeded, and on a rainy January afternoon, he called a tattoo artist into the office break room, drank a glass of Scotch, rolled up his gray dress pants, stuck his ankle out and braced himself while the tattooer inked a Roman numeral eight, designed by the same employee who had created the company logo.

Talk about commitment

-pradeep

Presentation courtesy of Bain San Francisco

great thread. somewhere in the middle it mentioned that east coast does VC mostly for finances, and west coast is more for tech. and operations. do you know of any big east coast VC funds that have a heavy emphasis on operations / biotech?

wow fantastic post. thank you for the info

https://www.prnewswire.com/news-releases ... 12777.html

A little plug for my VC Fund.

I have another list for VC

Tier 1
Accel Partners
Benchmark Capital
Charles River Ventures
Kleiner Perkins Caufield & Byers
Matrix Partners
Sequoia Capital

Tier 1.5
Alta Partners
Apax Ventures
Austin Ventures
Battery Ventures
Draper Fisher Jurvetson
New Enterprise Associates
Sevin Rosen
Summit Partners
Technology Crossover Ventures

I don't entirely agree with your list, but it's reasonable. That said, here's the most recent Redherring list - it's reasonably respected in the VC world. Moreover, I included a list to the Midas 100. These two lists essentially define who's who in the industry. Of course I have some issues with any list that doesn't place KPCB and Sequoia on top, largely because I am a huge fan of Doerr and Moritz, but I suppose those selections are reflected on the Midas list.

https://www.redherring.com/Home/26206
https://www.forbes.com/lists/2009/99/mid ... _Name.html