Venture Capital & Beyond – Other people’s money

1. Venture Capital & Beyond – Other people’s money Student Seminar 5 Group 5 (Aditya, Sumit & Vivek)

2. (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.”

3. The Myth

4. 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

5. Venture Capitalism!

6. Terminology: Entrepreneurs Is a person who undertakes and operates a new enterprise or venture and assumes some accountability for the inherent risks

7. 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.

8. Terminology: Venture Capitalist A person who makes such investments

9. Terminology: Venture Capitalism Professionally managed, equity-like financing of young, growth-oriented private companies.

10. 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

11. 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

12. 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)

13. Origins of Venture Capitalism

14. The Participants

15. The Process

16. Our Analogy

18. Our Analogy

19. Failures Ashley Cole Shevchenko SWP

20. Successes Peter Cech Lampard Terry

21. Failures Ramos Cannavaro Diarra Baptista

22. Successes Beckham Casillas

23. Our Analogy Good Venture Capitalistic Relationship

24. Our Analogy Bad Venture Capitalistic Relationship

25. Venture Capital in the Valley

26. 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 2005 1930s

27. Evolution of Venture Capital in Silicon Valley • Venture capital in Silicon Valley grew by a process of combination, division, and incessant networking:

28. 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

29. Silicon Valley & Route 128 • Why are there differences between the VC industries in Silicon Valley and Route128 in Boston?

31. Access to venture Capital in the Valley

34. Access to Venture Capital and performance of start-ups • 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

35. (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.”

36. Sand Hill Road REDPOINT VENTURES 3000 Sand Hill Rd., BENCHMARK CAPITAL 2480 Sand Hill Rd NEW ENTERPRISE ASSOCIATES 2490 Sand Hill Rd., KLEINER PERKINS CAUFIELD & BYERS 2750 Sand Hill Rd., SEQUOIA CAPITAL 3000 Sand Hill Rd.,

37. Sand Hill Road Google HP Garage Microsoft Research Advanced Micro Devices Xerox Corporation 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).

38. Future of Venture Capital

39. 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 Future of Venture Capitalism

43. So what’s the secret to Venture Investing?

44. Take some geeks to lunch..... ...and don't forget to pay!

47. 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