Insider Guide Careers in Venture Capital PHẦN 2 pot

Top investment sectors for VC have remained fairly steady over the last 2 years, with biotechnology gaining momentum to displace telecommunications as the second biggest investment sector after software. 12 The Industry Share of Total Industry Amount ($M) VC Invested (%) Deals Software 1,005 20.79 174 Biotechnology 945 19.53 74 Telecommunications 547 11.31 64 Networking 384 7.94 45 Medical devices 347 7.18 56 Sources: WetFeet research; MoneyTree Survey (PwC/Thomson Venture Economics/NVCA). Top VC Investment Sectors in First Quarter 2004  The Bottom Line Finding a job in VC isn’t hopeless, but it will be hard. “It’s hard to target. There isn’t a formula you can control. It’s more ambiguous than getting a job at Procter & Gamble or in management consulting,” says an insider. Firms are selective, and finding a job requires good luck. “The way to gain access to this industry is to do something great that is visible to people in this industry,” says an insider. “There’s not a lot on your resume that will tell whether you will do well in venture capital.” Operating experience at a technology company is a must in today’s environment. “Go somewhere where you can build a base of judgment and behavior in business, and excel in some capacity,” says an insider. “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.” Finally, if you’re hell-bent on a career in VC, don’t give up. “If you strategize, are smart about looking for the opportunities, there will be some amount of opportunity for you to get in there,” says an insider. 13 The Industry How the Industry Breaks Down The venture capital world is made up of only a few hundred small partnership firms, usually employing between two and 40 people. These firms include the famous players—Kleiner Perkins Caufield & Byers, The Mayfield Fund, Bessemer Venture Partners—and many others, some of which are listed in the “Industry Lineup” 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 want to be part of the next phenomenally successful start-up. Though the firms compete aggressively for deals, they also often combine into syndicates and invest in favored start-ups as teams. Despite these shared characteristics, each firm has adopted its own approach to succeeding in the competitive and risky world of start-up financing. Firms differ in fund size, regional focus, industry focus, and stage of investing. These differences are noted in the “Industry Lineup” that follows this section. You can find venture capital firms in cities as varied as Kirkland, Washington; Austin, Texas; and Fort Lee, New Jersey. 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, in recent years most VC firms have focused on technology-intensive fields such as software, biotechnology, and telecommunications, forgoing traditional investment areas such as manufacturing. 14 The Industry 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. Private VC Firms Early- to Mid-Stage Firms in the early- to mid-stage segment follow the classic VC model: Find an entrepreneur with a great idea and business plan, sprinkle with cash, bake for several years, and sell for a hefty chunk of change. Early-stage (or seed) investments are the riskiest, since many start-ups tank. Still, they often provide the highest returns since investors coming in early can pay a lower price for a given share of equity. In the 1990s, as many traditional VC firms started to focus on middle- and late-stage investments, seed financing increasingly became the province of newer firms and angel investors—entrepreneurs or corporate executives who’ve made it big and have money to spend. Mid- to Late-Stage Mid- to late-stage firms, many of which also operate at the seed level, provide funds to companies that are already established—those that have a product, sufficient employees, and perhaps even revenues. At these stages, firms inject more capital into the company to help it become profitable so that it will attract enough interest to either be acquired by a larger company or go public. 15 The Industry Growth Buyout Funds Some 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. Financial Services Firms Where there’s money, of course you’ll find I-bankers. Banks such as Morgan Stanley and Citicorp will invest in the later stages. The aim is pretty much the same as that of the VCs: to make a killing through either an IPO or an acquisition. Corporate Funds As 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. For example, Microsoft invested in Qwest Communications, a telecom company that is building a fiber-optic network, to help it deliver NT-based software. 16 The Industry Industry Rankings The venture capital industry isn’t given to easy rankings the way companies in other industries are. One reason is that firms are fairly secretive about their results, and as privately held companies, are not required to disclose them. A 2001 Red Herring ranking by ten factors including disbursements, longevity, experience, and IPOs/sales put Kleiner Perkins number one, followed by Accel Partners and Matrix Partners. Sequoia Capital, Oak Investment Partners, and Mayfield tied for fourth. Although Red Herring has not ranked the firms since then, the reputations of these firms remain strong. The ranking on the next page is for entrepreneurs and shows which firms funded the most seed and early-stage companies in 2003. The chart is more a gauge of how active VC funds were than of their relative strength or market position. 17 The Industry 18 The Industry Rank Firm Early-Stage Deals 1 Maryland Technology Development Corp. 15 2 Maryland Dept. of Business and Economic Development 12 3 Village Ventures 11 4 Draper Fisher Jurvetson 9 Mobius Venture Capital 9 Sevin Rosen Funds 9 7 Band of Angels 8 Mayfield Fund 8 10 Highland Capital Partners 7 Ignition Partners 7 ITU Ventures 7 Matrix Partners 7 New Enterprise Associates 7 U.S. Venture Partners 7 Source: Entrepreneur , July 2004. Top Ten VC Firms for Entrepreneurs in 2003  Industry Trends The Fundraising Bandwagon In 2003, VC firms raised the smallest amount of money since 1995. But 2004 is another story. Battery Ventures, Charles River Associates, Kleiner Perkins, New Enterprise Associates, and Kodiak Venture Partners are a few of the firms with new funds ready to deploy. New Enterprise even topped $1 billion, at $1.1 billion, the first billion-dollar fund since 2001. Technology Crossover Ventures came close with its $900 million fund. Generally, however, these funds are smaller than their predecessors. All this new money, along with the stock market’s success in 2003 and early 2004, has created rising valuations for early- and later-stage venture-backed firms. In 2003, it took 6 to 9 months of fundraising and 30 to 40 first-time meetings with VCs before entrepreneurs were raising any cash. In 2004, entrepreneurs are finding it much easier to raise money, with many entrepreneurs canceling first-time meetings. Economic Optimism Improvements in the economy are partly responsible for the mini-mania gripping the VC industry. Since 2002, the Nasdaq has nearly doubled. The IPO market has come back, with a multibillion-dollar IPO for Google in summer 2004 and a multimillion-dollar one for Salesforce.com providing hefty returns for the VCs that backed them. June 21, 2004, with 16 IPOs on the docket, was the biggest month for offerings since October 2000. 19 The Industry More M&A deals are getting done, too, with large firms using their increasing capitalizations to buy venture-backed start-ups. And IDC, a research firm, expects worldwide IT spending to rise 5 percent in 2004, to $915 billion, creating serious opportunity after 3 years of flat to negative growth. A stock market crash could put a halt to M&A and spending, and some economic indicators suggest weakness, but in summer 2004 there’s overall optimism that the economy is on a rising tide. Offshore Fever Many venture investors are encouraging their startups to move jobs overseas, saving labor costs while increasing competitiveness. An informal Forrester Research survey of venture capitalists suggests 20 to 25 percent of the companies they invest in are committed to moving jobs overseas—including some of the industry’s biggest names, such as Kleiner Perkins Caufield & Byers, Sevin Rosen Funds, and Norwest Ventures. Says Forrester Vice-President John C. McCarthy, “The venture guys are driving offshore as much as anyone.” New Opportunity In mid-2004, the VC industry looks like it’s emerging from a trough, and the 3- to 5-year horizon looks positive. The markets are increasingly liquid, with quality IPOs such as Google and Salesforce.com; M&A activity has increased; firms have raised new funds; and entrepreneurs are finding fundraising easier than in several years. “It’s a good time to go back to look for a job at a start-up,” says an insider. “I think it’s a rational investing environment. I would advise people to be in services that touch the consumer, or companies that use great technology to solve a real customer problem. And being in unanticipated areas.” 20 The Industry Expansion After several years of contraction, VC is poised for growth. “The venture capital industry has hit its low point from a people perspective about a quarter or two ago,” says an insider. The number of professionals within the industry shrunk between 2002 and 2003, with a number of firms cutting staff and closing offices. Investment banks, including Goldman Sachs, Deutsche Bank, and Banc of America Securities all shuttered their Silicon Valley offices between 2002 and 2003. (“For 3 years entrepreneurs have trekked to this setback strip of glass-and-dark-wood-hued buildings in Menlo Park, California, to pitch ideas, only to walk away empty-handed,” wrote Adam Lashinsky in the May 26, 2003, issue of Fortune. “Many of the investment bankers who set up shop in the late 1990s to feed off the deals have left town. If Sand Hill Road wore a mood ring, it would surely be glowing black.”) In 2004, however, firms are raising new funds, and with new funds come new opportunities. Insiders tell us firms are looking at partner-level staff, but that associates are likely to follow. 21 The Industry [...]... 10018 Phone: 21 2-944 -24 00 Fax: 21 2-944-9745 ARCH Southwest TX 6801 N Capital of Texas Highway Building 2, Suite 22 5 Austin, TX 78731 Phone: 5 12- 795-5830 Fax: 5 12- 795-5849 24 Arch Northwest 1000 Second Avenue, Suite 3700 Seattle, WA 98104 Phone: 20 6-674-3 028 Fax: 20 6-674-3 026 ARCH Southwest NM 1155 University, S.E Albuquerque, NM 87106 Phone: 505-843- 429 3 Fax: 505-843- 429 4 Overview With offices in Albuquerque,... IPOs, including that of UUNet, a Web service provider The Firms that was among the venture community’s first forays into the Internet arena Accel has been in business for more than 20 years and boasts investments in more than 100 companies With investors that include prominent companies such as Microsoft, Lucent, Dell, and Disney, it has backed a variety of information technology start-ups, including... Targets companies focused on information technology, life sciences, and the physical sciences • Has a female African-American managing director, noteworthy in the white male-dominated world of VC • Ninety-five percent of investments are at the seed or start-up stage Key Financial Statistics Capital under management: $1 billion Minimum investment: not available Preferred investment: expects to commit... Thumbnails The Firms 23 There are a lot of VC firms out there; the ones listed here are merely representative For information on other firms, see Pratt’s Guide to Venture Capital Sources at your school library or visit www.nvca.com The Firms Profiles of Top Firms ARCH Venture Partners ARCH Midwest 8 725 W Higgins Road, Suite 29 0 Chicago, IL 60631 Phone: 773-380-6600 Fax: 773-380-6606 www.archventure.com ARCH... ARCH helped spin out of Amgen ARCH currently manages six funds totaling $1 billion, with investments in some 110 companies In 20 04, it closed its sixth fund of $350 million, which The Firms will focus on seed and early-stage companies that come out of universities ARCH counts among its success stories Web shopping agent NetBot, Inc.; enterprise application company New Era of Networks, Inc (NEON); and... and Remedy Accel’s software portfolio includes BB&T, Lightspan, and Walmart.com In 20 01, Accel Partners closed its Accel Europe Fund of $500 million and, with Kohlberg Kravis Roberts & Co., formed a venture to focus on telecommunications industry investments called Accel-KKR Telecom According to an Accel survey with BusinessWeek, nearly 40 percent of Accel’s 45 investments have operations overseas,... Personnel Number of professionals: six managing directors, two associates, five venture partners, one CFO, and one technical advisor 25 Accel Partners 428 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 www.accel.com Fax: 44 -20 -7170-1099 Overview With Jim Breyer leading the way, Accel Partners has enjoyed... Accel survey with BusinessWeek, nearly 40 percent of Accel’s 45 investments have operations overseas, and Breyer estimates that number will hit 75 percent by 20 05 Key Facts • Focuses on only two sectors: networking and software • Invests in all stages 26 ... 505-843- 429 4 Overview With offices in Albuquerque, Austin, Chicago, New York, 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 has also been successful doing deals with research programs at large corporations, . ago,” says an insider. The number of professionals within the industry shrunk between 20 02 and 20 03, with a number of firms cutting staff and closing offices. Investment banks, including Goldman. saving labor costs while increasing competitiveness. An informal Forrester Research survey of venture capitalists suggests 20 to 25 percent of the companies they invest in are committed to moving. start-up financing. Firms differ in fund size, regional focus, industry focus, and stage of investing. These differences are noted in the “Industry Lineup” that follows this section. You can find venture