© Service des relations industrielles (SRI)                                                                  © EPFL    A H...
© Service des relations industrielles (SRI)                                                                           © EP...
© Service des relations industrielles (SRI)                                                    © EPFLThe Ancestors pre - 1...
1957 – The Traitorous 8                        © Service des relations industrielles (SRI)                                ...
1957 – Arthur Rock               © Service des relations industrielles (SRI)                                              ...
There had been also…                         © Service des relations industrielles (SRI)                                  ...
and also hobby of the rich…                          © Service des relations industrielles (SRI)                          ...
The Ancestors’ investments                       © Service des relations industrielles (SRI)                              ...
© Service des relations industrielles (SRI)                                                      © EPFLThe First Generatio...
The First Generation                                     © Service des relations industrielles (SRI)                      ...
The First Generation                © Service des relations industrielles (SRI)                                           ...
And also…                                              © Service des relations industrielles (SRI)                        ...
The government got interested                   © Service des relations industrielles (SRI)                               ...
Some 1st gen. investments                               © Service des relations industrielles (SRI)                       ...
Some 1st gen. investments                                 © Service des relations industrielles (SRI)                     ...
© Service des relations industrielles (SRI)                                                      © EPFLThe First Generatio...
The First Generation                         © Service des relations industrielles (SRI)                                  ...
The First Generation                             © Service des relations industrielles (SRI)                              ...
The First Generation                                   © Service des relations industrielles (SRI)                        ...
The First Generation                                                              © Service des relations industrielles (S...
The First Generation                 © Service des relations industrielles (SRI)                                          ...
Some 1st gen. investments   © Service des relations industrielles (SRI)                                                   ...
© Service des relations industrielles (SRI)                                                 © EPFLThe Giants1972-1978
Kleiner Perkins                            © Service des relations industrielles (SRI)                                    ...
KP first fund                                                         © Service des relations industrielles (SRI)         ...
Sequoia                                                                    © Service des relations industrielles (SRI)    ...
Sequoia                                                                © Service des relations industrielles (SRI)        ...
Kleiner Perkins                                  © Service des relations industrielles (SRI)                              ...
Sequoia                                                 © Service des relations industrielles (SRI)                       ...
Sequoia                                        © Service des relations industrielles (SRI)                                ...
The Reid Dennis Legacy               © Service des relations industrielles (SRI)                                          ...
The Reid Dennis Legacy                 © Service des relations industrielles (SRI)                                        ...
The Giants success stories   © Service des relations industrielles (SRI)                                                  ...
Some investments of the Giants                            © Service des relations industrielles (SRI)                     ...
Hits and misses                                                    © Service des relations industrielles (SRI)            ...
A genealogy   © Service des relations industrielles (SRI)                                                  © EPFL
© Service des relations industrielles (SRI)                                                      © EPFLWhat do VCs look for?
What do VCs look for?                       © Service des relations industrielles (SRI)                                   ...
What do VCs look for?                          © Service des relations industrielles (SRI)                                ...
What do VCs look for?                            © Service des relations industrielles (SRI)                              ...
What do VCs look for?                                               © Service des relations industrielles (SRI)           ...
What do VCs look for?                   © Service des relations industrielles (SRI)                                       ...
© Service des relations industrielles (SRI)                                                   © EPFLThe Maturity1978-1993
The new players                                 © Service des relations industrielles (SRI)                               ...
The new players                                            © Service des relations industrielles (SRI)                    ...
The new players                                         © Service des relations industrielles (SRI)                       ...
The new players                                           © Service des relations industrielles (SRI)                     ...
Some investments    © Service des relations industrielles (SRI)                                                        © E...
© Service des relations industrielles (SRI)                                                   © EPFL The New KidsAround th...
Benchmark Capital                                                       © Service des relations industrielles (SRI)       ...
August, Lightspeed, Redpoint                          © Service des relations industrielles (SRI)                         ...
Some investments    © Service des relations industrielles (SRI)                                                        © E...
The funds of founders                                 © Service des relations industrielles (SRI)                         ...
Super Angels                                  © Service des relations industrielles (SRI)                                 ...
© Service des relations industrielles (SRI)                                                          © EPFLSome historical...
Some key drivers                                           © Service des relations industrielles (SRI)                    ...
The SBIC Ups & Downs                                             © Service des relations industrielles (SRI)              ...
The endowments                                          © Service des relations industrielles (SRI)                       ...
The maturity                                                                                                              ...
The Impact of Venture Capital                 © Service des relations industrielles (SRI)                                 ...
The Impact of Venture Capital                                                                                             ...
The Internet bubble                                                                                 © Service des relation...
The Nasdaq and the VCs                                                                                         © Service d...
A chronology of funds (1/2)            © Service des relations industrielles (SRI)                                        ...
A chronology of funds (2/2)                © Service des relations industrielles (SRI)                                    ...
A subjective “Top VC” list                                                                                                ...
And the returns?                                             © Service des relations industrielles (SRI)                  ...
And the returns?                                                                                © Service des relations in...
© Service des relations industrielles (SRI)                                                © EPFL  Israel1992-2005
The Israel VC size   © Service des relations industrielles (SRI)                                                         ©...
The largest Israel VC funds   © Service des relations industrielles (SRI)                                                 ...
Israel success stories   © Service des relations industrielles (SRI)                                                      ...
More about Israel                                       © Service des relations industrielles (SRI)                       ...
© Service des relations industrielles (SRI)                                                  © EPFLand Europe?1972-2006
A list of European funds    © Service des relations industrielles (SRI)                                                   ...
Timescale       © Service des relations industrielles (SRI)                                                    © EPFL   19...
Timescale                                                          © Service des relations industrielles (SRI)            ...
And a few people                                                            © Service des relations industrielles (SRI)   ...
And a few people                                                         © Service des relations industrielles (SRI)      ...
And a few people                   © Service des relations industrielles (SRI)                                            ...
The founders’ fund                                     © Service des relations industrielles (SRI)                        ...
Some European deals   © Service des relations industrielles (SRI)                                                         ...
© Service des relations industrielles (SRI)                                                    © EPFLAnd recently?   2005...
Too much or too little money?   © Service des relations industrielles (SRI)                                               ...
Too much or too little money?   © Service des relations industrielles (SRI)                                               ...
Silicon Valley leads as ever   © Service des relations industrielles (SRI)                                                ...
Silicon Valley leads as ever   © Service des relations industrielles (SRI)                                                ...
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A history of venture capital lebret - vers 1.1

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A updated version of the previous history of venture capital I did in 2009.

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A history of venture capital lebret - vers 1.1

  1. 1. © Service des relations industrielles (SRI) © EPFL A History of Venture Capital Hervé LebretFebruary 2009 and December 2011
  2. 2. © Service des relations industrielles (SRI) © EPFL“Venture Capital is a uniquelyAmerican process, whose specialtyis to combine risk capital withentrepreneurial management andadvanced technology to create newproducts, new companies and newwealth”from The New Venturers, Inside the High-Stakes World of Venture Capital, by John W.Wilson (Addison Wesley, 1984)
  3. 3. © Service des relations industrielles (SRI) © EPFLThe Ancestors pre - 1958
  4. 4. 1957 – The Traitorous 8 © Service des relations industrielles (SRI) © EPFL The eight men were Julius Blank, Victor Grinich, Jean Hoerni, Eugene Kleiner, Jay Last, Gordon Moore, Robert Noyce and Sheldon Roberts.Shockley was so difficult with his colleagues that 8 leftShockley Labs. to create a new company
  5. 5. 1957 – Arthur Rock © Service des relations industrielles (SRI) © EPFL Arthur Rock, a banker on the East Coast, is contacted to help them raising $1.5M; an amount he will find in the person of Sherman Fairchild, the largest individual shareholder of IBM and owner of Fairchild Camera. In 1957, Fairchild Semiconductor is founded.
  6. 6. There had been also… © Service des relations industrielles (SRI) © EPFL ARD DGA William Draper II (VP Dillon Read), Rowan Gaither (founder of Rand Corp.) and Frederick Anderson (retired Georges Doriot (a Harvard general) launch DGA with professor) founded American R&D Rockfeller Group money in in 1946 in Boston. 1958
  7. 7. and also hobby of the rich… © Service des relations industrielles (SRI) © EPFL Laurence Rockfeller was interested in science and technology and less in his family business. He assembled a team of advisers, backed many entrepreneurs. In 1969, he structured a $7.5M fund into Venrock Associates. Founded as the one of the first He invested in MinuteMaid, private equity firms in 1946 by Memorex, Genera Signals but "Jock" Whitney, J.H. Whitney & also in movies (Gone with the Co. provided capital and Wind) professional assistance to He coined the term “venture entrepreneurs. capital”.
  8. 8. The Ancestors’ investments © Service des relations industrielles (SRI) © EPFLFairchild Semiconductor was very successful and reached 12,000employees but the founders were bought back their shares byFairchild… they still became wealthy. Faichild bought back for$2.4M the stake of the 8 founders.ARD financed High Voltage (a $1.8M return for a $200kinvestment) and Digital Equipment in 1957 (a $70k inv. worth$355M after 14 years).ARD stopped in 1972. ARD biggest flaw was no incentive forassociates (no carried interest).DGA seems to have been less successful thoughand closed in 1969 when Rockefeller withdrew.
  9. 9. © Service des relations industrielles (SRI) © EPFLThe First Generation Part 1 1958-1965
  10. 10. The First Generation © Service des relations industrielles (SRI) © EPFL 1961 - Davis & Rock Davis joined Rock. They raised $3.5M with Moore, Noyce, Kleiner among othersTommy Davis, a Harvard-educatedlawyer and then vice president of KernCounty Land Company. Davis wantedto leave the Land Company because ithad little interest in high-technologyinvestments though Davis had alreadymade a successful investment in thehigh-technology firm, Watkins-Johnson.
  11. 11. The First Generation © Service des relations industrielles (SRI) © EPFL 1962 – Draper and Johnson Bill Draper III who was working since 1958 with his father at DGA and Pitch Johnson (a former Doriot student) launch the Draper & Johnson investment company
  12. 12. And also… © Service des relations industrielles (SRI) © EPFL Reid Dennis, Don Lucas Reid Dennis goes back to 1961 to remember the time he persuaded his then-employer to make its first venture capital investment, although the Firemans Fund Insurance finance committee didnt call it venture capital. It was a "special situation." Don Lucas a General Partner at DGA will help in the restart of National in 1967; at that time, he has already left DGA to invest on his own. “The Group” is an informal group of individual investors including Dennis, but also John Bryan, Bill Edwards and others
  13. 13. The government got interested © Service des relations industrielles (SRI) © EPFL The Small Business Investment Act was proposed in 1950… and signed in 1958! It gave tax breaks to private investment companies. By the end of 1961, they were 500 SBICs. “Despite its flaws (dependant on govt. loans), the SBIC program fueled the creation of today’s venture capital industry”. Frank Chambers created the 1st SBIC in Northern California, Continental, in June 1959 with $5.5M which returned $90M until 1980.
  14. 14. Some 1st gen. investments © Service des relations industrielles (SRI) © EPFL Davis & RockAfter Fairchild, Rock invested $1.8M for 25% of Teledyne founded byHenry Singleton. In 1984, Teledyne was worth $3BRock & Davis $3.5M fund (from individuals) returned $100M. It invested inScientific Data Systems (SDS), a company founded by Max Palesky. Theyinvested $257k in a $1M round for 80% of the company. SDS proposed toused solid state technology to build computers although Rock and Daviswould have never thought to invest in computers where IBM was tough tobeat. By 1968, SDS was twice the size of Digital with $100M in sales.Xerox bought it for $1B to compete against IBM and the pay off to D&Rwas $60M, a 233x multiple. Davis & Rock 20% carried interest was at least$16M.Later Rock would invest in Intel when Moore and Gordon left Fairchild.Rock put $300k, Palevsky $300k, Gordon & Moore $500k for a total of$2.5M (fund raising was done in a few days) even if one of Rock’sinvestors advised him against investing in memory technologies. Rock waschairman until 1975.
  15. 15. Some 1st gen. investments © Service des relations industrielles (SRI) © EPFL 1961-1965Continental (Chambers) put $250k inDataproducts, which returned $12M. Then Draper&Johnson invested inhe invested in ROLM, American TandemMicrosystems and KLA. He closed his SBICin 1980 to created a $22M VC fund. Firemans Fund Insurance invested $1 One member of “the Group”, million in an optical-character recognition Dennis, investment was $10- company, Recognition Technology. “At the 20k? in Ampex which will be height of the market, that investment was worth $1M in the end. The worth over $40 million, which, in the 1960s Group provided $4.5M to was an outstanding performance. By the Linear and 2/3 of $7.7M to time it was all over, Firemans probably Sierra Semiconductor. realized a $15 million or $16 million profit on the investment.” Don Lucas invested in the restart of National. Much later, he invested in SDA (Cadence) and Oracle. He also seems to have been a mentor to Costello and Ellison, 2 famous entrepreneurs.
  16. 16. © Service des relations industrielles (SRI) © EPFLThe First Generation Part 2 1965-1972
  17. 17. The First Generation © Service des relations industrielles (SRI) © EPFL 1965 – Sutter Hill, AMC Johnson and Draper go on their own: Johnson launches AMC - the Asset Management Company (still active) Draper launches Sutter Hill with Paul Wythes (also still in business) and acquires the assets of J&D. Bill Draper will have a long career and will also launch Draper International in 1996 and Draper India in 2001.
  18. 18. The First Generation © Service des relations industrielles (SRI) © EPFL 1969 – Mayfield, Venrock Tommy Davis leaves Rock to create Mayfield with Wally Davis (no family relation). First fund of $3.8M returned $13M in 1983. Mayfield has always been closed to Stanford (even if informal) Rock may have helped in the creation of Venrock, the Venture arm of Rockefeller. Arthur Rock with partner Dick Kramlich raised $10M, invested $6.5M and returned $30M. Then he went on his own and still does with A. Rock and Co. Rock became the VC icon (Time Front Page in 1984). Rock $57k in Apple worth $14M…
  19. 19. The First Generation © Service des relations industrielles (SRI) © EPFL 1970 – Palo Alto Investments Jack Melchor (ex-Sylvania) who had founded MEL Labs in 1956 and HP Associates and Burt McMurtry after 10 years at Sylvania found together Palo Alto Investments The company will return $100M out of $3.3M in investments like Rolm, Triad,… Their success story is famous: 4 inexperienced engineers from Rice and Stanford (Richeson, Oshman, Loewenstern & Maxfield), less than 32 year-old, were looking for money for a computer company. Rock declined and even Melchor who loved to gamble was skeptical. Melchor put $15k of angel money, then PAI led a round at $0.16/share. IBM bought ROLM at $70/share.
  20. 20. The First Generation © Service des relations industrielles (SRI) © EPFL 1965-70 - Boston Willian Elfers leaves ARD as Doriot does not let control and creates Greylock with Daniel Gregory and Charles Waite.W. Efers C.Waite (From left to right) Howard E. Cox, Jr., Charles P. Waite, Henry F. McCance, Daniel S. Gregory, William Elfers.
  21. 21. The First Generation © Service des relations industrielles (SRI) © EPFL 1965-70 - Boston ARD alumnus Peter Brooke (then at FNB Boston) launches TA Associates in 1968 as a division of Tucker Anthony, a regional investment bank. ARD alumnus Willian Burnes co-founds Charles River Venture in 1970 with John Carter.
  22. 22. Some 1st gen. investments © Service des relations industrielles (SRI) © EPFL 1965-1972
  23. 23. © Service des relations industrielles (SRI) © EPFLThe Giants1972-1978
  24. 24. Kleiner Perkins © Service des relations industrielles (SRI) © EPFL 1972 Thomas Perkins Eugene Kleiner Tom Perkins (HP) and Gene Kleiner (Fairchild) raise together their first fund in 1972. They consider themselves as the first VCs with an industry and entrepreneur background
  25. 25. KP first fund © Service des relations industrielles (SRI) © EPFL 1972$7M fund with $4M from Hilman (Wilmington), $1M fromRockefeller University. Both Kleiner and Perkins put $150k Tandem ($152M)each. KP First Fund (1972-1984) Genentech ($47M) $16000000 $14000000 $12000000 Cost ($) $10000000 $8000000 $6000000 $4000000 Value on $2000000 June 30,1984 $0 In . pl x I a I . om e or . en l C c. At hn e C c . a l en . ic gy rp. i c T Qu ns . d r ev e en c . er Co Ap nt e ekn rp Am ute rp. em C e C p. m C . . M ust . C r M ast Inc un a l c . An pm o rp ac Dy ria s tio rp Co tus o rp ie nd nc v i C nte orp c. G dah I n m In at rie An D l lag h In o r t Co m d ic In hl ol o o ica Co o Sh Co yz t os lo C l rs s An nt c e e p m e ce o n e ip ro o qu d et an ec E A n io er ch nd O ov at Am e e Ta En N re Sp ffi ec R ed nc vaAdMore on http://www.startup-book.com/2009/02/09/about-kleiner-perkins-first-fund-episode-3
  26. 26. Sequoia © Service des relations industrielles (SRI) © EPFL 1972 Don Valentine, a co-founder of National and Fairchild marketing director creates in 1972 the VC arm of the Capital Group, later named Sequoia. About valuation “When people come as a team (usually it is three or four people and typically heavyweight on engineering), it is a complex process. But I think all of us have seen it in the earlier days, times when I can remember saying, "Well, look, well put up all the money, you put up all the blood, sweat and tears and well split the company", this with the founders. Then if we have to hire more people, well all come down evenly, it will be kind of a 50/50 arrangement. Well, as this bubble got bigger and bigger, you know, they were coming and saying, "Well, you know, well give you, for all the money, 5 percent, 10 percent of the deal." And, you know, that its a supply and demand thing. Its gone back the other way now. But, in starting with a team, its a typical thing to say, well, somewhere 40 to 60 percent, to divide it now. If theyve got the best thing since sliced bread and you think they have it and they think they have it, you know, then youll probably lose the deal because one of these guys will grab it.” Transcript of oral panel – the Pioneers of Venture Capital – September 2002 More on http://www.startup-book.com/2010/11/05/when-valentine-was-talking
  27. 27. Sequoia © Service des relations industrielles (SRI) © EPFL 1972 Sequoia at that time called Capital Management Services and got money from the Capital Group (Michael Shanahan) in Los Angeles. Capital had funded AMD in 1968. Valentine invested $600’000 in Atari in 1975. Mayfield and Time Inc matched the $600k and Fidelity added $300k in a $2.1M round. They got a 4x multiple when Warner bought Atari for $28M in 1976. Founder, Nolan Bushnell, got $15M. Valentine met Steve Jobs at Atari. Jobs and his friend Wozniak built a low-cost computer. Valentine was reluctant to invest in two very junior engineers. He introduce them to Markkula, a marketing person from Fairchild and Intel. Venrock ended up investing but Valentine added $200k which he sold for $6M in a private placement before the IPO. Sequoia also invested in Printonix (Printers), Tandon and Priam (Disk drives) and Dysan (Magnetic Media). Valentine estimates he made about 12 computer-related deals. Sequoia distributed $120M, a 17x multiple.
  28. 28. Kleiner Perkins © Service des relations industrielles (SRI) © EPFL 30 years of activityPerkins and Kleinerwere joined byCaufield and Byers(from AMC) in 1977and the partnershipbecomes KPCB. KPCB I $15M (1976) KPCB II $55M (1980) KPCB III $150M (1982) KPCB IV $150M (1986)Later comefamous iconsJohn Doerr (Intel)andVinod Khosla(Sun founder)
  29. 29. Sequoia © Service des relations industrielles (SRI) © EPFL 30 years of activity Joining Valentine were new partners (not active anymore): Bud MacRae – 1974 Gordon Russell (Fairchild, Syntex) – 1976 focused on medtech retired in 2000 Walter Baumgartner (Bank of America) – 1979 focused on computer memories left in 1989
  30. 30. Sequoia © Service des relations industrielles (SRI) © EPFL 30 years of activity Joining Valentine, famous to- become partners: Pierre Lamond (National) - 1981 Mike Moritz (Time Magazine) – 1986 Doug Leone (HP, Sun) – 1988
  31. 31. The Reid Dennis Legacy © Service des relations industrielles (SRI) © EPFL 1974 Reid Dennis, Burton McMurtry (Palo Alto Inv. was stopped in 1973) and Burgess Jamieson (Westven) found Institutional Venture Associates (IVA) in 1974 with $14M inc. American Express money ($5M) and the Ford Foundation. David Marquardt joins as an associate.
  32. 32. The Reid Dennis Legacy © Service des relations industrielles (SRI) © EPFL 1976 The IVA partners soon disagreed on one Dennis deal (Collagen) and separated. Dennis launched Institutional Venture Partners (IVP) alone in 1976. The same year, McMurtry and Marquardt found Technology Venture Investors (TVI) with James Bochnowski (Shugart Assoc.) Later join Pete Thomas (Intel), James Katzman (Tandem) Robert Kagle (BCG)
  33. 33. The Giants success stories © Service des relations industrielles (SRI) © EPFL 1972 and after
  34. 34. Some investments of the Giants © Service des relations industrielles (SRI) © EPFL 1974 and after
  35. 35. Hits and misses © Service des relations industrielles (SRI) © EPFL from a couple of interviews Venture Capitalist First Big Hits First Big Miss Arthur Rock SDS, Teledyne Bool and Babbage, Compaq Pitch Johnson Bool and Babbage, then Tandem Bill Draper Qume Apple Burton McMurtry Rolm Tandem Dennis Reid Recognition Technology Don Valentine Atari but also Apple, Cisco Sun Tom Perkins Tandem AppleMore on http://www.startup-book.com/2011/11/14/the-missed-deals-of-venture-capitalists
  36. 36. A genealogy © Service des relations industrielles (SRI) © EPFL
  37. 37. © Service des relations industrielles (SRI) © EPFLWhat do VCs look for?
  38. 38. What do VCs look for? © Service des relations industrielles (SRI) © EPFL a never ending debate “Some winning venture capitalists claim to look almost exclusively at the backgrounds and personalities of the founders; others focus mostly on the technology involved and the market opportunity the venture addresses” from The New Venturers, Wilson (1984)
  39. 39. What do VCs look for? © Service des relations industrielles (SRI) © EPFL Davis & Rock They look for outstanding people without worrying too much about the details of product and marketing strategy. The right people have integrity, motivation, market orientation, technical capability, accounting capability and leadership. The most important is motivation. Rock’s style was supportive of entrepreneurs with an implacable will. from Wilson (1984)
  40. 40. What do VCs look for? © Service des relations industrielles (SRI) © EPFL Perkins “Perkins put it in once sentence: If you have good people, proprietary technology and a high growth market, you’ll win every time. Like most simple rules, this one is extremely difficult to follow. […] The biggest challenge an entrepreneur faces, Perkins believes is recruiting, motivating and teaching other employees. from Wilson (1984)
  41. 41. What do VCs look for? © Service des relations industrielles (SRI) © EPFL Valentine  “There are people risks, markets risks, product development risks and finance risks. We will not invest in a company unless we understand and are comfortable with three of these risks.”  “The components of success are product differentiation, a fast- growing market, a team of dedicated people and money.”  “Arthur Rock and others are along the lines I’d rather have A people and a B idea than B people with an A idea. The problem with that approach is that it is seldom clear who the A people are.” Valentine viewed Apple as a company founded by “modest individuals from any business experience” that succeeded well beyond any legitimate expectation.  “People you can change, but you can not change a market”.  He avoided biotech: “There is no market, there are few identified problems that are resolvable [with biotech] and the people are research people. We looked ta forty companies which had no management, no market identification, no product application, but were clearly interested in doing research… we were 90% right. We were embarrassingly wrong. It never occurred to us that you could raise public money for companies with infinite losses and little damn prospect of sales” from Wilson (1984)
  42. 42. What do VCs look for? © Service des relations industrielles (SRI) © EPFL a never ending debate “ The debate will never have an unchallenged winner. Both side can point to winning investments that seem to vindicate their point of view and both can point to losers or missed opportunities.” from Wilson (1984)
  43. 43. © Service des relations industrielles (SRI) © EPFLThe Maturity1978-1993
  44. 44. The new players © Service des relations industrielles (SRI) © EPFL 1976 1978 FoundersDuBose was a founder of Dick Kramlich (ArthurMenlo Ventures in 1976. Rock & Associates )Carlisle joined in 1982 and Franck Bonsal (AlexJarve in 1985 Brown) Chuck Newall In 1980, MPAE was created by Merrill, Pickard, Anderson and Eyre (from Ed Glassmeyer co- BankAmerica). founded in 1978 with Stewart Greenfield of Oak Investment Partners.
  45. 45. The new players © Service des relations industrielles (SRI) © EPFL 1981 1981 Bill Bowes is the founder and prior to founding USVP, Bill was the founding shareholder (and its first employee) of Sevin Rosen was founded in 1981 by Amgen L.J. Sevin (Mostek) and Ben Rosen (MorganStanley). They used KP as a backer and co-invested with them in Compaq and Lotus. 1982 Paul Ferri, a venture capitalist for more than 30 years, was the founding partner of Matrix Partners in 1982. Prior to Matrix, he founded Hellman Ferri Investment Associates (1977 to 1982) and was a general partner of WestVen Management (1970 to 1978).
  46. 46. The new players © Service des relations industrielles (SRI) © EPFL 1983 1983 In 1979, Adler & Company of New York established an Bill Davidow, SVP office in Silicon Valley. In Sales & Marketing at 1983, two Adler partners, Intel launches MDV James Swartz and Arthur Patterson, spun-off to create the bi-coastal firm, Accel Partners, having offices in New York and Silicon Valley. 1984 Gregory Avis Roe Stamps Stephen Woodsum
  47. 47. The new players © Service des relations industrielles (SRI) © EPFL David Morgenthaler 1984 founded the firm in 1968. Morgenthaler began Rick Frisbie, founder of raising institutional funds Battery Ventures in the 1980s and worked at Whitney before, 1985 Tim Draper (3rd gen. Drapers; from Alex Brown) founds Draper associates and is later joined by John Fischer (from ABS ventures) and Steve Juverston (HP)
  48. 48. Some investments © Service des relations industrielles (SRI) © EPFL 1978 and after
  49. 49. © Service des relations industrielles (SRI) © EPFL The New KidsAround the Block 1993-2005
  50. 50. Benchmark Capital © Service des relations industrielles (SRI) © EPFL 1995 Bruce Dunlevie Andy Rachleff Bob Kagle Kevin Harvey David BierneIn 1995 Bruce Dunlevie and Andy Rachleff (MPAE), two veterans of the industry, decided tocreate their own company, Benchmark. Their goal was to have a firm with a"fundamentallydifferent architecture," with no one person at the top. The men hadconnections, money and their own brain power and they immediately set to work.They added two more partners to their ranks in very short order, Bob Kagle (TVI ) from theventure capital world and Kevin Harvey from the technology sector, and then brought inDavid Bierne, who had built a highly successful executive search business centeredaround technology.
  51. 51. August, Lightspeed, Redpoint © Service des relations industrielles (SRI) © EPFL Marquardt (TVI) & John Johnston (TVI, H&Q) launch August in 1995.Redpoint was founded in 1999 by top The VC arm of Weiss, Peck & Greerpartners each from Brentwood Venture Venture Partners (1971) spun-off inCapital and IVP October 2000
  52. 52. Some investments © Service des relations industrielles (SRI) © EPFL 1995 and after
  53. 53. The funds of founders © Service des relations industrielles (SRI) © EPFL Mostly web2.0 Web entrepreneurs have set up funds: Pierre Omidyar (eBay), Peter Thiel and Max Levchin (PayPal), Marc Andreeseen (Netscape) which in turn invest in web2.0 companies such as Facebook, Twitter, Slide, Seeismic….
  54. 54. Super Angels © Service des relations industrielles (SRI) © EPFL Recycling of old stuff? Before you had the business angels investing in the early rounds (up to $1M) and the VCs who would seldom invest in rounds smaller than $1- 2M. Now the frontier is blurred: you have the seed VCs (Index Seed being a recent one) and the Super Angels fighting for the same deals. More on http://www.startup-book.com/2011/06/22/super- angels-recycling-of-old-stuff and http://www.startup-book.com/2010/08/17/super-angels/
  55. 55. © Service des relations industrielles (SRI) © EPFLSome historical and economical perspective 1959-2005
  56. 56. Some key drivers © Service des relations industrielles (SRI) © EPFL But what is the real impact?1957: some great IPOs: HP, Varian1958: The SBIC (Small Business Investment Corporation) act provides federalfund matching and will enable the dramatic increase of venture capital1969-76: Tax Reform acts (as well as 1976) raised tax from 25% to 49% oncapital gains, dying up VC after 19691974: The oil crisis together with the new ERISA act that mandates criminalpenalties for pension fund managers who lose money with high-riskinvestments nearly stops inv. in venture capital1979: A new ERISA act which decreases fiduciary responsibility together with agood IPO market in 1980 (Apple, Genentech) creates a new inflow of money1983: Too much money for two many companies: the Disk Drive companiescrash. Venture Capital matures in the 80s. The semiconductor industrycompetes with Japan and lay-offs. The crisis will end with…1993: the beginning of the Internet
  57. 57. The SBIC Ups & Downs © Service des relations industrielles (SRI) © EPFL 1959-1993Source: Creating Modern Venture Capital: Institutional Design and Performance in theEarly Years by Caroline Fohlin
  58. 58. The endowments © Service des relations industrielles (SRI) © EPFL 1974-… The 1974 ERISA Act enabled pension funds to put money in venture capital but what about university endowments? Managers of endowments followed the “prudent man rule”: consider the probable income as well as the probable safety. Walter Cabot, manager of the Harvard Management Company decided in 1977 he could invest in venture capital: - 2/3 of the 33 endowments he consulted were already making VC investments - a condition was to make your homework, i.e. “ check the quality and credibility” of the funds. By early 1984, Harvard had committed over $130M to venture capital.
  59. 59. The maturity © Service des relations industrielles (SRI) © EPFL The 1980’sThe late 80s brought maturity, butwas also a big crisis fortechnologies. The semiconductorcompanies cut their work forceand the technology & VC sectorssuffered until 1993 or so. Ne w C o m m it m e n t s t o V e n t u r e C a p it a l Fu n d s in C o n st a n t 1 9 9 3 Me dia n re t urns of v e nt ure c a pit a l 7 35 6 30 5 25 $ Billions 4 20 3 15 10 2 5 1 0 0 1973 1975 1977 1979 1981 1983 1985 1987 1989 -5 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 Year year Source: The Rise and Fall of Venture Capital, Gompers
  60. 60. The Impact of Venture Capital © Service des relations industrielles (SRI) © EPFL 1993 Source: The Rise and Fall of Venture Capital, Gompers
  61. 61. The Impact of Venture Capital © Service des relations industrielles (SRI) © EPFL 1993-2006 Data 1993 Status & Data 2006Company VC Sales ($M) Jobs Cap. ($M) Status Sales ($M) Jobs Cap. ($M)Apple Computer Sequoia, A. Rock 7977 14910 3576 19315 17787 74110Au Bon Pain Angels 123 1250 223 acquired by Compass Group in 1999Biogen TA Associates 149 415 1110 2442 3440 16110Chiron Burr Egan Deleage 217 2179 2171 acquired by Novartis in 2006Cirrus IVP, NEA 354 1353 885 647 424 193CML Group Angels 645 5608 697 liquidated in 1999Compaq Computer Sevin Rosen, Mayfield, IVA 7191 13010 9978 acquired by HP in 2002Conner Peripherals Compaq 2151 9097 774 acquired by Seagate in 1996Cray Computer $8M from misc. investors 352 383 50 bankruptcy in 1995, acquired by SGIData General Adler 1077 6500 271 acquired by EMC in 1999Digital Equipment ARD 14371 94600 3223 acquired by Compaq in 1998Evans & Sutherland Venrock 142 1100 132 73 268 39Federal Express Burr Egan Deleage, MPAE 7808 95000 4206 32294 225000 33950Genentech KP 650 2510 3189 9284 9500 92180Intel A. Rock 8782 29500 27082 35382 94100 118740Lotus Sevin Rosen 981 4738 2705 acquired by IBM in 1995Micropolis IVA 382 2298 99 bankruptcy in 1997Microsoft IVA 3573 14430 15117 44282 71000 298180Orbital Sciences 190 1123 315 703 2600 1040Quantum KP 1167 2455 695 834 2320 462Raychem 1385 10772 1581 acquired by Tyco in 1999Seagate IVP 3043 43000 1648 9206 60000 15910Staples 883 7539 1063 16078 36071 18760Starbucks 163 4585 866 7786 145800 26650Stratus Computer CRV, IVP 514 2610 723 acquired by Ascend en 1998Sun Microsystems KP 4308 13300 2009 13068 38000 22310Tandem Computer KP, Mayfield, Johnson 2030 9963 1368 acquired by Compaq in 1997Teledyne A. Rock 2492 21000 997 1433 7270 1350Teradyne Greylock 555 4500 891 1376 4000 2910Wellfleet Brentwood, NorthBridge 180 738 784 acquired by Nortel in 1996 Total 73835 420466 88428 194203 717580 722894 Average 4764 27127 5705 12138 44849 45181Source: The Rise and Fall of Venture Capital, Gompers
  62. 62. The Internet bubble © Service des relations industrielles (SRI) © EPFL The 90s enthusiasm and 00s crisis Me dia n m ult iple s ( x ) 2 .8 2 .3 2 .2 2 .1 2 1 .9 1 .8 1 .7 1 .7 1 .6 1 .6 1 .6 1 .4 1 .1 0 .7 0 .6 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 Med ian I RR ( % ) 50 40 30 20 10 0 1985 1987 1989 1991 1993 1995 1997 1999 -1 0 -2 0 -3 0 Year The recent numbers may not be accurate as they are too recent; they however some negative effects of the Internet bubble. Source: The Venture Capital Industry Report, Dow Jones
  63. 63. The Nasdaq and the VCs © Service des relations industrielles (SRI) © EPFL 1971-20064500 904000 803500 70 1974: the oil crisis and ERISA act3000 602500 50 1984: the HDD crisis2000 401500 30 1990: US recession and1000 20 declining IRRs 500 10 0 0 2001: the Internet crash 1971 1976 1981 1986 1991 1996 2001Natural scale Nasdaq ( end y ear) VC f unds ( $B) 10000 100 1000 10 100 1 10 0. 1 1 0. 01 1971 1976 1981 1986 1991 1996 2001Source: Compilation HL Log scale Nasdaq ( end y ear) VC f unds ( $B)
  64. 64. A chronology of funds (1/2) © Service des relations industrielles (SRI) © EPFL Fund number and year of creationSource: Compilation HL
  65. 65. A chronology of funds (2/2) © Service des relations industrielles (SRI) © EPFL Size of funds (in $M)Notes1: fund 2000 back to $471M2: fund 2001 back to $830M3: fund 2001 back to $450M4: fund II (1981) $45M, III (1984) $126M5: fund 2000 back to $600M6: fund 2000 down to $650M, then $450MSource: Compilation HL
  66. 66. A subjective “Top VC” list © Service des relations industrielles (SRI) © EPFL TOP US VCs Mohr Davidow Redpoint 16000 DFJ Benchmark 14000 USVP Crosspoint Brentwood 12000 Accel Sevin Rosen 10000 Oak Sierra $M 8000 NEA Matrix CRV 6000 Austin Sequoia 4000 Onset Interwest Menlo 2000 IVP Battery 0 Mayfield 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 KPCB Year
  67. 67. And the returns? © Service des relations industrielles (SRI) © EPFL Exceptional IRRs Source: Compilation HLAlthough the data are not so easy to obtain (the numbers below are not fullyconsistent…), the VC world has generated exceptional returns. The individualsuccess stories are known. Some previous slides give some more numbers. Thereader can compare to the typical Wall Street numbers…
  68. 68. And the returns? © Service des relations industrielles (SRI) © EPFL Exceptional IRRs Source: Compilation HL VC "Vintage" Size Multiple IRR VC "Vintage" Size Multiple IRR Fund year ($M) Fund year ($M) KP 1972 8 31.2 51% Sequoia 1972 7 51% KPCB II 1980 55 4.3 51% Sequoia II 1974 21 71% KPCB III 1982 150 1.7 10% Sequoia III 1981 44 1.8 11% KPCB IV 1986 150 1.7 11% Sequoia IV 1984 90 2.4 18% KPCB V 1989 150 4.1 36% Sequoia V 1989 63 5.2 40% KPCB VI 1992 150 3.0 43% Sequoia VI 1992 100 15.5 110% KPCB VII 1994 225 32.0 122% Sequoia VII 1996 150 16.4 175% KPCB VIII 1996 299 17.0 286% Sequoia VIII 1998 250 2.5 90% Mayfield IV 1981 55 2.6 26% Mayfield V 1983 110 1.3 5% Mayfield VI 1987 160 3.5 27% NEA V 1990 199 3.8 31% Mayfield VII 1992 165 1.9 33% NEA VI 1992 230 7.6 66% Mayfield VIII 1995 185 3.2 63% NEA VII 1996 311 3.5 69% Mayfield IX 1997 252 4.0 NEA VIII 1998 566 1.2 84% Battery II 1988 41 4.2 37% Matrix III 1990 80 7.7 75% Battery III 1994 85 9.7 65% Matrix IV 1995 125 20.0 219% Battery IV 1997 200 4.5 244% Matrix V 1998 200 3.8 640% USVP IV 1994 118 5.9 72% DFJ II 1992 20 2.3 31% USVP V 1996 171 1.6 33% Accel IV 1993 135 2.9 82% Benchmark I 1995 100 39.3 236% Accel V 1996 150 14.7 196% Benchmark II 1997 125 2.4 419%
  69. 69. © Service des relations industrielles (SRI) © EPFL Israel1992-2005
  70. 70. The Israel VC size © Service des relations industrielles (SRI) © EPFL
  71. 71. The largest Israel VC funds © Service des relations industrielles (SRI) © EPFL
  72. 72. Israel success stories © Service des relations industrielles (SRI) © EPFL
  73. 73. More about Israel © Service des relations industrielles (SRI) © EPFL More on http://www.startup-book.com/tag/israel/ http://www.startup-book.com/2011/02/05/start-up-nation-israel
  74. 74. © Service des relations industrielles (SRI) © EPFLand Europe?1972-2006
  75. 75. A list of European funds © Service des relations industrielles (SRI) © EPFL Source: Compilation HL
  76. 76. Timescale © Service des relations industrielles (SRI) © EPFL 1996-2005 Source: Compilation HL
  77. 77. Timescale © Service des relations industrielles (SRI) © EPFL 1996-2005 Source: Compilation HL 8000 Wellington Viventures Ventech TVM 7000 Sof innova Siparex Quester Prelude Polytechnos Partech 6000 Partcom (Iris) Nordic VP Logispring Kennet Innovacom 5000 Index IDG Holland Gilde Galileo €M 4000 Eqvitec Ealy bird DVC DFJ eplanet Doughty Hanson Crescendo 3000 CDC Innovation Capricorn Capman Benchmark Banexi 2000 Auriga Atlas Apax GE Apax FR Apax UK 1000 Amadeus Alta Berkeley ACT Accel 3i - 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
  78. 78. And a few people © Service des relations industrielles (SRI) © EPFL a relatively recent activityThe first attempt of Doriot in the UK, Technical Development Corporation, launched in1962, was sold at a loss to the ancestor of 3i. A second attempt in 1965, EuropeanEnterprises Development (EED), set up in Paris, was more successful despite anunsupportive environment. The financial uncertainties of mid-70s led it to stop itsactivities in 1976. Its example however had led a number of institutions to get interested inthe activity. From 1977, the EEC started to study action plans to finance enterprises, interalias high tech start-ups. Founded in 1972 by Christian Marbach and Antoine Dupont Fauville with strong links in the USA: Peter Brooke and Jean Deléage (TA Associates) will be critical. 22MFF helped by a law on Venture Capital. http://www.europeanvc.com/history.htm
  79. 79. And a few people © Service des relations industrielles (SRI) © EPFL a relatively recent activity Sir David Cooksey was the Founder of Advent Venture Partners in 1981 and was Chief Executive from 1981 to 1987 and Bryan Wood Chairman from 1987 until his retirement in Founder 1982 2006. Michiel de Haan Founder 1980 1982 Vincent Worms and Thomas McKinley TVM launched in 1983 with €87M Founded in 1945 by British banks; the 3i group was created in 1987 A US company created in 1969 by when the banks sold their stakes to Alan Patricof which has a a public limited company. European presence since the 80s http://www.europeanvc.com/history.htm
  80. 80. And a few people © Service des relations industrielles (SRI) © EPFL a relatively recent activity 1997 2000 1998 2001
  81. 81. The founders’ fund © Service des relations industrielles (SRI) © EPFL by the Skype founders by the Alando and Jamba founders
  82. 82. Some European deals © Service des relations industrielles (SRI) © EPFL
  83. 83. © Service des relations industrielles (SRI) © EPFLAnd recently? 2005...
  84. 84. Too much or too little money? © Service des relations industrielles (SRI) © EPFL
  85. 85. Too much or too little money? © Service des relations industrielles (SRI) © EPFL
  86. 86. Silicon Valley leads as ever © Service des relations industrielles (SRI) © EPFL
  87. 87. Silicon Valley leads as ever © Service des relations industrielles (SRI) © EPFL
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