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Bankers Versus GamblersThe Rise of Private RiskCapital Steve Blank www.steveblank.com Twitter: sgblank Slides: www.slideshare.net/sblank
The Rise of Risk CapitalFamily Money 	1940’s - 1960’s J.H. Whitney	 1st family office 1946 Laurance Rockefeller Draper Gaither & Anderson (1st limited Partnership) 1958 Spun out as Venrock in 1969 Bessemer East Coast focus Wide variety of industries
The Rise of Risk CapitalEast Coast VC Experiments 1946 American Research & Development George Doriot Right idea, wrong model (public VC firm) 1963 Boston Capital
The Valley Attracts Financial AttentionThe 1st West Coast IPO’s 1956	Varian  1957	Hewlett Packard 1958	Ampex
1950’s – 1968 Stanford Engineering School sets up a secret 800-person military weapons lab
1950’s – 1968 Stanford Engineering School sets up a secret 800-person military weapons lab The Valley’s Entrepreneurial Culture comes from this lab
Entrepreneurs WeaponsFinance Crisis Profit Motivation Customer  Development Mgmt Tools Agile Development Business ModelDesign Design Thinking Stanford and the Cold War Silicon Valley’s 1st Wave Risk Taking Culture Entrepreneurial Outward-Facing Tech Universities Free flow of People/Info Infrastructure 24/7 Utilities Predictable Economic System Stable Legal System Research Universities
Soviet Union Launches Sputnik and the U.S. Venture Capital Industry Soviet satellite shocked the U.S. Galvanized congress  New agencies/programs NASA ARPA National Defense Education Act SBA SBIC Act
The Rise of Risk CapitalSBIC Act of 1958 Gov’t match of private investments 3:1 700 SBIC funds by 1965  75% of all VC funding in 1968, 7% in 1988 Corporate Bank of America - George Quist, Tom Clauson Firemans Fund/American Express - Reid Dennis Private 1959 Continental Capital - Frank Chambers The Group; Bryan Edwards, McGanney 1962 Pitch Johnson & Bill Draper  1962 Sutter Hill
The Rise of Risk CapitalSBIC Act of 1958 700 SBIC funds by 1965  75% of all VC funding in 1968, 7% in 1988 Corporate Bank of America - George Quist, Tom Clauson Firemans Fund/American Express - Reid Dennis Private 1959 Continental Capital - Frank Chambers The Group; Bryan Edwards, McGanney 1962 Pitch Johnson & Bill Draper  1962 Sutter Hill
The Rise of Risk Capital“The Group” – the first Angels	1950’s First Bay Area “Angels”  Reid Dennis William Bryan William Edwards William K. Bowes Daniel McGanney ~ 10 deals $75 -$300K
Reid Dennis Remembers “The first 25 electronics companies required total capital of $300k each and private individuals formed the basis of the early syndicates” “….in 1975, prior to the relaxation of ERISA laws, the entire VC industry raised $10m”
The Rise of Venture CapitalThe Limited Partnership Raise money from pension funds, private universities, wealthy individuals – the limited partners Investment professionals manage the fund – the general partners i.e. the VC’s Compensate the general partners via the “2 and 20” 2% management fee, 20% carried interest (i.e. of the profits) ,[object Object]
 Rock and Davis 	 			  1961
 Sutter Hill					   1964
 Patricof & Co.					   1969
 Kleiner Perkins				   1972
 Sequoia Capital			    1972,[object Object]
Electron-Based VC’s
Entrepreneurs VentureFinance Crisis Profit Motivation Customer  Development Mgmt Tools Agile Development Business ModelDesign Design Thinking Venture CapitalSilicon Valley’s 2nd Wave Risk Taking Culture Entrepreneurial Outward-Facing Tech Universities Free flow of People/Info Infrastructure 24/7 Utilities Predictable Economic System Stable Legal System Research Universities
Life Science-Based VC’s
Lean Angels
Venture CapitalSilicon Valley Today VentureFinance Entrepreneurs AngelFinance Crisis Profit Motivation Customer  Development Mgmt Tools Agile Development Business ModelDesign Design Thinking Risk Taking Culture Entrepreneurial Outward-Facing Tech Universities Free flow of People/Info Infrastructure 24/7 Utilities Predictable Economic System Stable Legal System Research Universities
Finally Observations From Abroad
#1 Startups are Smaller Versions of Large Companies
#1 × Startups are Smaller Versions of Large Companies oops
#2 A startup is all about focus and execution of the business plan
#2 A startup is all about focus and execution of the business plan No business plan survivesfirst contact with customers ✓
#3 A startup is all about a great idea
#3 A startup is all about a great idea An A-teamwith a B-product always beats a B-team with an A-product ✓
#4 Companies execute business plansStartups search for business models
#3 Companies execute business plansStartups search for business models
#4 Companies execute business plansStartups search for business models ✓
#5 A startup is a temporary organization designed to search for a scalable and repeatable business model
#6 Startups need their own tools, different from those used in existing companies
#6 Startups need their own tools, different from those used in existing companies
#7 Customer Development = process to searchBusiness Model Canvas is the ScorecardAgile Engineering is How We Build Startups

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Gamblers not bankers 090711 finland

  • 1. Bankers Versus GamblersThe Rise of Private RiskCapital Steve Blank www.steveblank.com Twitter: sgblank Slides: www.slideshare.net/sblank
  • 2. The Rise of Risk CapitalFamily Money 1940’s - 1960’s J.H. Whitney 1st family office 1946 Laurance Rockefeller Draper Gaither & Anderson (1st limited Partnership) 1958 Spun out as Venrock in 1969 Bessemer East Coast focus Wide variety of industries
  • 3. The Rise of Risk CapitalEast Coast VC Experiments 1946 American Research & Development George Doriot Right idea, wrong model (public VC firm) 1963 Boston Capital
  • 4. The Valley Attracts Financial AttentionThe 1st West Coast IPO’s 1956 Varian 1957 Hewlett Packard 1958 Ampex
  • 5. 1950’s – 1968 Stanford Engineering School sets up a secret 800-person military weapons lab
  • 6. 1950’s – 1968 Stanford Engineering School sets up a secret 800-person military weapons lab The Valley’s Entrepreneurial Culture comes from this lab
  • 7. Entrepreneurs WeaponsFinance Crisis Profit Motivation Customer Development Mgmt Tools Agile Development Business ModelDesign Design Thinking Stanford and the Cold War Silicon Valley’s 1st Wave Risk Taking Culture Entrepreneurial Outward-Facing Tech Universities Free flow of People/Info Infrastructure 24/7 Utilities Predictable Economic System Stable Legal System Research Universities
  • 8. Soviet Union Launches Sputnik and the U.S. Venture Capital Industry Soviet satellite shocked the U.S. Galvanized congress New agencies/programs NASA ARPA National Defense Education Act SBA SBIC Act
  • 9. The Rise of Risk CapitalSBIC Act of 1958 Gov’t match of private investments 3:1 700 SBIC funds by 1965 75% of all VC funding in 1968, 7% in 1988 Corporate Bank of America - George Quist, Tom Clauson Firemans Fund/American Express - Reid Dennis Private 1959 Continental Capital - Frank Chambers The Group; Bryan Edwards, McGanney 1962 Pitch Johnson & Bill Draper 1962 Sutter Hill
  • 10. The Rise of Risk CapitalSBIC Act of 1958 700 SBIC funds by 1965 75% of all VC funding in 1968, 7% in 1988 Corporate Bank of America - George Quist, Tom Clauson Firemans Fund/American Express - Reid Dennis Private 1959 Continental Capital - Frank Chambers The Group; Bryan Edwards, McGanney 1962 Pitch Johnson & Bill Draper 1962 Sutter Hill
  • 11. The Rise of Risk Capital“The Group” – the first Angels 1950’s First Bay Area “Angels” Reid Dennis William Bryan William Edwards William K. Bowes Daniel McGanney ~ 10 deals $75 -$300K
  • 12. Reid Dennis Remembers “The first 25 electronics companies required total capital of $300k each and private individuals formed the basis of the early syndicates” “….in 1975, prior to the relaxation of ERISA laws, the entire VC industry raised $10m”
  • 13.
  • 14. Rock and Davis 1961
  • 16. Patricof & Co. 1969
  • 18.
  • 20. Entrepreneurs VentureFinance Crisis Profit Motivation Customer Development Mgmt Tools Agile Development Business ModelDesign Design Thinking Venture CapitalSilicon Valley’s 2nd Wave Risk Taking Culture Entrepreneurial Outward-Facing Tech Universities Free flow of People/Info Infrastructure 24/7 Utilities Predictable Economic System Stable Legal System Research Universities
  • 23. Venture CapitalSilicon Valley Today VentureFinance Entrepreneurs AngelFinance Crisis Profit Motivation Customer Development Mgmt Tools Agile Development Business ModelDesign Design Thinking Risk Taking Culture Entrepreneurial Outward-Facing Tech Universities Free flow of People/Info Infrastructure 24/7 Utilities Predictable Economic System Stable Legal System Research Universities
  • 25. #1 Startups are Smaller Versions of Large Companies
  • 26. #1 × Startups are Smaller Versions of Large Companies oops
  • 27. #2 A startup is all about focus and execution of the business plan
  • 28. #2 A startup is all about focus and execution of the business plan No business plan survivesfirst contact with customers ✓
  • 29. #3 A startup is all about a great idea
  • 30. #3 A startup is all about a great idea An A-teamwith a B-product always beats a B-team with an A-product ✓
  • 31. #4 Companies execute business plansStartups search for business models
  • 32. #3 Companies execute business plansStartups search for business models
  • 33. #4 Companies execute business plansStartups search for business models ✓
  • 34. #5 A startup is a temporary organization designed to search for a scalable and repeatable business model
  • 35. #6 Startups need their own tools, different from those used in existing companies
  • 36. #6 Startups need their own tools, different from those used in existing companies
  • 37. #7 Customer Development = process to searchBusiness Model Canvas is the ScorecardAgile Engineering is How We Build Startups
  • 38.
  • 43. Demo and customer feedback
  • 60. … then Dealers
  • 62. Direct Service with equipment rental
  • 63. … then Asset SaleValue-Driven
  • 64. #9 Valuations are Inflating at a Rapid PaceEarly and Late Stage
  • 65. #9 Valuations are Inflating at a Rapid PaceEarly and Late StageThe Game is On AgainGet In It!
  • 66. Summary Cold War started Silicon Valley entrepreneurial culture Military was the key customer for Valley technologies Semiconductors, computers, Internet Venture Capital enabled by government funded VC’s SBIC Program Limited partnerships and Pension Funds made it scale