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A History of Venture Capital's Origins
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Hervé Lebret
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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's Origins
1.
© Service des
relations industrielles (SRI) © EPFL A History of Venture Capital Hervé Lebret February 2009 and December 2011
2.
© Service des
relations industrielles (SRI) © EPFL “Venture Capital is a uniquely American process, whose specialty is to combine risk capital with entrepreneurial management and advanced technology to create new products, new companies and new wealth” from The New Venturers, Inside the High- Stakes World of Venture Capital, by John W. Wilson (Addison Wesley, 1984)
3.
© Service des
relations industrielles (SRI) © EPFL The Ancestors pre - 1958
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 left Shockley Labs. to create a new company
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.
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.
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.
The Ancestors’ investments
© Service des relations industrielles (SRI) © EPFL Fairchild Semiconductor was very successful and reached 12,000 employees but the founders were bought back their shares by Fairchild… 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 $200k investment) and Digital Equipment in 1957 (a $70k inv. worth $355M after 14 years). ARD stopped in 1972. ARD biggest flaw was no incentive for associates (no carried interest). DGA seems to have been less successful though and closed in 1969 when Rockefeller withdrew.
9.
© Service des
relations industrielles (SRI) © EPFL The First Generation Part 1 1958-1965
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 others Tommy Davis, a Harvard-educated lawyer and then vice president of Kern County Land Company. Davis wanted to leave the Land Company because it had little interest in high-technology investments though Davis had already made a successful investment in the high-technology firm, Watkins-Johnson.
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.
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 Fireman's Fund Insurance finance committee didn't 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.
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.
Some 1st gen.
investments © Service des relations industrielles (SRI) © EPFL Davis & Rock After Fairchild, Rock invested $1.8M for 25% of Teledyne founded by Henry Singleton. In 1984, Teledyne was worth $3B Rock & Davis $3.5M fund (from individuals) returned $100M. It invested in Scientific Data Systems (SDS), a company founded by Max Palesky. They invested $257k in a $1M round for 80% of the company. SDS proposed to used solid state technology to build computers although Rock and Davis would have never thought to invest in computers where IBM was tough to beat. 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&R was $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’s investors advised him against investing in memory technologies. Rock was chairman until 1975.
15.
Some 1st gen.
investments © Service des relations industrielles (SRI) © EPFL 1961-1965 Continental (Chambers) put $250k in Dataproducts, which returned $12M. Then Draper&Johnson invested in he invested in ROLM, American Tandem Microsystems and KLA. He closed his SBIC in 1980 to created a $22M VC fund. Fireman's 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, Fireman's 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.
© Service des
relations industrielles (SRI) © EPFL The First Generation Part 2 1965-1972
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.
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.
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.
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.
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.
Some 1st gen.
investments © Service des relations industrielles (SRI) © EPFL 1965-1972
23.
© Service des
relations industrielles (SRI) © EPFL The Giants 1972-1978
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.
KP first fund
© Service des relations industrielles (SRI) © EPFL 1972 $7M fund with $4M from Hilman (Wilmington), $1M from Rockefeller University. Both Kleiner and Perkins put $150k Tandem ($152M) each. KP First Fund (1972-1984) Genentech ($47M) $16'000'000 $14'000'000 $12'000'000 Cost ($) $10'000'000 $8'000'000 $6'000'000 $4'000'000 Value on $2'000'000 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 va Ad More on http://www.startup-book.com/2009/02/09/about-kleiner-perkins-first-fund-episode-3
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, we'll put up all the money, you put up all the blood, sweat and tears and we'll split the company", this with the founders. Then if we have to hire more people, we'll 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, we'll give you, for all the money, 5 percent, 10 percent of the deal." And, you know, that it's a supply and demand thing. It's gone back the other way now. But, in starting with a team, it's a typical thing to say, well, somewhere 40 to 60 percent, to divide it now. If they've got the best thing since sliced bread and you think they have it and they think they have it, you know, then you'll 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.
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.
Kleiner Perkins
© Service des relations industrielles (SRI) © EPFL 30 years of activity Perkins and Kleiner were joined by Caufield and Byers (from AMC) in 1977 and the partnership becomes KPCB. KPCB I $15M (1976) KPCB II $55M (1980) KPCB III $150M (1982) KPCB IV $150M (1986) Later come famous icons John Doerr (Intel) and Vinod Khosla (Sun founder)
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.
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.
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.
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.
The Giants success
stories © Service des relations industrielles (SRI) © EPFL 1972 and after
34.
Some investments of
the Giants © Service des relations industrielles (SRI) © EPFL 1974 and after
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 Apple More on http://www.startup-book.com/2011/11/14/the-missed-deals-of-venture-capitalists
36.
A genealogy
© Service des relations industrielles (SRI) © EPFL
37.
© Service des
relations industrielles (SRI) © EPFL What do VCs look for?
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.
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.
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.
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.
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.
© Service des
relations industrielles (SRI) © EPFL The Maturity 1978-1993
44.
The new players
© Service des relations industrielles (SRI) © EPFL 1976 1978 Founders DuBose was a founder of Dick Kramlich (Arthur Menlo Ventures in 1976. Rock & Associates ) Carlisle joined in 1982 and Franck Bonsal (Alex Jarve 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.
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.
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.
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.
Some investments
© Service des relations industrielles (SRI) © EPFL 1978 and after
49.
© Service des
relations industrielles (SRI) © EPFL The New Kids Around the Block 1993-2005
50.
Benchmark Capital
© Service des relations industrielles (SRI) © EPFL 1995 Bruce Dunlevie Andy Rachleff Bob Kagle Kevin Harvey David Bierne In 1995 Bruce Dunlevie and Andy Rachleff (MPAE), two veterans of the industry, decided to create their own company, Benchmark. Their goal was to have a firm with a "fundamentallydifferent architecture," with no one person at the top. The men had connections, 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 the venture capital world and Kevin Harvey from the technology sector, and then brought in David Bierne, who had built a highly successful executive search business centered around technology.
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 & Greer partners each from Brentwood Venture Venture Partners (1971) spun-off in Capital and IVP October 2000
52.
Some investments
© Service des relations industrielles (SRI) © EPFL 1995 and after
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.
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.
© Service des
relations industrielles (SRI) © EPFL Some historical and economical perspective 1959-2005
56.
Some key drivers
© Service des relations industrielles (SRI) © EPFL But what is the real impact? 1957: some great IPOs: HP, Varian 1958: The SBIC (Small Business Investment Corporation) act provides federal fund matching and will enable the dramatic increase of venture capital 1969-76: Tax Reform acts (as well as 1976) raised tax from 25% to 49% on capital gains, dying up VC after 1969 1974: The oil crisis together with the new ERISA act that mandates criminal penalties for pension fund managers who lose money with high-risk investments nearly stops inv. in venture capital 1979: A new ERISA act which decreases fiduciary responsibility together with a good IPO market in 1980 (Apple, Genentech) creates a new inflow of money 1983: Too much money for two many companies: the Disk Drive companies crash. Venture Capital matures in the 80s. The semiconductor industry competes with Japan and lay-offs. The crisis will end with… 1993: the beginning of the Internet
57.
The SBIC Ups
& Downs © Service des relations industrielles (SRI) © EPFL 1959-1993 Source: Creating Modern Venture Capital: Institutional Design and Performance in the Early Years by Caroline Fohlin
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.
The maturity
© Service des relations industrielles (SRI) © EPFL The 1980’s The late 80s brought maturity, but was also a big crisis for technologies. The semiconductor companies cut their work force and the technology & VC sectors suffered 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.
The Impact of
Venture Capital © Service des relations industrielles (SRI) © EPFL 1993 Source: The Rise and Fall of Venture Capital, Gompers
61.
The Impact of
Venture Capital © Service des relations industrielles (SRI) © EPFL 1993-2006 Data 1993 Status & Data 2006 Company VC Sales ($M) Jobs Cap. ($M) Status Sales ($M) Jobs Cap. ($M) Apple Computer Sequoia, A. Rock 7'977 14'910 3'576 19'315 17'787 74'110 Au Bon Pain Angels 123 1'250 223 acquired by Compass Group in 1999 Biogen TA Associates 149 415 1'110 2'442 3'440 16'110 Chiron Burr Egan Deleage 217 2'179 2'171 acquired by Novartis in 2006 Cirrus IVP, NEA 354 1'353 885 647 424 193 CML Group Angels 645 5'608 697 liquidated in 1999 Compaq Computer Sevin Rosen, Mayfield, IVA 7'191 13'010 9'978 acquired by HP in 2002 Conner Peripherals Compaq 2'151 9'097 774 acquired by Seagate in 1996 Cray Computer $8M from misc. investors 352 383 50 bankruptcy in 1995, acquired by SGI Data General Adler 1'077 6'500 271 acquired by EMC in 1999 Digital Equipment ARD 14'371 94'600 3'223 acquired by Compaq in 1998 Evans & Sutherland Venrock 142 1'100 132 73 268 39 Federal Express Burr Egan Deleage, MPAE 7'808 95'000 4'206 32'294 225'000 33'950 Genentech KP 650 2'510 3'189 9'284 9'500 92'180 Intel A. Rock 8'782 29'500 27'082 35'382 94'100 118'740 Lotus Sevin Rosen 981 4'738 2'705 acquired by IBM in 1995 Micropolis IVA 382 2'298 99 bankruptcy in 1997 Microsoft IVA 3'573 14'430 15'117 44'282 71'000 298'180 Orbital Sciences 190 1'123 315 703 2'600 1'040 Quantum KP 1'167 2'455 695 834 2'320 462 Raychem 1'385 10'772 1'581 acquired by Tyco in 1999 Seagate IVP 3'043 43'000 1'648 9'206 60'000 15'910 Staples 883 7'539 1'063 16'078 36'071 18'760 Starbucks 163 4'585 866 7'786 145'800 26'650 Stratus Computer CRV, IVP 514 2'610 723 acquired by Ascend en 1998 Sun Microsystems KP 4'308 13'300 2'009 13'068 38'000 22'310 Tandem Computer KP, Mayfield, Johnson 2'030 9'963 1'368 acquired by Compaq in 1997 Teledyne A. Rock 2'492 21'000 997 1'433 7'270 1'350 Teradyne Greylock 555 4'500 891 1'376 4'000 2'910 Wellfleet Brentwood, NorthBridge 180 738 784 acquired by Nortel in 1996 Total 73'835 420'466 88'428 194'203 717'580 722'894 Average 4'764 27'127 5'705 12'138 44'849 45'181 Source: The Rise and Fall of Venture Capital, Gompers
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.
The Nasdaq and
the VCs © Service des relations industrielles (SRI) © EPFL 1971-2006 4'500 90 4'000 80 3'500 70 1974: the oil crisis and ERISA act 3'000 60 2'500 50 1984: the HDD crisis 2'000 40 1'500 30 1990: US recession and 1'000 20 declining IRRs 500 10 0 0 2001: the Internet crash 1971 1976 1981 1986 1991 1996 2001 Natural scale Nasdaq ( end y ear) VC f unds ( $B) 10'000 100 1'000 10 100 1 10 0. 1 1 0. 01 1971 1976 1981 1986 1991 1996 2001 Source: Compilation HL Log scale Nasdaq ( end y ear) VC f unds ( $B)
64.
A chronology of
funds (1/2) © Service des relations industrielles (SRI) © EPFL Fund number and year of creation Source: Compilation HL
65.
A chronology of
funds (2/2) © Service des relations industrielles (SRI) © EPFL Size of funds (in $M) Notes 1: fund 2000 back to $471M 2: fund 2001 back to $830M 3: fund 2001 back to $450M 4: fund II (1981) $45M, III (1984) $126M 5: fund 2000 back to $600M 6: fund 2000 down to $650M, then $450M Source: Compilation HL
66.
A subjective “Top
VC” list © Service des relations industrielles (SRI) © EPFL TOP US VCs Mohr Davidow Redpoint 16'000 DFJ Benchmark 14'000 USVP Crosspoint Brentwood 12'000 Accel Sevin Rosen 10'000 Oak Sierra $M 8'000 NEA Matrix CRV 6'000 Austin Sequoia 4'000 Onset Interwest Menlo 2'000 IVP Battery 0 Mayfield 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 KPCB Year
67.
And the returns?
© Service des relations industrielles (SRI) © EPFL Exceptional IRRs Source: Compilation HL Although the data are not so easy to obtain (the numbers below are not fully consistent…), the VC world has generated exceptional returns. The individual success stories are known. Some previous slides give some more numbers. The reader can compare to the typical Wall Street numbers…
68.
And the returns?
© Service des relations industrielles (SRI) © EPFL Exceptional IRRs Source: Compilation HL VC "Vintage" Size Multiple IRR VC "Vintage" Size Multiple IRR Fund year ($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.
© Service des
relations industrielles (SRI) © EPFL Israel 1992-2005
70.
The Israel VC
size © Service des relations industrielles (SRI) © EPFL
71.
The largest Israel
VC funds © Service des relations industrielles (SRI) © EPFL
72.
Israel success stories
© Service des relations industrielles (SRI) © EPFL
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.
© Service des
relations industrielles (SRI) © EPFL and Europe? 1972-2006
75.
A list of
European funds © Service des relations industrielles (SRI) © EPFL Source: Compilation HL
76.
Timescale
© Service des relations industrielles (SRI) © EPFL 1996-2005 Source: Compilation HL
77.
Timescale
© Service des relations industrielles (SRI) © EPFL 1996-2005 Source: Compilation HL 8'000 Wellington Viventures Ventech TVM 7'000 Sof innova Siparex Quester Prelude Polytechnos Partech 6'000 Partcom (Iris) Nordic VP Logispring Kennet Innovacom 5'000 Index IDG Holland Gilde Galileo €M 4'000 Eqvitec Ealy bird DVC DFJ eplanet Doughty Hanson Crescendo 3'000 CDC Innovation Capricorn Capman Benchmark Banexi 2'000 Auriga Atlas Apax GE Apax FR Apax UK 1'000 Amadeus Alta Berkeley ACT Accel 3i - 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
78.
And a few
people © Service des relations industrielles (SRI) © EPFL a relatively recent activity The first attempt of Doriot in the UK, Technical Development Corporation, launched in 1962, was sold at a loss to the ancestor of 3i. A second attempt in 1965, European Enterprises Development (EED), set up in Paris, was more successful despite an unsupportive environment. The financial uncertainties of mid-70's led it to stop its activities in 1976. Its example however had led a number of institutions to get interested in the activity. From 1977, the EEC started to study action plans to finance enterprises, inter alias 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.
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.
And a few
people © Service des relations industrielles (SRI) © EPFL a relatively recent activity 1997 2000 1998 2001
81.
The founders’ fund
© Service des relations industrielles (SRI) © EPFL by the Skype founders by the Alando and Jamba founders
82.
Some European deals
© Service des relations industrielles (SRI) © EPFL
83.
© Service des
relations industrielles (SRI) © EPFL And recently? 2005...
84.
Too much or
too little money? © Service des relations industrielles (SRI) © EPFL
85.
Too much or
too little money? © Service des relations industrielles (SRI) © EPFL
86.
Silicon Valley leads
as ever © Service des relations industrielles (SRI) © EPFL
87.
Silicon Valley leads
as ever © Service des relations industrielles (SRI) © EPFL
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