A History of Venture Capital - Lebret - Vers 1.1

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A History

of

Venture Capital

Hervé Lebret

February 2009 and December 2011


“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)


The Ancestors

pre - 1958


1957 – The Traitorous 8

Shockley was so difficult with his colleagues that 8 left Shockley Labs. to create a new company

The eight men were Julius

Blank, Victor Grinich, Jean

Hoerni, Eugene Kleiner, Jay

Last, Gordon Moore, Robert

Noyce and Sheldon Roberts.


1957 – Arthur Rock

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.


There had been also…

Georges Doriot (a Harvard professor) founded American R&D in 1946 in Boston.

ARD DGA

William Draper II (VP Dillon Read), Rowan Gaither (founder of Rand Corp.) and Frederick Anderson (retired general) launch DGA with Rockfeller Group money in 1958


and also hobby of the rich…

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 private equity firms in 1946 by "Jock" Whitney, J.H. Whitney & Co. provided capital and professional assistance to entrepreneurs.

He invested in MinuteMaid, Memorex, Genera Signals but also in movies (Gone with the Wind)

He coined the term “venture capital”.


The Ancestors’ investments

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.


The First Generation

Part 1

1958-1965



Davis joined Rock. They raised $3.5M with Moore, Noyce, Kleiner among others

1961 - Davis & Rock

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.



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

1962 – Draper and Johnson


And also…

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

Reid Dennis, Don Lucas


The government got interested

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.


Some 1st gen. investments

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.



1961-1965

Fireman's Fund Insurance invested $1

million in an optical-character recognition

company, Recognition Technology. “At the

height of the market, that investment was

worth over $40 million, which, in the 1960s

was an outstanding performance. By the

time it was all over, Fireman's probably

realized a $15 million or $16 million profit on

the investment.”

Continental (Chambers) put $250k in

Dataproducts, which returned $12M. Then

he invested in ROLM, American

Microsystems and KLA. He closed his SBIC

in 1980 to created a $22M VC fund.

One member of “the Group”,

Dennis, investment was $10-

20k? in Ampex which will be

worth $1M in the end. The

Group provided $4.5M to

Linear and 2/3 of $7.7M to

Sierra Semiconductor.

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.

Draper&Johnson invested in

Tandem



Part 2

1965-1972



Johnson and Draper go on their own: Johnson launches AMC - the Asset Management Company (still active)

1965 – Sutter Hill, AMC

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.



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…

1969 – Mayfield, Venrock

http://www.mayfield.com/index.php/index.html?sid=



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.


Willian Elfers leaves ARD as Doriot does not let control and creates Greylock with Daniel Gregory and Charles Waite.

1965-70 - Boston The First Generation

(From left to right) Howard E. Cox, Jr., Charles P. Waite, Henry F. McCance, Daniel S.

Gregory, William Elfers.

C.Waite

W. Efers


1965-70 - Boston The First Generation

ARD alumnus Willian Burnes co-founds Charles River Venture in 1970 with John Carter.

ARD alumnus Peter Brooke (then at FNB Boston) launches TA Associates in 1968 as a division of Tucker Anthony, a regional investment bank.

http://www.ta.com/index.asp



1965-1972


The Giants

1972-1978


Kleiner Perkins

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

1972 Thomas Perkins Eugene Kleiner


KP First Fund (1972-1984)

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Value on

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KP first fund

$7M fund with $4M from Hilman (Wilmington), $1M from Rockefeller University. Both Kleiner and Perkins put $150k each.

1972 Tandem ($152M)

Genentech ($47M)

More on http://www.startup-book.com/2009/02/09/about-kleiner-perkins-first-fund-episode-3

http://www.startup-book.com/2009/02/09/about-kleiner-perkins-first-fund-episode-3
















Sequoia

Don Valentine, a co-founder of National and Fairchild marketing director creates in 1972 the VC arm of the Capital Group, later named Sequoia.

1972

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

http://www.startup-book.com/2010/11/05/when-valentine-was-talking










Sequoia

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.


Kleiner Perkins

Perkins and Kleiner

were joined by

Caufield and Byers

(from AMC) in 1977

and the partnership

becomes KPCB.

30 years of activity

Later come

famous icons

John Doerr (Intel)

and

Vinod Khosla

(Sun founder)

KPCB I $15M (1976)

KPCB II $55M (1980)

KPCB III $150M (1982)

KPCB IV $150M (1986)

http://www.kpcb.com/index.html


Sequoia

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

http://www.pbs.org/opb/nerds2.0.1/cast/page6.html

http://www.sequoiacap.com/


Sequoia

Joining Valentine, famous to-become partners:


Pierre Lamond (National) - 1981

Mike Moritz (Time Magazine) – 1986

Doug Leone (HP, Sun) – 1988

http://www.pbs.org/opb/nerds2.0.1/cast/page6.html

http://www.sequoiacap.com/


The Reid Dennis Legacy

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.

1974


The Reid Dennis Legacy

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)


The Giants success stories 1972 and after


Some investments of the Giants

1974 and after


Hits and misses

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

http://www.startup-book.com/2011/11/14/the-missed-deals-of-venture-capitalists














A genealogy


What do VCs look for?



“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)

a never ending debate


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)


Davis & Rock


“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)


Perkins


“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)


Valentine


“ 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)


a never ending debate


The Maturity

1978-1993


The new players

1978

Founders

Dick Kramlich (Arthur

Rock & Associates )

Franck Bonsal (Alex

Brown)

Chuck Newall

1976

DuBose was a founder of

Menlo Ventures in 1976.

Carlisle joined in 1982 and

Jarve in 1985

Ed Glassmeyer co-

founded in 1978 with

Stewart Greenfield of

Oak Investment Partners.

In 1980, MPAE was

created by Merrill,

Pickard, Anderson and

Eyre (from

BankAmerica).


The new players

1981

Bill Bowes is the founder and

prior to founding USVP, Bill

was the founding shareholder

(and its first employee) of

Amgen

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).

Sevin Rosen was founded in 1981 by

L.J. Sevin (Mostek) and Ben Rosen

(MorganStanley). They used KP as a

backer and co-invested with them in

Compaq and Lotus.

1981

http://www.matrixpartners.com/index.asp

http://www.eng.lsu.edu/alumni/hod/sevin.jpg


The new players

1983

Bill Davidow, SVP

Sales & Marketing at

Intel launches MDV

In 1979, Adler & Company of

New York established an

office in Silicon Valley. In

1983, two Adler partners,

James Swartz and Arthur

Patterson, spun-off to create

the bi-coastal firm, Accel

Partners, having offices in

New York and Silicon Valley.

1983

1984

Gregory Avis Roe Stamps Stephen Woodsum

http://www.summitpartners.com/default.aspx


The new players

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)

1985

David Morgenthaler

founded the firm in 1968.

Morgenthaler began

raising institutional funds

in the 1980s and worked

at Whitney before,

1984

Rick Frisbie, founder of

Battery Ventures

http://www.morgenthaler.com/default.asp


Some investments 1978 and after


The New Kids

Around the Block

1993-2005


Benchmark Capital

1995

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.

Bruce Dunlevie Andy Rachleff

Bob Kagle Kevin Harvey

David Bierne

http://www.benchmark.com/index.php


August, Lightspeed, Redpoint

Redpoint was founded in 1999 by top

partners each from Brentwood Venture

Capital and IVP

The VC arm of Weiss, Peck & Greer

Venture Partners (1971) spun-off in

October 2000

Marquardt (TVI) & John

Johnston (TVI, H&Q) launch August in 1995.

http://www.lightspeedvp.com/default.asp


Some investments 1995 and after


The funds of founders 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….


Super Angels 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/

http://www.startup-book.com/2011/06/22/super-angels-recycling-of-old-stuff













http://www.startup-book.com/2010/08/17/super-angels/






Some historical and economical

perspective

1959-2005


Some key drivers

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

But what is the real impact?


The SBIC Ups & Downs

Source: Creating Modern Venture Capital: Institutional Design and Performance in the

Early Years by Caroline Fohlin

1959-1993


The endowments 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.


Median re t urns of vent ure capit a l

-5

0

5

10

15

20

25

30

35

1973 1975 1977 1979 1981 1983 1985 1987 1989

year

The maturity The 1980’s

Source: The Rise and Fall of Venture Capital, Gompers

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.

0

1

2

3

4

5

6

7

$ B

illio

ns

1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993

Year

Ne w C om m itm e nts to V e ntur e C a pita l Funds in C onsta nt 1 9 9 3


The Impact of Venture Capital


1993


The Impact of Venture Capital


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


Median I RR ( % )

-30

-20

-10

0

10

20

30

40

50

1985 1987 1989 1991 1993 1995 1997 1999

Year

The Internet bubble

Source: The Venture Capital Industry Report, Dow Jones

The recent numbers may not be accurate as they are too recent;

they however some negative effects of the Internet bubble.

The 90s enthusiasm and 00s crisis Median m ult iples ( 'x ')

1.8

1.61.7

1.9

1.71.6

2.3

2.1

1.6

2

2.2

2.8

1.4

1.1

0.60.7

1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000


0

500

1'000

1'500

2'000

2'500

3'000

3'500

4'000

4'500

1971 1976 1981 1986 1991 1996 2001

0

10

20

30

40

50

60

70

80

90

Nasdaq (end year) VC funds ($B)

1

10

100

1'000

10'000

1971 1976 1981 1986 1991 1996 2001

0.01

0.1

1

10

100

Nasdaq (end year) VC funds ($B)

The Nasdaq and the VCs 1971-2006

Natural scale

Log scale

1974: the oil crisis and ERISA act

1990: US recession and

declining IRRs

1984: the HDD crisis

2001: the Internet crash

Source: Compilation HL


A chronology of funds (1/2)

Fund number and year of creation



A chronology of funds (2/2)

Size of funds (in $M)


Notes

1: fund 2000 back to $471M



4: fund II (1981) $45M, III (1984) $126M


6: fund 2000 down to $650M, then $450M


TOP US VCs

0

2'000

4'000

6'000

8'000

10'000

12'000

14'000

16'0001

98

6

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

Year

$M

Mohr Davidow

Redpoint

DFJ

Benchmark

USVP

Crosspoint

Brentwood

Accel

Sevin Rosen

Oak

Sierra

NEA

Matrix

CRV

Austin

Sequoia

Onset

Interwest

Menlo

IVP

Battery

Mayfield

KPCB

A subjective “Top VC” list


And the returns?

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…

Exceptional IRRs Source: Compilation HL


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%

And the returns?


Israel

1992-2005


The Israel VC size


The largest Israel VC funds


Israel success stories

http://www.pitango.com/default.asp

http://www.star-ventures.com/index.html

http://www.gizavc.com/index.htm

http://www.evergreen.co.il/index.asp

http://www.walden.co.il/index.asp

http://www.challenge.co.il/index.html


More about Israel

More on http://www.startup-book.com/tag/israel/

http://www.startup-book.com/2011/02/05/start-up-nation-israel

http://www.startup-book.com/tag/israel/













and Europe?

1972-2006


A list of European funds



Timescale

1996-2005 Source: Compilation HL


Timescale

1996-2005

-

1'000

2'000

3'000

4'000

5'000

6'000

7'000

8'000

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

€M

Wellington

Viventures

Ventech

TVM

Sofinnova

Siparex

Quester

Prelude

Polytechnos

Partech

Partcom (Iris)

Nordic VP

Logispring

Kennet

Innovacom

Index

IDG

Holland

Gilde

Galileo

Eqvitec

Ealy bird

DVC

DFJ eplanet

Doughty Hanson

Crescendo

CDC Innovation

Capricorn

Capman

Benchmark

Banexi

Auriga

Atlas

Apax GE

Apax FR

Apax UK

Amadeus

Alta Berkeley

ACT

Accel

3i



And a few people

a relatively recent activity

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.

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.

http://www.europeanvc.com/history.htm

http://www.sofinnova.fr/



And a few people



TVM launched

in 1983 with €87M

Sir David Cooksey was the Founder of

Advent Venture Partners in 1981 and was

Chief Executive from 1981 to 1987 and

Chairman from 1987 until his retirement in

2006.

Bryan Wood

Founder 1982

Michiel de Haan

Founder 1980

Vincent Worms and Thomas McKinley

1982

Founded in 1945 by British banks;

the 3i group was created in 1987

when the banks sold their stakes to

a public limited company. A US company created in 1969 by

Alan Patricof which has a

European presence since the 80s


http://www.snellwilcox.com/company/investors/

http://www.tvmvc.com/

http://www.altaberkeley.com/index.html

http://www.atlasventure.com/

http://www.partechvc.com/

http://www.3i.com/index.html


1997

1998

2001

2000

And a few people


http://www.amadeuscapital.com/team/anne.html

http://www.amadeuscapital.com/team/hermann.html

http://www.indexventures.com/webapps/indexweb/htm/home.htm

http://www.accel.com/index.php

http://www.benchmark.com/index.php


by the Skype founders by the Alando and Jamba founders

The founders’ fund


Some European deals


And recently?

2005...


Too much or too little money?


Too much or too little money?


Silicon Valley leads as ever


Silicon Valley leads as ever

Documents

A History of Venture Capital - Lebret - Vers 1.1