Summary:
Number of VCs in Silicon Valley declining, ascribed to exodus of "tourist VCs." Huge amount of turnover below the surface in VC industry. No obvious resume for the perfect venture capitalist. You're a natural athlete (good sense of small about a deal) or you're not. Only way to find out is by taking to the field. E.g. failure of Mitch Kapor (Lotus 123) at a VC firm. According to Kramlich (Sequoia), venture capital doesn't necessarily take a lot of technical talent. I mean, it doesn't hurt, but it's more about people skills and the ability to assess whether there's a market for something. (Published: 22/05/05)
Notes:
- exodus of "tourist V.C.'s"
- Silicon Valley term for people from nonfinancial backgrounds
- hundreds fewer venture capitalists in 2005 compared to 2003
- Darwinian characteristics to venture capital
- huge amount of turnover below the surface
- talent for spotting promising technologies and undiscovered start-ups before others not sufficient
- no obvious résumé for the perfect venture capitalist
- "Venture capital doesn't necessarily take a lot of technical talent. I mean, it doesn't hurt, but it's more about people skills and the ability to assess whether there's a market for something." (Kramlich, Sequoia)
- need to have good sense of smell about a deal
- can't really have people learning on the job
- venture investing is best left to the professionals
- you're a natural athlete or you're not
- "Some can do it, and some can't, and like with athletes there's no way of telling until they take the field."
- e.g. Mitch Kapor
- founder of Lotus Development (Lotus 123)
- enormous success investing for himself
- e.g. RealNetworks and UUNet Technologies
- staggering payouts
- joined VC firm Accel Partners
- failed to choose a single company that made him any money (0-for-5)
- "The fact that it's someone else's money you're investing, and that you're investing as part of a partnership, that was more different than I thought it would be."
- At the end of the 90's, it seemed everyone in Silicon Valley wanted to become a venture capitalist
- ranks of venture capitalists more than doubled
- from less than 5,000 in 1995 to nearly 10,000 by 2001
- firms started hiring people from outside traditional fields like finance or operations
- suddenly many lawyers, entrepreneurs, journalists and executive recruiters were trying their hand at playing venture capitalist
- reason:
- a general partner at a top-tier firm typically earns at least $1 million in salary
- real payoff is what venture capitalists call "the carry"
- the 20 to 30 percent of the profits they share among themselves before disbursing the rest to investors
- a partner working at a top-tier firm in the 90's could pocket roughly $50 million over the life of a single fund
- thrills
- not unlike a movie producer auditioning tomorrow's stars
- "Being a venture capitalist was viewed as a very exciting, top of the feeding chain sort of thing. But what I think a lot of people learned is that it's not as much fun or as easy as it might have looked from the outside." (Scott Dettmer, founding partner at the Silicon Valley law firm Gunderson Dettmer)
- early years are often painful
- John Doer: "training a new venture capitalist was not unlike preparing a fighter pilot for battle: it takes probably six to eight years and you should be prepared for losses of about $20 million. Of course, while we take risk, we work like hell to avoid crashes."
- venture gods
- someone who has made $100 million to $500 million on a single investment
- e.g. Mr. Doerr, Mr. Kramlich and Michael Moritz at Sequoia Capital
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