Dana Mead, a partner for Kleiner, Perking, Caufield & Byers, gave a lecture entitled Understanding Venture Capital, hosted by Stanford Tech Ventures Forum.
Dana Mead explains that Venture Capital essentially seeks big ideas that make a big difference. The main areas his company invests in include Digital, Life Science and Green Tech.
Venture Capital has experienced rapid growth due since the 1980s to many different factors. The main reason was that Stanford University and Yale University began explaining how investing in venture was important to include in an asset portfolio. By teaching their students this, venture investment increased 2-3%, enough to produce the boom in venture capital seen in the past 30 years. The following graph compares venture capital facts from 1980 and 2006.
| 1980 | 2006 | |
| Venture Capital Firms | 89 | 798 |
| Venture Capital Professionals | 1388 | 9257 |
| Venture Capital Raised | $2.1 billion | $29.9 billion |
| Venture Capital under Management | $3.7 billion | $235.8 billion |
| Average Capital under Management | $29.9 million | $175.6 million |
Overall, Information Technology has the biggest market in venture capitalism, and the majority of venture capital happens in California. Because networking is one of the most important aspects of investing in ventures, about half of the industry is located in California, making it the place to go if you are an entrepreneur.
Venture Capitalists have various backgrounds, and there is no right path into the industry. However, there are three very common paths.
- Two-Four Years of Experience: These Venture Capitalists commonly have a M.D/PhD, PhD, MBA or MS.
- Ten Years of Experience: These Venture Capitalists commonly have the same degrees as those of two-four experience, but also have spent time at the Director or General Manager Level.
- Twenty or more Years of Experience: They have the same degrees, but have spent time working at the CEO/CFO level.
Contrary to popular belief, investing makes up very little of what venture capitalists do—only 10%. 20% of their job is networking, and the rest of the 70% is supporting portfolio companies by recruiting and raising money. But, when they do invest, venture capitalists evaluate new ventures by how much risk they pose through the technical and any unmet clinical trials, as well as the management and their enthusiasm. They also look for the following five success factors:
- Having A+ leadership and passionate founders
- Serving a large, fast growing, unserved market by leveraging network effects, building an authoritative, trust brand, and obsessing about the customer experience.
- Having reasonable financing.
- Having a sense of urgency and desire to move forward.
- Being led by missionaries not mercenaries, who are committed to technical, market excellence.
Dana Mead also offered his trade secrets to getting investors interested in your venture.
- Be balanced
- Show passion
- Leverage networks and seek good counsel
- Don’t focus on the exit
- Be persistent
- Focus on attracting top talent and advisors
- Have fun!
It’s important to create your own innovation ecosystem and team up with businesses or engineering colleagues who can help you. Investing in intellectual property, focusing on big unmet clinical needs, and being passionate about your ideas can help inspire investor interest in your venture as well. There are no typical negotiations when it comes to venture capitalists investing in an entrepreneur, but seeking advice from others can help prepare you for them.
While there are people, often called Finders, who claim to match companies and investors, but most investors receive so many a day that they don’t look at them, thus returning a low investment rate. Building a strong network is more likely to return an investment.
Knowing more about venture capital can help you find a career in the industry as well as find the best ways to inspire investment in your venture.
Image credit: CC by Pictures of Money
