Академический Документы
Профессиональный Документы
Культура Документы
Aldranon A. English II
Author Note
We are required to write a detailed paper on a topic in venture capital. This paper will include at
Venture capital has played an important role in funding the development of several US
traditional economics have studied venture capital from the perspective of investment decision-
making. Innovative technologies historically took form inside of large corporations or looked to
wealthy families. The stock market crash of 1929, the ensuing Great Depression, and World War
II resulted in an environment that was decidedly not entrepreneur-friendly; however, and, though
it was a sweeping generalization, start-ups were few and far between during these periods
After the end of World War II, with former soldiers graduating college under the GI Bill, a
newly educated generation of potential entrepreneurs began to emerge just as the U.S. economy
was beginning a prolonged post-war boom. This, in part, laid the foundation for a renaissance for
entrepreneurs.1
The present-day VC industry traces back to the creation of the VC/PE firm American
Research and Development Corporation (1946) by Georges Doriot. ARD raised $3.5 million, of
which $1.8 million came from nine institutional investors, including MIT, Penn, and the Rice
Institute. The industry galvanized steam in 1958, when “Venture Capital was in its infancy,”
according to Mark Heesen, president of the National Venture Capital Association. Largely part
due to the significant boost which was given to the industry with the passage of the Small
Business Investment Act.1 The passage of the Small Business Investment Act gave tax breaks to
licensing private, small business investment companies (SBICs) to help entrepreneurs finance
and manage their startups. From 1960 to 1962, according to Hessen, 585 SBIC licenses were
approved, representing $205 million committed in private money. “The experience with SBICs
VENTURE CAPITAL AND PRIVATE EQUITY CAREERS 3
demonstrated a key point – government policy has an extremely important effect on the venture
capital ecosystem.”2
Some examples of companies funded through early venture capital include Xerox, Intel,
and American Microsystems. In fact, throughout the 1960′s and 70′s, computers, electronics and
data processing were exploding with growth and development, and venture capital firms were
there to provide financing for these highly risky endeavors. So much so, that the investment
vehicle soon became thought of as the primary method by which to finance tech startups. In the
1990′s, the “dot com” era was a boom to venture capital, providing numerous opportunities for
new firms to emerge and go public and for existing firms to put financing into the seemingly
endless array of internet startups. Startups funded during this time include Compaq, Intel,
McAfee, Hotmail, Skype and American Online which ushered in a massive time of growth of the
internet age.2 Fast forward to the modern era, entrepreneurial ventures are enacted across the
world. More specifically domestically, these ventures can be seen throughout the nation. Venture
capital investment and startup activity in the United States are extremely concentrated, or spiky.
The top ten metros alone account for more than three-quarters (77.6 percent) of all venture
capital investment across the United States, while the top 20 account for more than 88 percent.
Venture capital investment is found in just half of America’s 366 metro areas.2 However, the
entrepreneurial hotbeds can be found in the northeast (NY; Wall Street, NJ, Vermont,) but more
so in Silicon Valley.
VENTURE CAPITAL AND PRIVATE EQUITY CAREERS 4
was in the late 1980s, when personal computers were all the rage. Data from the National
Venture Capital Association – the industry’s trade group – show that 23 percent of venture-
capital deals and 28 percent of venture-capital dollars went to Silicon Valley companies in the
second half of the 1980s.3 Over the last five years, from 2010 to 2014, 38 percent of deals and 43
percent of dollars went to businesses in The Valley. This increase in industry concentration has
occurred despite a tremendous expansion of venture-capital activity. Between 1985 and 2014, the
number of active venture capital funds in the United States rose from 432 to 1,206, and the count
of active venture capital firms grew from 294 to 803. The list of companies receiving financing
from venture capitalists increased from 1,160 in 1985 to 3,665 in 2014, and the number of VC
Venture capital fills the void between sources of funds for innovation (chiefly
corporations, government bodies, and the entrepreneur’s friends and family) and traditional,
lower-cost sources of capital available to ongoing concerns. Filling that void successfully
requires the venture capital industry to provide a sufficient return on capital to attract
private equity funds, attractive returns for its own participants, and sufficient upside potential
to entrepreneurs to attract high-quality ideas that will generate high returns. Put simply, the
ventures.
Let’s consider the people behind this profession. Professional venture capital
companies generally have a team of experienced managers who are trained to fast track these
important factors. The management team is also backed by several bright, astute, highly qualified
individuals that vet investments and provide a different angle to all investments. Before
VENTURE CAPITAL AND PRIVATE EQUITY CAREERS 5
able to read business plans and understand how to gauge the market and the various industries
you may fund. While a VC doesn’t need more than instinct and capital to start investing, most
venture capitalists at least have a four-year business degree. In the VC community, many
Founders of VC firms are predominately white male (92 percent), where women account
for eight percent. Previous studies have consistently shown that venture capitalists are
predominantly white men who, in turn, mostly fund companies started and run by other men. As
a result, women and minorities have been largely left out of one of the world's greatest wealth
creation machines. Venture capital firms control the spigot of wealth in high tech, providing early
cash infusions to companies they bet will go on to become tomorrow's Apples and Googles.5
The general structure of the roles within venture capital firm vary from firm to firm, but
they can be broken down to roughly a handful of positions. Associates usually come into VC
firms with experience in either business consulting or finance, and sometimes a degree in
business. They tend to more analytical work, analyzing business models, industry trends and
subsections, while also working with companies in a firm’s portfolio. Those who work as junior
associate and can move to senior associate after a consistent couple of years. Associates are
slightly more junior members of the investment team who are usually in their role for 2-3 years.
After this period, they are occasionally promoted to principal, but they more regularly leave.
Associates do not lead investments, but they are typically visible at events and workshops. Their
job is usually externally facing and involves meeting with a large volume of companies,
providing a first filter and bringing the more relevant cases to the attention of the principals and
partners.6
VENTURE CAPITAL AND PRIVATE EQUITY CAREERS 6
Given this role, associates are crucial gatekeepers. If an entrepreneur can meet and
resonate with an associate, they will open the door to the senior members of the investment team.
Analysts are the hidden gems of VC firms. They are the most junior members of the investment
team. They usually have two or three years of previous experience, most typically in banking,
consulting or at a startup.7
and in charge of making sure they’re operating without any big hiccups. They’re also in charge
of identifying investment opportunities for the firm to invest in, and negotiating terms for both
acquisition and exit. Principals are also seen as the senior members of the investment team. In
addition to helping the firm discover and meet the industry’s most promising entrepreneurs, they
also work very closely with companies after investment. The principals do not usually lead deals,
however, they are trusted long-term members of the team. As an entrepreneur, time spent
building a relationship here is not time wasted. They have the ability and influence behind closed
doors to hook you up with critically useful meetings and introductions. Beyond investment itself,
principals are often highly networked, thoughtful players in the technology startup ecosystem
that can usually help in a multitude of other ways. Principals are on a ‘partner track’, and
depending on the returns they can generate from the deals they make.8
Partners are primarily focused on identifying areas or specific businesses to invest in,
approving deals whether they be investments or exits, occasionally sitting on the board of
portfolio companies, and generally representing the firm. The idea profile of a VC is preferably
someone with an entrepreneurial background--even if those ventures failed. Successes are great
(even if small) especially if the entrepreneur has built and sold a company in a domain that is the
VENTURE CAPITAL AND PRIVATE EQUITY CAREERS 7
focus of a VC firm. The entrepreneurial route typically leads to becoming an EIR (Entrepreneur-
in-Residence) that often takes on various roles from triage of deals, to board seats to becoming a
GP in a firm.
Experience is the best kind of education for venture capitalists. Serial entrepreneurs who
have started and sold a variety of businesses know the pitfalls associated with startups and can
advise new business owners how to avoid some of the challenges and how to take advantage of
certain markets. Experience at a large bank makes for a plausible VC background. Headhunters
hired by large venture capitalist companies look for VCs who have worked in product
development for a large firm, or who have served as a consultant to small businesses at banks or
credit unions. Venture capital funds are structured as limited partnerships with a set of general
partners (GPs) who are the investment managers and limited partners (LPs) who put up the
billions of dollars that the venture capital industry invests annually. A typical venture capital
firm will continue to raise more funds and some of the largest institutions that have over 5 funds
As mentioned, startup experience is highly preferred when dealing with negotiations and
the overall startup process. Corporate or startup or accelerator experience could be relevant but it
depends on the VC firm. Different firms have a different "lens" through which they would judge
their interest in such work experience and some of it all depends on what "gaps" the partner team
at a VC fund believe they need to fill. A non-investor role with angel group or family office is
least relevant unless it's for an administrative position. Corporate roles are relevant only to later
stage investors. Venture capital has gained tremendous importance due to the explosion of
startups. Venture capital can be compared with established directors giving break to young and
talented actors and if the movie turns out to be successful then it will result in windfall for the
VENTURE CAPITAL AND PRIVATE EQUITY CAREERS 8
producer and director of the movie as fees of new actors is very low as compared to seasoned
actors, in the same way if new idea or business clicks then it will result in windfall for the
venture capital investors. It is important to note that with every profession, there are advantages
as well as disadvantages. The first and foremost advantage of venture capital is that company
which is new has difficulty in raising funds both from equity and debt market and an idea
without funds is similar to a bank account without money. For example, as far businessman who
is talented and has the business idea but no money venture capital is a blessing as it makes sure
that idea does not remain in the mind only but turns into business.
As far as venture capitalist is concerned, venture capital investment can be very fruitful
because if company turns out to be successful then the stake of venture capitalist generates
returns ranging from 50 to 500 percent per annum which is far greater than any other investment
and that is the reason why venture capitalist take that leap of faith in new and promising
business. Another advantage of venture capital is that business gets the expert opinion of venture
capitalist as they are into the market for a long period of time and their experience comes in
handy during crunch situations. Therefore, venture capitalist does not provide only capital but
they also give their experience to new business which is a crucial aspect as far as new business is
concerned.
The biggest disadvantage as far as new firms is that it leads to dilution of control as
venture capitalist takes stake in the business and due to their stake they tend to interfere more
than desired in the day to day activities of the business and the owner who started the business
feel suffocated as he or she cannot take decisions independently. Venture capitalist tend to hurry
for listing as they want to offload their stake as soon as possible which in turn results in the
company getting lower valuation because if the listing is not done at the right time then it will
VENTURE CAPITAL AND PRIVATE EQUITY CAREERS 9
lead to an undervaluation of the company leading to a loss for the owner of the company. As far
as the venture capitalist is concerned majority of startups fail and only a small percentage of
companies go on to become a successful enterprise, hence one should not make this mistake of
thinking that every deal is profitable and venture capitalist always makes money.
In conclusion, I predict the future of venture capitalism and the early stage investing
landscape will look quite a bit different in the next five years. The top tier VC firms will still be
around; however, alongside them, competing for large institutional investor dollars, will also be
more diverse models that leverage software, data, and the web. As for operations, investors will
development, and recruiting rather than just financing, advice and introductions. VCs will start
taking a hands-on approach with their portfolio companies, not just providing advice, but
executing. That means there will be change in the types of employees at a VC firm. Rather than
financiers and MBAs, they’ll be operators that will make sales calls, code, and market. This will
both attract the best companies and help the investments achieve superior returns. VC firms will
also be even more active in recruiting. They will have teams on college campuses recruiting top
students before premier companies like Google or Goldman Sachs have their picks.
VENTURE CAPITAL AND PRIVATE EQUITY CAREERS 10
Bibliography
1
Purdy, Alicia. 16 April, 2017. A Brief History of Venture Capital. Retrieved:
https://www.financialpoise.com/accreditedinvestormarkets/article/a-brief-history-of-venture-
capital/
2
Zider, B. (1998). How venture capital works. Harvard business review, 76(6), 131-139.
3
Hellmann, T., & Puri, M. (2002). Venture Capital and the Professionalization of Start‐Up
the venture capital galaxy. The Academy of Management Perspectives, 20(3), 90-112.
10
Gompers, P. A. (1998). Venture capital growing pains: Should the market diet?. Journal of