Insider Guide Careers in Venture Capital PHẦN 2 pot

Top investment sectors for VC have remained fairly steady over the last 2 years,
with biotechnology gaining momentum to displace telecommunications as the
second biggest investment sector after software.
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The Industry
Share of Total
Industry Amount ($M) VC Invested (%) Deals
Software 1,005 20.79 174
Biotechnology 945 19.53 74
Telecommunications 547 11.31 64
Networking 384 7.94 45
Medical devices 347 7.18 56
Sources: WetFeet research; MoneyTree Survey (PwC/Thomson Venture Economics/NVCA).
Top VC Investment Sectors in First Quarter 2004
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The Bottom Line
Finding a job in VC isn’t hopeless, but it will be hard. “It’s hard to target. There
isn’t a formula you can control. It’s more ambiguous than getting a job at Procter
& Gamble or in management consulting,” says an insider.
Firms are selective, and finding a job requires good luck. “The way to gain access
to this industry is to do something great that is visible to people in this industry,”
says an insider. “There’s not a lot on your resume that will tell whether you will
do well in venture capital.”
Operating experience at a technology company is a must in today’s environment.
“Go somewhere where you can build a base of judgment and behavior in
business, and excel in some capacity,” says an insider. “Be the product manager
of the best, newest PDA. It doesn’t have to be a small company. Interact with
thought leaders, take risks, and succeed where there is something to be gained.”
Finally, if you’re hell-bent on a career in VC, don’t give up. “If you strategize,
are smart about looking for the opportunities, there will be some amount of
opportunity for you to get in there,” says an insider.

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The Industry
How the Industry Breaks Down
The venture capital world is made up of only a few hundred small partnership
firms, usually employing between two and 40 people. These firms include the
famous players—Kleiner Perkins Caufield & Byers, The Mayfield Fund, Bessemer
Venture Partners—and many others, some of which are listed in the “Industry
Lineup” that follows this section. At first glance, these firms appear to be
remarkably similar. They have few employees and lots of money to invest in
entrepreneurial ventures, and they want to be part of the next phenomenally
successful start-up. Though the firms compete aggressively for deals, they
also often combine into syndicates and invest in favored start-ups as teams.
Despite these shared characteristics, each firm has adopted its own approach to
succeeding in the competitive and risky world of start-up financing. Firms differ
in fund size, regional focus, industry focus, and stage of investing. These differences
are noted in the “Industry Lineup” that follows this section.
You can find venture capital firms in cities as varied as Kirkland, Washington;
Austin, Texas; and Fort Lee, New Jersey. But Northern California (Silicon Valley)
VC firms have been responsible for the greatest number of investments, followed
by those in greater New York and New England.
Although some firms specialize in low-tech investments, in recent years most
VC firms have focused on technology-intensive fields such as software,
biotechnology, and telecommunications, forgoing traditional investment areas
such as manufacturing.
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The Industry
Divisions of large corporations, affiliates of investment banks, buyout firms,
venture leasing companies, small-business investment companies, and other
wealthy private investors also evaluate, fund, work with, and sell entrepreneurial
organizations looking for capital. Here’s a breakdown by investment stage and

firm type.
Private VC Firms
Early- to Mid-Stage
Firms in the early- to mid-stage segment follow the classic VC model: Find an
entrepreneur with a great idea and business plan, sprinkle with cash, bake for
several years, and sell for a hefty chunk of change. Early-stage (or seed) investments
are the riskiest, since many start-ups tank. Still, they often provide the highest
returns since investors coming in early can pay a lower price for a given share of
equity. In the 1990s, as many traditional VC firms started to focus on middle-
and late-stage investments, seed financing increasingly became the province of
newer firms and angel investors—entrepreneurs or corporate executives who’ve
made it big and have money to spend.
Mid- to Late-Stage
Mid- to late-stage firms, many of which also operate at the seed level, provide
funds to companies that are already established—those that have a product,
sufficient employees, and perhaps even revenues. At these stages, firms inject
more capital into the company to help it become profitable so that it will
attract enough interest to either be acquired by a larger company or go public.
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The Industry
Growth Buyout Funds
Some VCs have moved into growth buyouts of larger private companies or
divisions of public companies. These funds invest larger amounts of capital—
up to $100 million—in exchange for a significant minority or majority position
in the company. By focusing on stable, growing (and often profitable) companies,
buyout funds don’t have to wait long before they can cash in on the company’s
IPO or sale. There’s less risk—unless market factors cause the delay of an IPO,
for example. The funded company and its earlier investors benefit from having
a prestigious late-stage investor add credibility on Wall Street come IPO time.
Financial Services Firms

Where there’s money, of course you’ll find I-bankers. Banks such as Morgan
Stanley and Citicorp will invest in the later stages. The aim is pretty much the
same as that of the VCs: to make a killing through either an IPO or an acquisition.
Corporate Funds
As opposed to private funds, whose primary goal is monetary gain, corporate
funds have the added goal of strategically investing in companies whose business
relates in some way to the corporation’s own. For example, Microsoft invested
in Qwest Communications, a telecom company that is building a fiber-optic
network, to help it deliver NT-based software.
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The Industry
Industry Rankings
The venture capital industry isn’t given to easy rankings the way companies in
other industries are. One reason is that firms are fairly secretive about their
results, and as privately held companies, are not required to disclose them. A
2001 Red Herring ranking by ten factors including disbursements, longevity,
experience, and IPOs/sales put Kleiner Perkins number one, followed by
Accel Partners and Matrix Partners. Sequoia Capital, Oak Investment Partners,
and Mayfield tied for fourth. Although Red Herring has not ranked the firms
since then, the reputations of these firms remain strong.
The ranking on the next page is for entrepreneurs and shows which firms funded
the most seed and early-stage companies in 2003. The chart is more a gauge of
how active VC funds were than of their relative strength or market position.
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The Industry
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The Industry
Rank Firm Early-Stage Deals
1 Maryland Technology Development Corp. 15
2 Maryland Dept. of Business and Economic Development 12

3 Village Ventures 11
4 Draper Fisher Jurvetson 9
Mobius Venture Capital 9
Sevin Rosen Funds 9
7 Band of Angels 8
Mayfield Fund 8
10 Highland Capital Partners 7
Ignition Partners 7
ITU Ventures 7
Matrix Partners 7
New Enterprise Associates 7
U.S. Venture Partners 7
Source:
Entrepreneur
, July 2004.
Top Ten VC Firms for Entrepreneurs in 2003
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Industry Trends
The Fundraising Bandwagon
In 2003, VC firms raised the smallest amount of money since 1995. But 2004 is
another story. Battery Ventures, Charles River Associates, Kleiner Perkins, New
Enterprise Associates, and Kodiak Venture Partners are a few of the firms with
new funds ready to deploy. New Enterprise even topped $1 billion, at $1.1 billion,
the first billion-dollar fund since 2001. Technology Crossover Ventures came close
with its $900 million fund. Generally, however, these funds are smaller than their
predecessors.
All this new money, along with the stock market’s success in 2003 and early 2004,
has created rising valuations for early- and later-stage venture-backed firms. In 2003,
it took 6 to 9 months of fundraising and 30 to 40 first-time meetings with VCs
before entrepreneurs were raising any cash. In 2004, entrepreneurs are finding it

much easier to raise money, with many entrepreneurs canceling first-time meetings.
Economic Optimism
Improvements in the economy are partly responsible for the mini-mania gripping
the VC industry. Since 2002, the Nasdaq has nearly doubled. The IPO market has
come back, with a multibillion-dollar IPO for Google in summer 2004 and a
multimillion-dollar one for Salesforce.com providing hefty returns for the VCs
that backed them. June 21, 2004, with 16 IPOs on the docket, was the biggest
month for offerings since October 2000.
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The Industry
More M&A deals are getting done, too, with large firms using their increasing
capitalizations to buy venture-backed start-ups. And IDC, a research firm, expects
worldwide IT spending to rise 5 percent in 2004, to $915 billion, creating serious
opportunity after 3 years of flat to negative growth. A stock market crash could
put a halt to M&A and spending, and some economic indicators suggest weakness,
but in summer 2004 there’s overall optimism that the economy is on a rising tide.
Offshore Fever
Many venture investors are encouraging their startups to move jobs overseas, saving
labor costs while increasing competitiveness. An informal Forrester Research survey
of venture capitalists suggests 20 to 25 percent of the companies they invest in are
committed to moving jobs overseas—including some of the industry’s biggest
names, such as Kleiner Perkins Caufield & Byers, Sevin Rosen Funds, and Norwest
Ventures. Says Forrester Vice-President John C. McCarthy, “The venture guys are
driving offshore as much as anyone.”
New Opportunity
In mid-2004, the VC industry looks like it’s emerging from a trough, and the
3- to 5-year horizon looks positive. The markets are increasingly liquid, with quality
IPOs such as Google and Salesforce.com; M&A activity has increased; firms
have raised new funds; and entrepreneurs are finding fundraising easier than in
several years. “It’s a good time to go back to look for a job at a start-up,” says an

insider. “I think it’s a rational investing environment. I would advise people to be
in services that touch the consumer, or companies that use great technology to
solve a real customer problem. And being in unanticipated areas.”
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The Industry
Expansion
After several years of contraction, VC is poised for growth. “The venture
capital industry has hit its low point from a people perspective about a
quarter or two ago,” says an insider. The number of professionals within the
industry shrunk between 2002 and 2003, with a number of firms cutting staff
and closing offices. Investment banks, including Goldman Sachs, Deutsche
Bank, and Banc of America Securities all shuttered their Silicon Valley offices
between 2002 and 2003. (“For 3 years entrepreneurs have trekked to this
setback strip of glass-and-dark-wood-hued buildings in Menlo Park, California,
to pitch ideas, only to walk away empty-handed,” wrote Adam Lashinsky in the
May 26, 2003, issue of Fortune. “Many of the investment bankers who set up
shop in the late 1990s to feed off the deals have left town. If Sand Hill Road
wore a mood ring, it would surely be glowing black.”)
In 2004, however, firms are raising new funds, and with new funds come new
opportunities. Insiders tell us firms are looking at partner-level staff, but that
associates are likely to follow.
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The Industry
The Firms
• Profiles of Top Firms
• Firm Thumbnails
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The Firms
There are a lot of VC firms out there; the ones listed here are merely representative.
For information on other firms, see Pratt’s Guide to Venture Capital Sources at

your school library or visit www.nvca.com.
Profiles of Top Firms
ARCH Venture Partners
ARCH Midwest
8725 W. Higgins Road, Suite 290
Chicago, IL 60631
Phone: 773-380-6600
Fax: 773-380-6606
www.archventure.com
ARCH Northeast Arch Northwest
561 Seventh Avenue, 11th Floor 1000 Second Avenue, Suite 3700
New York, NY 10018 Seattle, WA 98104
Phone: 212-944-2400 Phone: 206-674-3028
Fax: 212-944-9745 Fax: 206-674-3026
ARCH Southwest TX ARCH Southwest NM
6801 N. Capital of Texas Highway 1155 University, S.E
Building 2, Suite 225 Albuquerque, NM 87106
Austin, TX 78731 Phone: 505-843-4293
Phone: 512-795-5830 Fax: 505-843-4294
Fax: 512-795-5849
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The Firms
Overview
With offices in Albuquerque, Austin, Chicago, New York, and Seattle, ARCH
goes where few venture firms dare to tread: the ivory towers of academia and
the cluttered realms of national laboratories. The firm, which was spun out
of the University of Chicago, builds companies on ideas that emerge from
universities. The firm has also been successful doing deals with research programs
at large corporations, such as Array BioPharma, which ARCH helped spin out
of Amgen.

ARCH currently manages six funds totaling $1 billion, with investments in
some 110 companies. In 2004, it closed its sixth fund of $350 million, which
will focus on seed and early-stage companies that come out of universities.
ARCH counts among its success stories Web shopping agent NetBot, Inc.;
enterprise application company New Era of Networks, Inc. (NEON); and
chip maker Caliper Technologies Corp.
Key Facts
• Targets companies focused on information technology, life sciences, and the
physical sciences.
• Has a female African-American managing director, noteworthy in the white
male-dominated world of VC.
• Ninety-five percent of investments are at the seed or start-up stage.
Key Financial Statistics
Capital under management: $1 billion
Minimum investment: not available
Preferred investment: expects to commit $10 million to $15 million to a
company over the life of a deal
Personnel
Number of professionals: six managing directors, two associates, five venture
partners, one CFO, and one technical advisor
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The Firms
Accel Partners
428 University Avenue 16 St. James’s Street
Palo Alto, CA 94301 London SW1A 1ER
Phone: 650-614-4800 United Kingdom
Fax: 650-614-4880 Phone: 44-20-7170-1000
www.accel.com Fax: 44-20-7170-1099
Overview
With Jim Breyer leading the way, Accel Partners has enjoyed spectacular returns

with several successful IPOs, including that of UUNet, a Web service provider
that was among the venture community’s first forays into the Internet arena.
Accel has been in business for more than 20 years and boasts investments in
more than 100 companies. With investors that include prominent companies
such as Microsoft, Lucent, Dell, and Disney, it has backed a variety of information
technology start-ups, including RealNetworks and enterprise software players such
as Agile Software and Remedy. Accel’s software portfolio includes BB&T,
Lightspan, and Walmart.com.
In 2001, Accel Partners closed its Accel Europe Fund of $500 million and, with
Kohlberg Kravis Roberts & Co., formed a venture to focus on telecommunications
industry investments called Accel-KKR Telecom. According to an Accel survey
with BusinessWeek, nearly 40 percent of Accel’s 45 investments have operations
overseas, and Breyer estimates that number will hit 75 percent by 2005.
Key Facts
• Focuses on only two sectors: networking and software.
• Invests in all stages.
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The Firms