A History of Venture Capital's Origins

© Service des relations industrielles (SRI)
© EPFL

A History
of
Venture Capital

Hervé Lebret
February 2009 and December 2011

© EPFL

“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)

© EPFL

The Ancestors

pre - 1958

1957 – The Traitorous 8 © Service des relations industrielles (SRI)
© EPFL

The eight men were Julius
Blank, Victor Grinich, Jean
Hoerni, Eugene Kleiner, Jay
Last, Gordon Moore, Robert
Noyce and Sheldon Roberts.

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

1957 – Arthur Rock © Service des relations industrielles (SRI)
© EPFL

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… © Service des relations industrielles (SRI)
© EPFL

ARD DGA

William Draper II (VP Dillon
Read), Rowan Gaither
(founder of Rand Corp.) and
Frederick Anderson (retired
Georges Doriot (a Harvard general) launch DGA with
professor) founded American R&D Rockfeller Group money in
in 1946 in Boston. 1958

and also hobby of the rich… © Service des relations industrielles (SRI)
© EPFL

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 He invested in MinuteMaid,
private equity firms in 1946 by Memorex, Genera Signals but
"Jock" Whitney, J.H. Whitney & also in movies (Gone with the
Co. provided capital and Wind)
professional assistance to
He coined the term “venture
entrepreneurs.
capital”.

The Ancestors’ investments © Service des relations industrielles (SRI)
© EPFL

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.

© EPFL

The First Generation
Part 1
1958-1965

The First Generation © Service des relations industrielles (SRI)
© EPFL

1961 - Davis & Rock
Davis joined Rock. They
raised $3.5M with
Moore, Noyce, Kleiner
among others

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.

© EPFL

1962 – Draper and 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

And also… © Service des relations industrielles (SRI)
© EPFL

Reid Dennis, Don Lucas
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

The government got interested © Service des relations industrielles (SRI)
© EPFL

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 © Service des relations industrielles (SRI)
© EPFL

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.

© EPFL

1961-1965
Continental (Chambers) put $250k in
Dataproducts, which returned $12M. Then Draper&Johnson invested in
he invested in ROLM, American Tandem
Microsystems and KLA. He closed his SBIC
in 1980 to created a $22M VC fund.
Fireman's Fund Insurance invested $1
One member of “the Group”, million in an optical-character recognition
Dennis, investment was $10- company, Recognition Technology. “At the
20k? in Ampex which will be height of the market, that investment was
worth $1M in the end. The worth over $40 million, which, in the 1960s
Group provided $4.5M to was an outstanding performance. By the
Linear and 2/3 of $7.7M to time it was all over, Fireman's probably
Sierra Semiconductor. realized a $15 million or $16 million profit on
the investment.”

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.

© EPFL

The First Generation
Part 2
1965-1972

© EPFL

1965 – Sutter Hill, AMC
Johnson and Draper go on their own:
Johnson launches AMC - the Asset
Management Company (still active)

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.

© EPFL

1969 – Mayfield, Venrock
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…

© EPFL

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.

© EPFL

1965-70 - Boston
Willian Elfers leaves ARD as
Doriot does not let control
and creates Greylock with
Daniel Gregory and Charles
Waite.
W. Efers

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

© EPFL

1965-70 - Boston
ARD alumnus Peter Brooke (then
at FNB Boston) launches TA
Associates in 1968 as a division of
Tucker Anthony, a regional
investment bank.

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

© EPFL

1965-1972

© EPFL

The Giants

1972-1978

Kleiner Perkins © Service des relations industrielles (SRI)
© EPFL

1972
Thomas Perkins Eugene Kleiner
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

KP first fund © Service des relations industrielles (SRI)
© EPFL

1972
$7M fund with $4M from Hilman (Wilmington), $1M from
Rockefeller University. Both Kleiner and Perkins put $150k Tandem ($152M)
each.
KP First Fund (1972-1984) Genentech ($47M)

$16'000'000
$14'000'000
$12'000'000
Cost ($)
$10'000'000
$8'000'000
$6'000'000
$4'000'000 Value on
$2'000'000 June
30,1984
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More on http://www.startup-book.com/2009/02/09/about-kleiner-perkins-first-fund-episode-3

Sequoia © Service des relations industrielles (SRI)
© EPFL

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

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

© EPFL

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 © Service des relations industrielles (SRI)
© EPFL

30 years of activity
Perkins and Kleiner
were joined by
Caufield and Byers
(from AMC) in 1977
and the partnership
becomes KPCB. KPCB I $15M (1976)
KPCB II $55M (1980)
KPCB III $150M (1982)
KPCB IV $150M (1986)
Later come
famous icons
John Doerr (Intel)
and
Vinod Khosla
(Sun founder)

© EPFL

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

© EPFL

Joining Valentine, famous to-
become partners:
Pierre Lamond (National) - 1981
Mike Moritz (Time Magazine) – 1986
Doug Leone (HP, Sun) – 1988

The Reid Dennis Legacy © Service des relations industrielles (SRI)
© EPFL

1974
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.

The Reid Dennis Legacy © Service des relations industrielles (SRI)
© EPFL

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 © Service des relations industrielles (SRI)
© EPFL

1972 and after

Some investments of the Giants
© EPFL

1974 and after

Hits and misses © Service des relations industrielles (SRI)
© EPFL

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

A genealogy © Service des relations industrielles (SRI)
© EPFL

© EPFL

What do VCs look for?

What do VCs look for? © Service des relations industrielles (SRI)
© EPFL

a never ending debate

“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)

© EPFL

Davis & Rock
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)

© EPFL

Perkins

“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)

© EPFL

Valentine
 “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)

© EPFL

a never ending debate

“ 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)

© EPFL

The Maturity

1978-1993

The new players © Service des relations industrielles (SRI)
© EPFL

1976 1978
Founders
DuBose was a founder of Dick Kramlich (Arthur
Menlo Ventures in 1976. Rock & Associates )
Carlisle joined in 1982 and Franck Bonsal (Alex
Jarve in 1985 Brown)
Chuck Newall

In 1980, MPAE was
created by Merrill,
Pickard, Anderson and
Eyre (from
Ed Glassmeyer co-
BankAmerica).
founded in 1978 with
Stewart Greenfield of
Oak Investment Partners.

© EPFL

1981 1981
Bill Bowes is the founder and
prior to founding USVP, Bill
was the founding shareholder
(and its first employee) of
Sevin Rosen was founded in 1981 by
Amgen
L.J. Sevin (Mostek) and Ben Rosen
(MorganStanley). They used KP as a
backer and co-invested with them in
Compaq and Lotus.
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).

© EPFL

1983 1983
In 1979, Adler & Company of
New York established an Bill Davidow, SVP
office in Silicon Valley. In Sales & Marketing at
1983, two Adler partners, Intel launches MDV
James Swartz and Arthur
Patterson, spun-off to create
the bi-coastal firm, Accel
Partners, having offices in
New York and Silicon Valley.

1984

Gregory Avis Roe Stamps Stephen Woodsum

© EPFL

David Morgenthaler
1984 founded the firm in 1968.
Morgenthaler began
Rick Frisbie, founder of raising institutional funds
Battery Ventures in the 1980s and worked
at Whitney before,

1985
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)

Some investments © Service des relations industrielles (SRI)
© EPFL

1978 and after

© EPFL

The New Kids
Around the Block

1993-2005

Benchmark Capital © Service des relations industrielles (SRI)
© EPFL

1995
Bruce Dunlevie Andy Rachleff

Bob Kagle Kevin Harvey

David Bierne

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.

August, Lightspeed, Redpoint © Service des relations industrielles (SRI)
© EPFL

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

Redpoint was founded in 1999 by top The VC arm of Weiss, Peck & Greer
partners each from Brentwood Venture
Venture Partners (1971) spun-off in
Capital and IVP
October 2000

Some investments © Service des relations industrielles (SRI)
© EPFL

1995 and after

The funds of founders © Service des relations industrielles (SRI)
© EPFL

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 © Service des relations industrielles (SRI)
© EPFL

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/

© EPFL

Some historical and economical
perspective

1959-2005

Some key drivers © Service des relations industrielles (SRI)
© EPFL

But what is the real impact?
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

The SBIC Ups & Downs © Service des relations industrielles (SRI)
© EPFL

1959-1993

Source: Creating Modern Venture Capital: Institutional Design and Performance in the
Early Years by Caroline Fohlin

The endowments © Service des relations industrielles (SRI)
© EPFL

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.

The maturity © Service des relations industrielles (SRI)
© EPFL

The 1980’s
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.

Ne w C o m m it m e n t s t o V e n t u r e C a p it a l Fu n d s in C o n st a n t 1 9 9 3

Me dia n re t urns of v e nt ure c a pit a l 7

35 6

30 5

25

$ Billions
4
20
3
15

10 2

5 1

0
0
1973 1975 1977 1979 1981 1983 1985 1987 1989
-5 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993
Year
year

Source: The Rise and Fall of Venture Capital, Gompers

The Impact of Venture Capital © Service des relations industrielles (SRI)
© EPFL

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


The Internet bubble © Service des relations industrielles (SRI)
© EPFL

The 90s enthusiasm and 00s crisis
Me dia n m ult iple s ( 'x ')

2 .8

2 .3
2 .2
2 .1
2
1 .9
1 .8
1 .7 1 .7
1 .6 1 .6 1 .6
1 .4

1 .1

0 .7
0 .6

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

Med ian I RR ( % )

50

40

30

20

10

0
1985 1987 1989 1991 1993 1995 1997 1999
-1 0

-2 0

-3 0
Year

The recent numbers may not be accurate as they are too recent;
they however some negative effects of the Internet bubble.

Source: The Venture Capital Industry Report, Dow Jones

The Nasdaq and the VCs © Service des relations industrielles (SRI)
© EPFL

1971-2006
4'500 90

4'000 80

3'500 70
1974: the oil crisis and ERISA act
3'000 60

2'500 50
1984: the HDD crisis
2'000 40

1'500 30 1990: US recession and
1'000 20 declining IRRs
500 10

0 0
2001: the Internet crash
1971 1976 1981 1986 1991 1996 2001

Natural scale Nasdaq ( end y ear) VC f unds ( $B) 10'000 100

1'000 10

100 1

10 0. 1

1 0. 01
1971 1976 1981 1986 1991 1996 2001

Source: Compilation HL Log scale Nasdaq ( end y ear) VC f unds ( $B)

A chronology of funds (1/2) © Service des relations industrielles (SRI)
© EPFL

Fund number and year of creation

Source: Compilation HL

A chronology of funds (2/2) © Service des relations industrielles (SRI)
© EPFL

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


A subjective “Top VC” list © Service des relations industrielles (SRI)
© EPFL

TOP US VCs
Mohr Davidow
Redpoint
16'000
DFJ
Benchmark
14'000 USVP
Crosspoint
Brentwood
12'000
Accel
Sevin Rosen
10'000 Oak
Sierra
$M

8'000 NEA
Matrix
CRV
6'000 Austin
Sequoia
4'000 Onset
Interwest
Menlo
2'000 IVP
Battery
0 Mayfield
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
KPCB

Year

And the returns? © Service des relations industrielles (SRI)
© EPFL

Exceptional IRRs Source: Compilation HL

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…

And the returns? © Service des relations industrielles (SRI)
© EPFL

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%

More about Israel © Service des relations industrielles (SRI)
© EPFL

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

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

Timescale © Service des relations industrielles (SRI)
© EPFL

1996-2005 Source: Compilation HL

8'000
Wellington
Viventures
Ventech
TVM

7'000 Sof innova
Siparex
Quester
Prelude
Polytechnos
Partech
6'000 Partcom (Iris)
Nordic VP
Logispring
Kennet
Innovacom
5'000 Index
IDG
Holland
Gilde
Galileo
€M

4'000 Eqvitec
Ealy bird
DVC
DFJ eplanet
Doughty Hanson
Crescendo
3'000 CDC Innovation
Capricorn
Capman
Benchmark
Banexi
2'000 Auriga
Atlas
Apax GE
Apax FR
Apax UK

1'000 Amadeus
Alta Berkeley
ACT
Accel
3i

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

And a few people © Service des relations industrielles (SRI)
© EPFL

a relatively recent activity
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.

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.

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

© EPFL

Sir David Cooksey was the Founder of
Advent Venture Partners in 1981 and was
Chief Executive from 1981 to 1987 and Bryan Wood
Chairman from 1987 until his retirement in Founder 1982
2006.

Michiel de Haan
Founder 1980
1982
Vincent Worms and Thomas McKinley

TVM launched
in 1983 with €87M
Founded in 1945 by British banks;
the 3i group was created in 1987
A US company created in 1969 by when the banks sold their stakes to
Alan Patricof which has a a public limited company.
European presence since the 80s

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

The founders’ fund © Service des relations industrielles (SRI)
© EPFL

by the Skype founders by the Alando and Jamba founders

A History of Venture Capital's Origins

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