A summary of chapter 4 of the book, Start-Up what we may still learn from Silicon Valley, published in 2007. More on www.startup-book.com

1. © Service des relations industrielles (SRI)
© EPFL
A History
of
Venture Capital
Hervé Lebret
January 4, 2007

2. © Service des relations industrielles (SRI)
© EPFL
The Ancestors
pre - 1958

3. 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

4. 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.

5. And also … © Service des relations industrielles (SRI)
© EPFL
ARD DGA
William Draper II (VP Dillon
Read), Rowan Gaither (founder
of Rand) and Frederick Anderson
(retired general) launch DGA with
Rockfeller Group money in 1958
Georges Doriot (a Harvard
professor) founded American R&D
in 1946 in Boston.

6. 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.
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.
DGA seems to have been less successful though
and closed in 1969 when Rockefeller withdrew.

7. © Service des relations industrielles (SRI)
© EPFL
The First Generation
Part 1
1958-1965

8. The First Generation © Service des relations industrielles (SRI)
© EPFL
1961 - Davis & Rock
Davis joined Rock. They
raised $3M 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 Both Rock and Davis are Harvard
investments though Davis had already Alumni, and Rock was a student of
made a successful investment in the Doriot
high-technology firm, Watkins-Johnson

9. The First Generation © Service des relations industrielles (SRI)
© 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

10. 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

11. Some 1st gen. investments © Service des relations industrielles (SRI)
© EPFL
1961-1965
Rock & Davis $3M fund returned $100M. It
invested in Scientific Data Systems (SDS), a Draper&Johnson will invest in
company Xerox bought to compete against Tandem
IBM, in Teledyne (ex-Amelco) and later in
Intel when Moore and Gordon left Fairchild.
Fireman's Fund Insurance invested $1
million in an optical-character recognition
company, Recognition Technology. “At the
One member of “the Group”, height of the market, that investment was
Dennis, investment was $10- worth over $40 million, which, in the 1960s
20k? in Ampex which will be was an outstanding performance. By the
worth $1M in the end. time it was all over, Fireman's probably
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.

12. © Service des relations industrielles (SRI)
© EPFL
The First Generation
Part 2
1965-1972

13. The First Generation © Service des relations industrielles (SRI)
© 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 (also still in
business) with Paul Wythes (Beckman,
Honeywell) 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.

14. The First Generation © Service des relations industrielles (SRI)
© EPFL
1969 – Mayfield, Venrock
Tommy Davis leaves Rock to create
Mayfield with Wally Davis (no family
relation). First fund is $3.5M.
Rock may have helped in the creation of
Venrock, the Venture arm of Rockfeller.
Arthur Rock will go on his own and still
does with A. Rock and Co.
Rock is to become the VC icon (Time Front
Page in 1984)

15. The First generation © Service des relations industrielles (SRI)
© EPFL
1970 – Palo Alto Investments
Jack Melchor who had founded MEL Labs
in 1956
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,…

16. The First Generation © Service des relations industrielles (SRI)
© EPFL
1965-70 - Boston
Willian Elfers leaves ARD as
Doriot does not let control
and creates Greylock with
Daniel Gregory and Charles
Waite.
W. Elfers
C.Waite
(From left to right) Howard E. Cox, Jr., Charles P. Waite, Henry F. McCance, Daniel S.
Gregory, William Elfers.

17. The First Generation © Service des relations industrielles (SRI)
© 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.

18. Some 1st gen. investments © Service des relations industrielles (SRI)
© EPFL
1965-1972

19. © Service des relations industrielles (SRI)
© EPFL
The Giants
1972-1978

20. Kleiner Perkins © Service des relations industrielles (SRI)
© EPFL
1972
Thomas Perkins Eugene Kleiner
Tom Perkins (HP
and former Doriot
Student) and Gene
Kleiner (Fairchild
and Investor in
Davis & Rock) raise
together their first
fund in 1972.
They consider
themselves as the
first VCs with an
industry and
entrepreneur
background

21. 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

22. Kleiner Perkins © Service des relations industrielles (SRI)
© EPFL
30 years of activity
Perkins and Kleiner
will be joined by
Caufield and Byers
(from AMC)in 1977
and the partnership
becomes KPCB.
Later come
famous icons
John Doerr (Intel)
and
Vinod Khosla
(Sun founder)

23. Sequoia © Service des relations industrielles (SRI)
© EPFL
30 years of activity
Joining Valentine, the firm will grow
with famous to-become partners.
Pierre Lamond (National) - 1981
Mike Moritz (Time Magazine) – 1986
Doug Leone (HP, Sun) – 1988

24. The Reid Dennis Legacy © Service des relations industrielles (SRI)
© EPFL
1974
Reid Dennis, Burton McMurtry
(Palo Alto Inv.) and Burgess
Jamieson (Westven) found
Institutional Venture Associates
(IVA) in 1974
with American Express money.
David Marquardt joins as an
associate.

25. The Reid Dennis Legacy © Service des relations industrielles (SRI)
© EPFL
1976
Then Dennis launches Institutional
Venture Partners (IVP) 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)

26. The Giants success stories © Service des relations industrielles (SRI)
© EPFL
1972 and after

27. Some investments of the Giants
© Service des relations industrielles (SRI)
© EPFL
1974 and after

28. 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 Roam Tandem
Dennis Reid Recognition Technology
Don Valentine Atari but also Apple, Cisco Sun
Tom Perkins Tandem Apple

29. © Service des relations industrielles (SRI)
© EPFL
The Maturity
1978-1993

30. The new players © Service des relations industrielles (SRI)
© EPFL
1976 1978
Founders
DuBose Montgomery was a Dick Kramlich (Arthur
founder of Menlo Ventures in Rock & Associates )
1976. Carlisle joined in 1982 Frank Bonsal (Alex
and Jarve in 1985 Brown)
Chuck Newall (T.
Rowe Price)
Ed Glassmeyer co-
founded in 1978 with
Stewart Greenfield of
Oak Investment Partners.

31. The new players © Service des relations industrielles (SRI)
© 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 (TI)
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).

32. The new players © Service des relations industrielles (SRI)
© 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

33. The new players © Service des relations industrielles (SRI)
© EPFL
David Morgenthaler
1984 founded the firm in 1968.
Morgenthaler began
Rick Frisbie, founder of
raising institutional funds
Battery Ventures in the 1980s
1985
Tim Draper (3rd gen. Drapers; from Alex Brown)
founds Draper associates
and is later joined by
John Fischer (from ABS ventures) and
Steve Jurvertson (HP)

34. Some investments © Service des relations industrielles (SRI)
© EPFL
1978 and after

35. © Service des relations industrielles (SRI)
© EPFL
The New Kids
Around the Block
1993-2005

36. 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, two veterans of the industry (from MPAE, Merill
Pickard, Anderson & Eyre), decided to create their own company, Benchmark. Their goal
was to have a firm with a "fundamentally different 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 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.

37. August, Foundation
© Service des relations industrielles (SRI)
© EPFL
Lightspeed, Redpoint
Jim Anderson (the A in
MPAE), Kathryn Gould
Marquardt (TVI) & John (Oracle),
Johnston (TVI, H&Q) Bill Elmore (Inman)
launch August in 1995. launch Foundation 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

38. Some investments © Service des relations industrielles (SRI)
© EPFL
1995 and after

39. © Service des relations industrielles (SRI)
© EPFL
Some historical and economical
perspective
1959-2005

40. Some key drivers © Service des relations industrielles (SRI)
© EPFL
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. The different
structures of VC funds (LPs,…) probably had an impact of its dynamics.
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

41. A genealogy © Service des relations industrielles (SRI)
© EPFL
ARD Arthur Rock DGA The Group
1960 & Fireman
Don Lucas
Greylock Fairchild
Draper &
CRV Davis & Bryan&
Johnson Edwards
TA Assoc. Rock
National
Sutter Hill
Mayfield
Intel
AMC BankAmerica
(Westven)
Venrock
HP PAI
1970
Menlo
Oak KPCB Sequoia
IVA
USVP NEA
1980 Sevin Rosen Brentwood
IVP TVI
MDV Matrix
Accel DFJ
Summit MPAE
Battery
Morgenthaler
1990 August Benchmark Foundation
Lightspeed Redpoint

42. 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

43. 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

44. The Impact of Venture Capital © Service des relations industrielles (SRI)
© EPFL
1993
Source: The Rise and Fall of Venture Capital, Gompers

45. 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

46. 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)

47. A chronology of funds (1/2) © Service des relations industrielles (SRI)
© EPFL
Fund number and year of creation
Source: Compilation HL

48. A chronology of funds (2/2) © Service des relations industrielles (SRI)
© EPFL
Size of funds (in $M)
Notes
1: fund 2000 back to $471M
2: fund 2001 back to $830M
3: fund 2001 back to $450M
4: fund II (1981) $45M, III (1984) $126M
5: fund 2000 back to $600M
6: fund 2000 down to $650M, then $450M
Source: Compilation HL

49. 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

50. 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…
Source: Compilation HL

51. © Service des relations industrielles (SRI)
© EPFL
Israel
1992-2005

52. The Israel VC size © Service des relations industrielles (SRI)
© EPFL

53. The largest Israel VC funds © Service des relations industrielles (SRI)
© EPFL

54. Israel success stories © Service des relations industrielles (SRI)
© EPFL

55. © Service des relations industrielles (SRI)
© EPFL
and Europe?
1972-2006

56. A list of European funds © Service des relations industrielles (SRI)
© EPFL
Source: Compilation HL

57. Timescale © Service des relations industrielles (SRI)
© EPFL
1996-2005 Source: Compilation HL

58. 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

59. 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

60. And a few people © Service des relations industrielles (SRI)
© EPFL
a relatively recent activity
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

61. And a few people © Service des relations industrielles (SRI)
© EPFL
a relatively recent activity
1997
2000
1998
2001

62. Some European deals © Service des relations industrielles (SRI)
© EPFL

63. © Service des relations industrielles (SRI)
© EPFL
Some historical perspective
archive.org
1996-2000

64. From archive.org © Service des relations industrielles (SRI)
© EPFL
logos and pictures
Johnson

65. From archive.org © Service des relations industrielles (SRI)
© EPFL
logos and pictures
Before founding MDV in 1983, Larry
was a General Partner, Vice President
of Hambrecht & Quist
Richard Frisbie, a founder Robert Barrett, one of
of Battery the founders of Battery

66. From archive.org © Service des relations industrielles (SRI)
© EPFL
logos and pictures
In 1985, Timothy C. Draper left Alex. Brown & Sons to become the third generation of venture capitalists in his family with the
formation of Draper Fisher Jurvetson. Tim restructured a family-owned Small Business Investment Company (SBIC) that had
been set up by his father in 1979. Using SBA leverage, he created a highly successful early stage venture capital fund. Since
then Draper Fisher Jurvetson has become synonomous with early stage (start-up) venture capital. Among other successes,
Tim Draper was a founding investor in Parametric Technology, Digidesign, Parenting Magazine, Upside Publishing, and PLX
Technology
From left to right: Dulenvie, Rachleff,
Kagle, Harvey, Beirne and Val Vaden