Over time VCs increasingly bet on slightly older “late-stage” startups (which, for their part, delayed going public).
Although VC-backed companies represent less than 0.5% of American companies created every year, they make up nearly 76% of the total public-market capitalisation of companies started since 1995. The model proved astoundingly successful. The industry’s reliance on personal connections made it rather like an old boys’ club. Entrepreneurs flocked to Sand Hill Road, the home of many Silicon Valley VC firms, in the hope of being funded.
#Venture capitalism professional
They offered a wealth of experience and access to a network of contacts, introducing startups to professional chief executives, for instance. They also played consiglieri, often taking a seat on a company’s board. The venture capitalists did not just provide finance. The VCs’ funds were closed-ended, meaning they distributed returns to investors, usually pension funds, endowments and other long-term-oriented investors, within seven to ten years, after taking a cut of their own.
#Venture capitalism series
Then came an alphabet soup of successive funding rounds, typically ranging from series A to C, as a company matured. Seed investments were often made before a startup earned any revenue. The approach was to back risky startups in the hope that the big successes, like Google, would carry an entire portfolio.
Two of Fairchild's founders, Eugene Kleiner and Don Valentine, soon followed, setting up Kleiner Perkins and Sequoia respectively. Arthur Rock, a banker for Fairchild who became a VC, raised $5m in his first fund and returned $100m over seven years. The modern venture-capital industry sprouted from a laboratory at Fairchild Semiconductor, a Silicon Valley chipmaker, in the 1960s. That comes with both benefits and drawbacks for the business of innovation. VC firms are adopting new strategies as they seek to differentiate themselves in some respects, and to mimic their Wall Street competitors in others. The wave of capital is also transforming how VC works. Venture activity now extends well beyond Silicon Valley and America more broadly, and is financing enterprises working on everything from blockchains to biotech. But it is also flowing to once-neglected corners and new opportunities. The flood of money from deep-pocketed investors has helped swell valuations.
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