The venture capital industry went through a wild cycle in the late 1990s. Since its early beginnings in the 1950s, venture capital was really a cottage industry compared to investment banking, for example. There were only a relatively small number of firms devoted to early stage technology investments. The investment level, allowing for inflation, was stable.
The dot-com fever struck like a lightning bolt. The "new economy" revolution was on. If you didn't "get it" you would fall by the wayside. Money came pouring into venture capital and novices in the field created many new firms. Angel investors and Incubators became the rage.
To paraphrase Alan Greenspan, "irrational exuberance" prevailed. Then the bubble burst. Gone are the Angels. Gone are the Incubators. At Sequoia Capital, my partner, Michael Moritz, coined the term "B 2 N". We are all familiar with "B 2 C" or "B 2 B". "B 2 N" stands for Back to Normal. It will take some time for the excessive amounts of money raised to be invested. Unfortunately, much of it was used to shore up ventures that should not have been financed in the first place.
In 2002, many new firms (created in 1999 and 2000) are closing their doors and the trend is accelerating. We are also seeing established funds reducing their size from over 1 billion dollars to a more manageable $700 or $800 million. The same phenomena happened, on a smaller scale, in the mid-1980s.
"Back to Normal" has different meanings for venture capitalists and entrepreneurs. For venture capitalists, it means that the era of quick return is gone. Companies need to be nurtured, management teams must be assembled, and business plans and strategies must be developed. In other words, the business of venture capital is to build businesses and venture capitalists must go back to that first principle.
For entrepreneurs, it is important they understand that their interests are lined up with those of their venture investors. The goals are the same: build a successful company measured by revenue, profit, and cash flow. Eventually, the investment bankers will come knocking at the door.
This is why From Concept to Wall Street is an important book. It offers a wealth of information useful to the inexperienced as well as the experienced venture capitalist. The new entrepreneur will find it to be an indispensable tool at every stage of the company's development.
In my opinion, "venture capital", or, for that matter, "entrepreneurship" cannot be taught.
Successful venture capitalists go through an "apprenticeship." One needs experience to evaluate business plans, find the strengths and weaknesses of founding teams, build Boards of Directors, and participate in the development of the Company's strategy; in short, build an enterprise with the founders.
Entrepreneurship is not taught. One is either an entrepreneur or one is not. On the other hand, entrepreneurs need to inform themselves before and during the launching of their enterprise.
In both cases, this book will provide useful and thoughtful answers.
Pierre R. Lamond
Over the past decade, thousands of new ventures were established every year around the world, and tens of billions of dollars were invested by venture capitalists. Technological vision, an entrepreneurial spirit, and success stories of other entrepreneurs and investors have led many talented people to get involved in the technology-intensive, or high tech, industry as entrepreneurs, investors, or consultants. The far-reaching changes experienced by the global economy, and in particular, the introduction of the PC and the Internet, have dramatically accelerated the pace of development of new ventures, and their number. Furthermore, during the second half of the 1990s, the technological changes and vast resources invested in many high tech ventures, in both the private and public markets, have caused many to believe that the ratio of risk to return was never as low as during that period.
The unprecedented prosperity of the U.S. stock markets in the 1990s led to enormous financial investments in venture capital and in promising startup companies around the world. Such a volume of funds, unmatched in human history, supported thousands of new and existing ventures every year.
The severe economic crisis that befell the capital markets and started in the year 2000 symbolized, for many, the end of an era in capital markets and entrepreneurship. For us, this was an expected awakening after several years of euphoria in the market. We are confident the high tech industry will continue to supply the global economy with developments that will streamline business systems, decrease production costs, and improve the quality of life of citizens worldwide.
Despite the substantial slowdown in the capital market, technological changes have not come to a halt, and companies are being established, developed, and have raised capital. Technological progress is visible everywhere in fields such as communications, electronics, hardware, software, information technologies, biotechnology, genomics, and medical devices.
From Concept to Wall Street was written to fulfill the need for a central source of information for entrepreneurs, investors, consultants, employees, and anyone involved or interested in entrepreneurship and the venture capital industry.
In this book we combine our practical and academic experience, with the experience of leading experts in their respective fields, to communicate a mass of material in a manner that is as coherent and straightforward as possible, without sacrificing depth.
The book describes the lifecycle of the venture, from its establishment, though its various capital raising activities and its venture development process, including strategy formulation, business planning, and implementation, up to the IPO or acquisition by another company. The book addresses all the material aspects, theoretical and practical, of venture capital investment, venture creation and development, through the eventual investment realization.
The focus is on venture capital-backed companies (independent or part of larger organizations) and issues pertaining to their value maximization. At the same time, the book details the types of investors in those companies—their nature, method of operation, and the manner by which they are organized.
In the past few years, the venture capital process has changed dramatically, first with the dot.com explosion, again with the dot.com collapse, following by the collapse of the tech sector. These changes have underlined the importance of deep understanding of the venture process in order to guarantee the construction of economically solid entrepreneurial companies, leading to the successful fund raising for these firms, to their rapid and sustainable growth, and finally the success for their investors.
From Concept to Wall Street is the first book on venture capital and entrepreneurship to reflect these radical transformations and their impact on venture creation and development. Leveraging our experience and benefiting from the insights of countless experts, this book covers all you need to know to succeed in this industry—whatever your sector and whatever your role.
Dr. Oren Fuerst Dr. Uri Geiger