| Unless you are independently wealthy or homeless, | | | | managers (venture capitalists) must invest 1% or |
| you have to answer to someone, a boss, venture | | | | more of the total capital raised and this is included in |
| capitalist, the board, customers, and/or the bank. If | | | | the Individuals and Families number. This means when |
| you are an entrepreneur and are making the rounds | | | | venture capitalists invest in your startup they are |
| on Sand Hill Road, it is hard not to spot the high-end | | | | investing their own money in you and your grand |
| BMWs and Mercedes, as well as more exotic vehicles, | | | | idea. Does this explain all the phone calls you get |
| parked throughout the garages. Walking through the | | | | from them? Corporate Operating Funds are |
| smartly decorated Sand Hill offices can be a shock | | | | corporate venture capital funds. The best know |
| for new entrepreneurs, which are likely in or just out | | | | corporate venture capitalist is Intel Capital. These |
| of the dorm room. It can look like venture capitalists | | | | funds usually are setup to keep the corporation's |
| are "Kings of the World". But, never fear Venture | | | | abreast of emerging technologies and to invest in |
| Capitalists have bosses too. And, their bosses are | | | | strategic directions. |
| typically much more demanding than any boss you | | | | Venture Capitalist subscribe to a larger ideology. It is |
| will ever have. | | | | not about a single startup. The dream is to create a |
| Where do venture capitalists get their money? | | | | vibrant economic model where entrepreneurs can |
| Primarily, they get it from you. Shocking, isn't it. | | | | obtain capital, grow a business and achieve a positive |
| Sources of capital are the following: 42% private and | | | | liquidity event. Liquidity events give growth capital to |
| public pension funds, 25% finance and insurance, 21% | | | | the business, delivers returns to investors and |
| endowments and foundations, 10% individuals, and | | | | entrepreneurs and fuels the next cycle of |
| 2% from corporations operating funds (not pensions | | | | entrepreneurial investments. Without positive returns, |
| - Corporate Venture Capital or Strategic Investment | | | | the venture model dries up, startup funding stalls and |
| Capital) (source Venture Impact 4th edition - | | | | the capital flows into other financial vehicles. |
| prepared by Thomson Financials using 2003 data). | | | | In this structure, venture capitalists answer to the |
| The large institutional investors are the managers | | | | above mentioned investors on their fund |
| that handle your pension investments. They utilize | | | | performance. Just like startups have board meeting |
| multiple vehicles with different risk and return profiles | | | | with their investors, venture capitalists have meetings |
| for portfolio diversity. Most of your money goes into | | | | with their investors who review their investments |
| low risk vehicle for income preservation. However, a | | | | and portfolio status. The venture capitalists' investors |
| small percentage is invested in high risk vehicles, i.e. | | | | (institutional managers) in turn report on their |
| venture capital, emerging markets, etc. You never | | | | investing activities to their investors (you); you |
| thought your grandfather was instrumental in | | | | always wondered about those little prospectuses you |
| providing seed capital to found Google, Intel, and | | | | got in the mail from Fidelity, Morgan Stanley, |
| others, did you. Finance and Insurance companies | | | | Vanguard, etc. Actually read one some time. If |
| obtain money from individual investor also. Whether | | | | returns are good, everyone is happy. If not, the |
| investing in stock market funds, mutual funds, life | | | | institutional managers pull back on investment in high |
| insurance policies, etc., these companies have capital | | | | risk vehicles. Venture capital, subsequently, reduces |
| to deploy and need to earn a return on for you. | | | | investment in startups. |
| Again, a small part of the overall portfolio goes into | | | | In a unique turn of events, the guys that look over |
| venture capital. Endowments and Foundations are | | | | the shoulder of the venture capitalists are the |
| permanent funds that are bestowed upon an | | | | pension, 401k, and mutual fund investment managers, |
| individual or institution. Examples are The John D. and | | | | which are the guys that manage your money; |
| Catherine T. MacArthur foundation and Harvard, | | | | therefore, venture capitalists really work for us all. It |
| Columbia, and Stanford's Alumni endowments. These | | | | is a hard gig because I know my father is intractable |
| organizations grow capital to meet their mission | | | | with a couple hundred dollars. I cannot imagine his |
| objectives, which may be social ideologies or | | | | response to an entrepreneur's request for couple |
| operationally focused, i.e. grow capital to grow a | | | | million. Venture Capitalist provides a valuable service |
| University. A small part of their capital goes into | | | | to both, the investment market and entrepreneurs. |
| venture capital each year. Another source of liquidity | | | | Venture Capital is a challenging job; but, they do have |
| is Individuals and Families which contribute to venture | | | | a boss, just like everyone else. To be successful, |
| capital funds. These are typically wealthy individuals | | | | entrepreneurs need to remember that fact in order |
| that invest directly into a venture fund. However, this | | | | to respond to the venture capitalists needs and |
| is a little misleading since an each fund's Limited | | | | understand the pressures that they face. |
| Partnership agreement stipulates that the fund | | | | |