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While investment banks shift money from one party
to another, venture capital firms ("VCs") are dedicated
to investing their own capital in new companies in return for a
hefty share of stock and future profits. These venture capitalists
are more than financiers; they provide guidance, services and support
to the fledgling business, and expect to be treated as partners.
While not all VC activities are centered on new companies, and investors
can be found seeking relationships with established firms, the majority
of the industry concentrates on bringing new ideas to market. The
"father of venture capital," Georges Doriot, co-founded
the first modern VC firm - American Research and Development - in
1946, but VC did not become really popular until the 1970s. Today,
the industry is popular among business school students - the intellectual
stimulation and potential for tremendous earnings attracts the cream
of the crop of MBA programs across the country.
Venture capital firms
suffered a temporary downturn in 1974, when the stock market crashed
and investors became wary of this new kind of investment fund. In
1975, only one venture capital fund raised money, but that was the
same year software developer Tandem Computers took $1 million from
a venture capital firm. Eventually, Tandem grew into a $2.6 billion
firm and was bought by Compaq in 1997. Returns were tremendous for
the few firms in the business in the late 1970s. The U.S. government
lent a helping hand in the form of legislation through this period.
In 1978, for example, capital gains taxes were reduced, so anyone
making profits from investing in venture capital firms, or any venture
capital firms making profits from investing in private companies,
paid lower Federal taxes. That was the first big year for venture
capital. The industry raised approximately $750 million in 1978.
If venture capital
hit its stride in the late 1970s, it started sprinting in the 1990s.
For instance, venture capital firms backed 260 IPOs in 1996. VCs that
took their portfolio companies public in the fevered markets of the
late 1990s earned very high returns, averaging 35 percent per year.
Some top investments produced results of 100 percent compounded annual
growth through this period. By 1997, the rapidly growing venture capital
industry reached a 10-year high, raising approximately $10 billion
in new capital, compared with approximately $1.5 billion per year
in 1991.
Venture capital continued
to boom into the early 21st century. Their appetites whetted by the
biotech mania of the early 1990s, venture capitalists vigorously embraced
the horde of fledgling Internet companies (dotcoms) launched in the
latter half of that decade. It was good for the Internet - and good
for the VC firms. In 1998, delighted venture capitalists sunk $16
billion into companies nationwide - $4.55 billion into Silicon Valley
alone. Many venture capital firms saw their investments in dotcoms
explode into a rainbow of profit. Think of the foresight of Sequoia
Capital, which in 1995 sunk $2 million into Yahoo!, now a $1.9 billion
company, or Benchmark Capital, which had the good fortune of putting
money into online auctioneer eBay, now worth $1.4 billion. At a June
1999 conference sponsored by Red Herring, Adam Dell moaned:
"We are bombarded by so many deals and so much information, it's
difficult to be strategic as opposed to simply reactive."
The frenzy of dotcom investment drove the expansion of the Internet,
but it also created a massive bubble of overvalued stocks and over-inflated
VC expectations. Many felt the "everybody wins" environment
was too good to last, and it was. By September 2000, the dotcom bubble
had burst; disenchanted with promised earnings that never materialized,
investors pulled out of the Internet fad, leaving many companies devastated.
Stocks plummeted, dotcom became a term of mild derision, and venture
capitalists were left with egg on their collective face. Despite this
market readjustment, and the generally bearish environment of the
early 21st century, venture capital continues to be an attractive
field. VCs are more cautious, but they know that the next big thing
is still out there somewhere.
Bridge financing is a term often applied to speedy financing of a
company that is in trouble and needs some more time to get to a more
substantial round of financing. But sometimes a "bridge financing"
is a bridge to an IPO. In this case, "bridge" refers to
an investment of between $2 million and $20 million made only three
to twelve months before the company goes public. The company is typically
profitable at this stage. The reasons a company would want a round
of financing so near to the time it raises lots of inexpensive money
from the public are to improve its balance sheet, attract a prestigious
investor to its board (which will help increase its value in the public
markets) or to hedge its bets in case it fails in its attempt to sell
its equity to the public.
VCs aren't just about the money. Firms regard themselves as partners
in the entrepreneurial process. Thus, providing support to portfolio
companies becomes an essential part of an associate's job. Concretely,
this means: doing research and strategic planning; attending Board
of Directors meetings; helping locate and screen potential additions
to a company's management team; convincing new recruits that they
should work with your portfolio company; supporting the management
team; negotiating and working with I-bankers and acquirers of the
company; raising more money from other equity sources; negotiating
with banks for debt financing; reporting to the rest of your VC firm
on changes, problems and triumphs; and helping acquire other companies.
(Source: Vault.com
and CareerJournal)
bschooljobs.com Flash Cards—investment banking interview preparation flashcards.
Careers in Financial
Services
Confessions
of a Venture Capitalist
Directory of
Venture Capital & Private Equity Firms Domestic and International
Done Deals:
Venture Capitalists Tell Their Stories
Fast Track:
The Insider's Guide to Winning Jobs
in Management Consulting, Investment Banking & Securities Trading
Galante's Venture Capital & Private Equity Directory
- provides in depth profiles of over 1,700 venture capital, mezzanine,
and buyout firms. Available in hard copy and CD.
Harvard Business School Career Guide: Finance -
career opportunities, company profiles, position descriptions and
recruiting process.
Hedge Me
Nelson's Directory of Investment Managers - profiles of over
2,600 organizations involved in investment management.
Plunkett's Financial
Services Industry Almanac - information on leading firms in Investments, Insurance, Banking and
Finanical Information.
The VC Way
WetFeet Guides
Online Resources
Investor Dealers Digest
http://www.iddmagazine.com/idd/weeklyheadlines.cfm
Institutional Investor
http://www.institutionalinvestor.com/default.asp
WetFeet
http://www.wetfeet.com/cb/schools/yalesom/toc.asp
Vault.com
http://www.vault.com/cb/careerlib/careerlib_main.jsp?parrefer=702
Bloomberg Terminal
http://www.som.yale.edu/ssl/bloombergbasics.asp
Wall Street Journal http://online.wsj.com/public/us
More Resources www.som.yale.edu/careers/resources/career_sectors.asp
Venture
Wire www.venturewire.com
Venture Capital Journal www.privateequityweek.com/
The Deal
www.thedeal.com/
Private Equity Analyst
www.assetnews.com/products/news/pea.htm
Venture Economics www.ventureeconomics.com/
Private Equity Week www.privateequityweek.com/
VC
Buzz www.velocitycap.com/VC%20Buzz%20-%20October%2017%202000.htm
Buyouts www.buyoutsnewsletter.com/
San
Jose Mercury www.siliconvalley.com/
The VC (comic
strip) www.thevc.com/
Venture Reporter www.venturereporter.net/
Venture
One www.ventureone.com
European VC
www.evcj.com/
Asian
Venture Capital Journal www.asiaventure.com/
IPO
Monitor www.ipomonitor.com Associations:
National Venture
Capital Association www.nvca.org (includes model deal documents)
British Venture
Capital Association www.bvca.co.uk/
European Venture
Capital Association www.evca.com/
Small Business
Investment Companies www.nasbic.org
Venture
Capital Institute www.vcinstitute.org/ Statistics and Analysis:
PriceWaterhouse Money
Tree Survey www.pwcmoneytree.com/
PIPE Ttransactions www.placementtracker.com
Various Resource Links:
Private
Equity Clearinghouse www.privateequity.com/
Calendar of Events
www.privateequity.com/calendar/calendar_join.cfm
VC Firm Directory I www.nvca.com/members.html
VC Firm Directory I www.vfinance.com/ventcap.htm
Garage.com
www.garage.com
The
Elevator.com www.thelevator.com/
NVST.com Investor
Network www.nvst.com/
Capital
Growth Network www.capitalgrowth.com/
Venture
Capital Report (UK) www.vcr1978.com/
Venture Capital Career
Preparation
Venture capital opportunities,
especially at the internship level, are intensely competitive. You must keep
up with the markets as school is generally not a good excuse. The opportunities
for both full-time and part-time can be few, but not impossible to find.
Most venture capital firms want an investment banking background, so an internship
in investment banking is sometimes a good way to get a VC firm interested
in you. Networking is key. This is a skill that is critical in this field.
If you are not successful in landing a VC summer internship, you should not
feel discouraged. Several graduates who have successfully received full-time
VC offers pursued various types of internships that provided them with the
analytical and personal skills that helped make them receive their final offer.
Remember to think in terms of what value you can bring to that firms’ decision
making process. Is it an industry expertise, contact network, capital structure
experience, modeling skills, strategic analysis or something else?
| |
Internships |
Full-Time |
| Pre-academic
year summer |
·
Research
firms of interest and note recruiting deadlines
·
Draft
resume and cover letters
·
Keep
up with the markets and the VC industry |
·
Craft
resume and cover letters
·
Inform
CDO of interest in VC
·
Network
with VC firms, alums and with second years who interned in VC. |
| September |
·
Attend
Private Equity Club kickoff meeting
·
Inform
CDO of interest in VC
·
Revise
cover letters and resume
·
Identify
and network with alums and second years involved with VC
·
Begin
organizing trips to visit VC firms with classmates
·
Sign
up for free email postings on PE/VC news and jobs |
·
Attend
Private Equity Club kickoff meeting
·
Revise
cover letters and resume
·
Develop
contacts at firms that do not recruit on campus |
| October |
·
Revise
cover letters and resume
·
Develop
contacts at firms that do not recruit on campus |
·
Drop
resumes
·
Plan
to have your pitch prior to your first interview
·
Update
CDO on progress and meet with consultants to refine strategy based on
interview feedback |
| November |
·
Revise
cover letters and resume
·
Attend
campus presentations
·
Meet
with CDO consultants to refine personal story and interview skills
·
Drop
resumes |
·
Update
CDO on progress and meet with consultants to refine strategy based on
interview feedback
·
Participate
in mock interview program |
| December |
·
Attend
Private Equity Club conference
·
Meet
with CDO consultants to refine personal story and interview skills
·
Drop
resumes
·
Contact
PE/VC firms around holidays and over break |
·
Attend
Private Equity Club Conference
·
Update
CDO on progress and meet with consultants to refine strategy based on
interview feedback |
| January |
·
Prepare
for Super Week interviews – plan to have practiced at least three stock
pitches prior to your first interview
·
Contact
PE/VC firms around holidays and over break
·
Update
CDO on progress and meet with consultants to refine strategy based on
interview feedback |
·
Update
CDO on progress and meet with consultants to refine strategy based on
interview feedback |
| February |
·
Continue
to practice, practice, practice for interviews
·
Update
CDO on progress and meet with consultants to refine strategy based on
interview feedback |
·
Update
CDO on progress and meet with consultants to refine strategy based on
interview feedback |
| March |
·
Continue
to practice, practice, practice for interviews
·
Update
CDO on progress and meet with consultants to refine strategy based on
interview feedback |
·
Continue
to practice, practice, practice for interviews
·
Update
CDO on progress and meet with consultants to refine strategy based on
interview feedback |
| April |
·
Review
outstanding offers with CDO and negotiate terms
·
Identify
staffing manager at firm where offer is accepted and start developing
a relationship |
·
Review
outstanding offers with CDO and negotiate terms
·
Identify
staffing manager at firm where offer is accepted and start developing
a relationship |
| May |
·
Network
with key contacts and alums. |
|
| Post-academic
year summer |
·
Network
with key contacts and alums
·
Evaluate
whether experience meets expectations. Is VC for you? Do you want to
return to the firm? The CDO is available to help you with these considerations |
|
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mba.yale.edu
