Venture Capital A 27 Year Perspective

Venture Capital A 27 Year Perspective Gary Kalbach September 2005 Confidential: Read and Return Gary Kalbach > > > > 27 years as a venture capitalist $45 million invested – over $600 million value Founded two venture capital firms with $550 million Seed investor in Sun Microsystems, Novellus Systems, Integrated Device Technology… > 83 companies funded, 40 board seats, 50% worked > Created the angel/institutional fund model > BS, The Business School, University of California, Berkeley; MBA, San Jose State University Confidential: Read and Return 2 Backyard Confidential: Read and Return 3 Granddaughter In Garden Confidential: Read and Return 4 West Coast Venture Capital El Dorado Ventures > Investing since 1978 > Seed/early stage – West Coast > Information technology industry focus  Enterprise software and services  Communications > 40+ Entrepreneurs – Technology Partners Senior Associate Scott Irwin Confidential: Read and Return 5 Seed Investor In… > > > > > > > > > > Sun Microsystems Integrated Device Technology Novellus Systems Access Health (acquired by McKesson/HBOC) Earthlink Networks Amati (acquired by Texas Instruments) Datasage (acquired by Vignette) NuSpeed Internet Systems (acquired by CISCO) Cyras Systems (acquired by CIENA) Efficient Networks (acquired by Siemens) Confidential: Read and Return 6 The Process? > > > > > Write business plan Raise venture capital Sell product Go public or sell company Retire Confidential: Read and Return 7 Keys To Success My Perspective > Management team > Products and markets  Markets that are not there – yet! > Financing  Ownership > Opportunistic exits Confidential: Read and Return 8 Management Teams Make Or Break A Company PASSION FOCUS TEAM WORK CREATIVITY LEADERSHIP DRIVE VISION INTEGRITY Confidential: Read and Return EXPERIENCE 9 Vision > Thinking out of the box  Example: Sky Dayton, EarthLink Networks At age 22, Imaging design firm, coffee house operator Vision of the need for connection to exploding Internet $1 billion company Confidential: Read and Return 10 Drive > Often multiple motivating forces  Example: Bob Graham, Novellus Intel founder, built Applied Materials • not recognized Driven to prove he could build a company Built a $1 billion company Confidential: Read and Return 11 Leadership > The team is usually right about the CEO – Listen!  Example: Sun Microsystems Brought in professional manager Team revolted Scott McNealy promoted to President $18 billion company Confidential: Read and Return 12 Problems Along The Way > > > > > > Suddenly out of money Key non-performing member of team Management team member leaves Product/Technology doesn’t work Market/Competitive landscape changes Investor group falls apart on vision/execution Confidential: Read and Return 13 Management Teams > Finance them > Build them or > Change them Confidential: Read and Return 14 Markets In The Late 1990s > Idealab! Paid $50M over 10 years to license the .tv extension from the Pacific Island country of Tuvalu > eCompanies paid $7.4M for the domain name “business.com” Confidential: Read and Return 15 2000 – A New Paradigm > Brand: first > Product: later > Profitability: never Confidential: Read and Return 16 Over-Funded Sectors > > > > > > Pet Assure Pet Food Giant Pet Food WareHouse Pet’s Choice Pets.com PETsMART Good ads or good business models? Confidential: Read and Return 17 Flawed Business Models > You cannot fix slim margins with highcost advertising > WebVan did not have a viable business model Confidential: Read and Return 18 What Went Wrong > Too many inexperienced VCs > Venture capital has traditionally financed B2B > Most dot-com’s were consumer oriented Confidential: Read and Return 19 What’s Happening Now > Back to basics > Customer-oriented/market-oriented Build the brand by building the business. Confidential: Read and Return 20 How Do VCs Find Opportunities > Successful entrepreneurs > Successful entrepreneurs > Other networks Confidential: Read and Return 21 El Dorado Technology Partners Competitive Advantage > > > > > Created 27 years ago Successful entrepreneurs Recognized experts in targeted industries Must be involved to co-invest Frequent interaction Venture capital is a team sport. No cowboys! Confidential: Read and Return 22 1,000 Deals 200 Deals 6 -7 Deals Selected Confidential: Read and Return 23 How To Get Through The Funnel > Business model that satisfies market > Understanding of what it takes to build team, product lines and business > Well thought out business plan > Experience helps – crusty sales person vs. 5 PhDs Confidential: Read and Return 24 Non-starter Quotes > > > > > Founder will run to $100 million All you need is 1% of billion dollar market Year 5 sales of $1,457,987,238 with 50% profit Product will sell itself There is no competition Confidential: Read and Return 25 In Conclusion > Venture capital is an apprenticeship business > Careers are built brick-by-brick > Craftsmanship comes with experience In 1986, it cost $10 million to train a venture capitalist. What does it cost now? Confidential: Read and Return 26 Thank You. Confidential: Read and Return