understanding the venture capital industry

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Understanding the Venture Capital Industry

Venture Capital Industry Overview


• Industry reaches beyond internet start-ups

• Venture capital (VC) firms invest in fast growing industries– ranging from alternative

energy to social networkingcommunities

• Tremendous opportunity for jobs in venture capital

Venture Capital Business Model


• Invest in companies too risky for standard debt-issue– E.g. start-ups due to short history

• Creates highly entrepreneurial atmosphere– Balance risk-to-reward ratio

• Expect large pay-offs for risk

– Exit strategy is primary concern• IPO• Acquisition

Produce Real Value/Revenues


• Less money available to new ventures– More difficult to access than in the past

• Venture capital (VC) will continue to flow to tech companies that prove working model

• Fewer IPOs• Exit strategies based on acquisition by

an established industry player– Buy vs. build approach

VC Job Opportunities


• Ample & lucrative for those with drive & business intelligence

• Generally found via professional or personal network

• VC firms are small– Specific roles to fill

– Typically for a particular industry

• Those with domain expertise have an advantage

Careers in Venture Capital


• Involve selection of portfolio companies, investment of funds, product launch, growth management

• Partner will oversee the management of many companies– Active participation, often with seat on BOD– Assist with successful product/service launch– Position for long term profitable growth

Considering a VC Job


• Do significant due diligence– Compensation plan

– Past fund performance

– Political environment within firm

• Long hours, with challenging work

• Work environment

• Firm culture

A Look into VC Firm Structure


• Funding for VC activities made by investors, referred to as limited partners– Wealthy individuals– Financial institutions e.g. insurance

companies, banks, pension funds• Investors have little or nothing to do

with daily operations– Serve mainly as funding source

Roles at VC Firm


• General partners bridge gap between funding partners & vested companies– Have extensive business experience,

typically as senior execs in financial institution or industry corporation

• Roles supporting general partners– Many VC jobs available for savvy, intelligent

business-minded individuals

Challenges in the VC Model


• Presentation by Adeo Ressie, founder of The Funded.com– VC business model is breaking down

• Theory: more money flowing into VC firms than is being generated by their investments– Creating negative balance on economy– Contradicts VC industry: VC creates stock

market growth & job creation

Thoughts Supporting Theory


• Too many investors put too much money into Silicon Valley– Too few deals to support it– Valuations driven up to unreasonable levels

• Larger companies (Yahoo, Microsoft, Google, Cisco) buying start-ups earlier in life cycle– Keeps start-ups from becoming large, future

competition

• Greed by some VCs– Tempted to raise larger pools of money because of

fees earned on funds


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understanding the venture capital industry

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