How Venture Capital Works
 | By Bob Zider Harvard Business Review, 1998, Digital |
|---|
In this article, Bob Zider, president of the Beta Group, a California-based firm that invests in commercializing new technologies, presents an analysis of present-day venture capitalists and shows why its practitioners have a lot more in common with investment bankers than you might think. The popular mythology surrounding the U.S. venture-capital industry derives from a previous era. Venture capitalists who nurtured the computer industry in its infancy were legendary both for their risk taking and for their hands-on operating experience. But today things are different, and separating the myths from the realities is crucial to understanding this important piece of the U.S. economy. Today's venture capitalists are more like conservative bankers than the risk takers of days past. They have carved out a specialized niche in the capital markets, filling a void that other institutions cannot serve. They are the linchpins in an efficient system for meeting the needs of institutional investors looking for high returns, of entrepreneurs seeking funding, and of investment bankers looking for companies to sell. Venture capitalists must earn a consistently superior return on investments in inherently risky businesses. The myth is that they do so by investing in good ideas and good plans. In reality, they invest in good industries — that is, industries that are more competitively forgiving than the market as a whole. And they structure their deals in a way that minimizes their risk and maximizes their returns. Although many entrepreneurs expect venture capitalists to provide them with sage guidance as well as capital, that expectation is unrealistic. Given a typical portfolio of 10 companies and a 2,000-hour work year, a venture capital partner spends on average less than 2 hours per week on any given company. In addition to analyzing the current venture-capital system, the author offers practical advice to entrepreneurs thinking about venture funding.
Title: How Venture Capital Works
Sales Rank: 156343 in Books
Author: Bob Zider
Publisher: Harvard Business Review, 1998-11-01, Digital, 12 pages
- Quite pricy and brief
- The price is the only beef I have with this item. The material provides an excellent overview of the venture capital business but its a little pricy for 9 or so pages. I would have given it 5 stars if it had been $3.50 or less then again maybe I'm just cheap.… More reviews
- Great Insight to Venture Capital
- I am a small business owner looking at growing my own business and have thought about using Venture Capital (VC) as an option. I really did not want to read an entire book on VC fundamentals and this article was definitely the ticket. I was able to learn what types of returns, companies and industries are typically sought by VC firms. I was also able to get some insight… More reviews
- Useful information clearly presented.
- This nine-page reprint from the November-December 1998 issue of the Harvard Business Review is an excellent introduction to the economics and operations of venture capital funds. It specifically and accurately describes the motivations of venture capitalists, their investors and the entrepreneurs in whom they invest.
It will be of interest to entrepreneurs seeking venture funding, persons considering a career in venture capital,… More reviews
- Clear introduction into venture capital
- Bob Zider is president of the Beta Group, a firm that develops and commercializes new technology with funding from individuals, companies, and venture capitalist. This Harvard Business Review-article was published in November-December 1998, which was during the Internet/e-commerce boom.
"Contrary to popular perception, venture capital plays only a minor role in funding basic innovation." Zider discusses the role… More reviews
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