VC: An American History

I started to read this, and was put off by the dry, academic tone of the writing -- the author teaches Business Administration at Harvard. The whaling stuff is interesting. I skipped ahead to the Silicon Valley stuff and was immediately overwhelmed by the level of detail -- way beyond my casual level of interest. <br /><br />So I'm pleased to refer readers like me to this summary of the book by Laurence B. Siegel, himself an active consultant and researcher in the field. He writes well, and this is a whole lot more digestible than Prof. Nicholas's tome. Thanks to GR reviewer Rohith Darisa for the tip!<br />Siegel's summary is here: <a target="_blank" rel="noopener nofollow" href="https://t.co/EKa93JU4wL">https://t.co/EKa93JU4wL</a><br />Excerpt:<br />"<i>VC: An American History</i> could have been written as popular history or popular science, which in my mind are terms of respect: the highest calling of the non-fiction writer is to educate the public. But it’s not popular history. It is, instead, a serious work of scholarship. It’s also a heavy book, both physically (almost 400 pages) and in the density of the writing, thinking, and data presentation. That will be a positive for some readers and a negative for others."<br /><br />Heh. Negative for me! I think I'll be skimming in the book a bit more, for topics of particular interest, and then call it good. DNF, abandoned.

The whaling stuff was fascinating, but then the book gets lost into a too much in the weeds history that has already been told in many other places. I like the attempt to describe how VC shaped modern finance, but I don't think this book is worth the effort it takes to read.

As expected, this book tells the legendary stories of how VC firms like Greylock Partners, Kleiner Perkins, and Sequoia launched companies such as Intel, Genentech, and Google. But Nicholas also goes back to the early 1800s, beginning with the financing of whale ships. Whaling agents operated similarly to today’s VC firms. And like high-tech investing, a few big hits paid for the unprofitable ventures.<br /><br />From this history, Nicholas describes why VC developed as it did in America. If you are only interested in the stories, you may find the more theoretical sections slow going. But I enjoyed the insights into the nature of early-stage investing, the history of why it thrived in America, and where it might go in the future.<br /><br />A FEW INTERESTING POINTS FROM THIS BOOK:<br /><br />• By the middle of the 1800s, nearly 75 percent of the 900 whaling ships in the world were American. One reason for this was that American whaling agents had figured out a way to finance risky whale oil ventures. Just as VC firms intermediate between entrepreneurs and limited partners with capital to invest, whaling agents intermediated between captains and crew with wealthy investors. The payoff of whaling was very similar to venture capital today.<br /><br />• Every whaling voyage had significant exposure to downside risk -- literally sinking! Most ships would only earn a small to modest profit, but a few ships would return full of barrels of oil that would compensate the investor for the other losses.<br /><br />• Nicholas overlays a histogram of the distribution of returns for the whaling industry during the 1800s versus the VC industry from 1981 to 2006. They are incredibly similar.<br /><br />• Nicholas recounts how men willing to risk their capital for higher returns used VC-like financing to build America’s first factories. A particularly good story describes the Brown family of Rhode Island who financed Samual Slater, a 21-year-old immigrant from England, who had a working knowledge of the technology to use water power to spin cotton into thread. He was, as Nicholas recognizes, what we today call a “technical co-founder.” As an interesting addition, Nicholas includes in the book the agreement between Slater and the Browns. In it, we see a thoughtful balance between the VC’s maintaining control while giving Slater, the entrepreneur, the right incentives to maximize profits. <br /><br />• During the 1900s, several wealthy families established investment arms to make VC-style investments. These included the families of Andrew Mellon, Henry Phipps, Laurance Rockefeller, and Jock Whitney. Laurance Rockefeller’s chief goal was to fund innovation in scientific areas he had an interest in, such as aviation (he would fund Eastern Airlines and McDonnell Aircraft). Interestingly, the pain associated with early-stage investing would nudge all of these families towards later-stage private equity investments.<br /><br />• The need for military innovation during World War II, followed by the GI bill, spurred America’s scientific and technological development. But the capital available for start-ups from individuals and family offices was far less than needed. Recognizing this, the New England Council in 1946 created the American Research and Development Corporation (ARD) to seek capital from the large asset owners: investment trusts and insurance companies. The returns for the first ten years were disappointing. Then in 1957 ARD invested $70,000 ($600,000 today) to fund the start-up Digital Equipment Company (DEC). By 1971 that investment was worth $355 million and DEC was Massachusetts’ largest employer.<br /><br />• Nicholas includes a colorful chapter that recounts how Silicon Valley became Silicon Valley and the epicenter of venture capital investing. He tells the stories of Arthur Rock (Davis &amp; Rock), Tom Perkins (Kleiner Perkins) and Don Valentine (Sequoia Capital). Through the founding of Intel, Apple, Genentech and other companies we see the principles that made these funds successful. Rock emphasized the quality of management. Perkins looked for good technology. And Valentine stressed the need for big market demand. I liked how Nicholas refers to the investing principles these VC firms wrote down at their founding.<br /><br />• Venture capital took off with the rise of the personal computer during the 1980s. And by the year 2000, there were more than ten times more VC firms than there had been in the mid-1980s. Investors couldn’t help but notice how Netscape rose 100% from its IPO price on the first day of trading. But later came Pets.com, which dropped from over a $300 million valuation to $0 in less than a year. When the bubble burst, VC firms received blame for financing and bringing to market bad companies. But the asset class was far from done.<br /><br />• This is a history book, so Nicholas doesn’t do much analysis of the last ten years. He knows we need more distance to form an objective view of recent times.<br /><br />• A good quote on why VC investing is hard: Chuck Newhall said about an investment in a West Virginia equipment maker: “I lost 25 percent of my life for five years and I wasted months in exhausting, useless travel.”<br /><br /><br />In the end, Nicholas reminds us that early VC leaders like Georges Doriot, Jock Whitney and Laurance Rockefeller had larger goals than making money: they wanted to build new companies that would grow America’s economy and advance technology and science. In the long-tail, their plan paid off.<br />

Dry at times, but a worthwhile read on history of venture capital in the United States. If you’re in a hurry maybe skip chapters 2, 3, and 5. Chapters 1, 6, and 8 alone are worth buying the book—they cover the whaling industry, styles of VC investment in late 20th century, and the internet boom/bust respectively. <br /><br />Nicholas did an incredible job of diving into various aspects of the principle agent problem in LP structures throughout. All important risks for anyone considering VC investments.

<b> Quite interesting -- American Whaling Industry &amp; Samuel Salter </b> <br /><br />Some were interested in broader impact of Economy &amp; Society, rather than self-enrichment. <br /><br />While reading through this, I compared Tamil Nadu's Industry with American society - Why wouldn't I? <br /><br />Initially, I thought, they were different. <br />Sometimes, it seems to be same underlying desire. <br /><br />eg: Wealthy American families in New England, made sure to give their sons, role of manager, or gave leadership position, they also balanced the new generation, What did Tamil Chettairs do?<br /><br />People's desires, are same regardless of culture. <br />The way we might carry, organize our societies, view of the world is polar-opposite between cultures. <br /><br />Families, Wealth et cetera. In Tirunelveli, Tamil Nadu - <b> RMKV family, Pothys, VV Minerals et al </b><br /><br /><b> <i> Americans seem to be good in scaling their business, thoroughly, efficiently, ruthlessly. </i> </b> Example: Taco Bell et al. <br /><br /><b> <i> Oh Vey, a Popular Tamil-CEO is drumming for investing in know-how, high-intensive-products </i> </b><br /><br />At least, he seem to run software companies in Villages, building Global products. <br /><br /><b> Can you do that? Can you do that, uh, Mr.Reader? <br /><br />Imagine, The Fresh Air, the Lovely Paddy Farm, Fresh-Vegetables, Decent Wages, Coconut Trees</b> <br /><br />In Tamil Nadu, there's plenty of money, oh - wait <b> <br />What's the difference between West &amp; Tamil Nadu in business sector? </b> <br /><br />Just some thought-experiment, <b> Differences:</b> <br /><br />a) such wealthy tamil people are not aware of Global Scale?<br />b) Perhaps, their dreams are not big as Globe?<br />c) Infrastructure, better legal-framework [patent], wages? <br />d) Policies<br /><br />I also think of Global Products -- Coca-Cola, walk into any country on the planet, you'd be able to gulp it, except few countries. <br /><br />Recommended for anyone, who has cursory interest in Technology &amp; Business. <br /><br />Deus Vult, <br />Gottfried

О ЧЕМ КНИГА:<br />Книга показывает, как венчурный капитал изменил подходы в развитии бизнеса и стал драйвером успеха современных американских технологических компаний.<br />Пройдя 4 фазы развития с 19 века до наших дней, венчурные компании сейчас являются важнейшим источником финансирования новых компаний. Книга показывает изменения, произошедшие с подходом к венчурному финансированию на каждом из этапов и его текущее состояние.<br /><br />ГЛАВНАЯ МЫСЛЬ КНИГИ:<br />- Модель венчурного финансирования за последние 50 лет доказала свою состоятельность. Она особенно эффективна сейчас, когда технологии- этот наше всё. Венчурные компании - это важнейший драйвер роста и развития нового бизнеса.<br /><br />ЗАЧЕМ ЧИТАТЬ ЭТУ КНИГУ?<br />- Чтобы понять основные принципы венчурного финансирования и историю его развития.<br /><br />МЫСЛИ И ВЫВОДЫ ИЗ КНИГИ:<br />- Кажется, что в век идеальной открытости и эффективности посредники должны исчезнуть. Но ценность венчурных компаний в том, что они обладают уникальной информацией и экспертизой, которой никогда не будет у владельцев капитала. Поэтому они и несут деньги в венчурные фонды.<br /><br />- Успех венчурного бизнеса построен на «хитах». Из нескольких десятков компаний, в которые инвестировал фонд, минимум одна должна стать единорогом. Только тогда, по итогу, фонд получит существенную прибыль.<br /><br />- Есть три стиля инвестирования:<br />1. В людей<br />2. В рынок<br />3. В технологии<br />При оценке компаний нужно оценивать все эти три части стартапа, но понимать, в чем из этого твоя сильная сторона, как инвестора.<br /><br />- Удивительно, как китобойный бизнес в 19 веке был похож на современное венчурное инвестирование. Проценты возврата на вложенный капитал и подходы в работе практичес��и идентичны. Все волны новых венчурных историй развивались одинаково.<br /><br />- Венчурный инвестор должен иметь долгосрочное мышление, так как возврат на его инвестиции будет не раньше, чем через 8-10 лет. Также он должен быть стойким к неудачам, понимая, что потеряет свои инвестиции в большинство компаний и заработает на нескольких «хитах», которые он должен найти. Без такого майндсета в венчуре делать нечего.<br /><br />- «Кремниевая Долина уже больше не про кремний, а про связи». Успех фонда больше зависит не от денег, к��торые он смог поднять, а от умения привлекать в стартапы лучших людей с опытом, чтобы помогать молодым предпринимателям управлять своим бизнесом. Фонд должен давать ценность стартапу.<br /><br />- Вход в правильную компанию в правильное время может увеличить вложения фонда в десятки раз всего лишь за несколько лет. Такие возможности были и будут всегда. Чтобы заходить в такие сделки нужна мощная сеть связей и репутация.<br /><br />- В среднем венчурные фонды приносили своим LPs 13,7% годовых с 1981 по 2006 гг<br /><br />- Американскую историю с развитием рынка венчурного капитала не смогли повторить другие страны, так как здесь большую роль играет культура и дух народа, который готов брать на себя риски, принимает эмигрантов и поддерживает непрекращающееся желание зарабатывать больше.<br /><br />ЧТО Я БУДУ ПРИМЕНЯТЬ:<br />- Более спокойно смотреть на новые возможности, которые даёт рынок, не боясь их упустить. Новые технологические волны будут появляться снова и снова.<br /><br />ЕЩЕ НА ЭТУ ТЕМУ:<br />?Уолтер Айзексон «Инноваторы»<br /><br />

Tax levers can affect affect labor mobility, especially in a world where talent flows are more global than they have ever been before.<br /><br />Corporate venture capital has become more significant in recent years, allowing incumbent firms engaging in it to be increasingly able to fend off creative destruction by making strategic investments in areas where they face competition.<br /><br />The VC industry could benefit by embracing more diverse talent pools - not as recompense for its past inadequacy, but in order to enrich the stock of human capital required to produce attractive returns.<br /><br />Places where noncompete clauses are common impose large adjustment costs on labor mobility and entrepreneurship.<br /><br />The new pathways being created globally suggest that Silicon Valley may not always be the magnet it is today for capital, people, and ideas.<br /><br />Strategy should be aligned with organizational structure. Venture capital investments in 'cleantech' in recent years appear to be a classic case of strategy-structure misalignment.<br /><br />VC was and always will be a super cyclical industry. Immense social value can be created when high-tech ventures are financed, and financing happens more readily when investors can expect overall attractive returns from long-tail portfolios. <br /><br />Novel technologies tend to be disproportionately funded in hot markets because an active marketplace for venture capital during bubbles allows for innovation through trial-and-error entrepreneurship. Put simply, 'it took the wastage of a bubble to fund the exploration that would yield Amazon and eBay and Google.'<br /><br />During high-tech boom-and-bust cycles, venture capitalists have a responsibility to bring productive companies to market to avoid reputational backlash. The dirty little secret of the venture business as that VCs can be enormously successful even though most of their portfolio companies may tank in the public markets.

There was a lot I liked about this book -- focused, relatively readable, not too long -- but it's really in the weeds; you have to really want to learn a lot about the history of venture capital to enjoy it.<br /><br />Three things I learned: <br />1. Whaling ventures in the 19th century had similar profile as many of today's tech startups -- high up-front investment required with a long time to pay off, long-tailed returns, potential principal-agent problems -- so financing became similar to today's VC. <br />2. How important was the defense industry to Silicon Valley's take-off? Until 1967 the US military consumed more than half of the integrated circuits produced in the Bay Area. (Though Silicon Valley was also set apart from other defense-tech hubs like Boston's Route 126 by its adaptiveness -- the ability to shift to private-sector technologies when defense funding dried up.)<br />3. Harvard MBAs account for about one-quarter of top venture capitalists today (share was likely even higher historically)

Starts with history dating back to 1800's, whaling industry and makes it all the way to Sequoia, Kleiner Perkins modern-day. A lot of cool anecdotes as well that make the history less dry. A really good read if you're not in VC and looking to learn about the field.

well-written and interesting, especially the beginning, but a bit disorganized and too stuffed with numbers at times. the author fails to analyze trends as much as id like and some of the book just ends up being a retelling of silicon valley history. <br /><br />it is interesting to read about the 2000 .com bubble and think about the parallels to today.