Venture Capital A 27 Year Perspective

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Venture Capital A 27 Year Perspective

• Gary Kalbach
• September 2005

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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

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Backyard
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Granddaughter In Garden
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West Coast Venture CapitalEl 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

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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)

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The Process?

• Write business plan
• Raise venture capital
• Sell product
• Go public or sell company
• Retire

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Keys To SuccessMy Perspective

• Management team
• Products and markets
• Markets that are not there yet!
• Financing
• Ownership
• Opportunistic exits

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Management Teams Make Or Break A Company
PASSION
FOCUS
LEADERSHIP
DRIVE
TEAM WORK
CREATIVITY
VISION
INTEGRITY
EXPERIENCE
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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

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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

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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

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Problems Along The Way

• Suddenly out of money
• Key non-performing member of team
• Management team member leaves
• Product/Technology doesnt work
• Market/Competitive landscape changes
• Investor group falls apart on vision/execution

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Management Teams

• Finance them
• Build them or
• Change them

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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

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2000 A New Paradigm

• Brand first
• Product later
• Profitability never

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Over-Funded Sectors

• Pet Assure
• Pet Food Giant
• Pet Food WareHouse
• Pets Choice
• Pets.com
• PETsMART

Good ads or good business models?
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Flawed Business Models

• You cannot fix slim margins with high-cost
  advertising
• WebVan did not have a viable business model

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What Went Wrong

• Too many inexperienced VCs
• Venture capital has traditionally financed B2B
• Most dot-coms were consumer oriented

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Whats Happening Now

• Back to basics
• Customer-oriented/market-oriented

Build the brand by building the business.
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How Do VCs Find Opportunities

• Successful entrepreneurs
• Successful entrepreneurs
• Other networks

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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!
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1,000 Deals
200 Deals
6 -7 Deals Selected
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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

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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

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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?
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Thank You.