Super Pumped _ The Battle for Uber - Mike Isaac Page 0,33
only thing that matters is whether you have the brains to back up your ideas.
Brains, and one other thing: zeal. Like so many of his peers in the Valley, Gurley truly believes in the transformative power of technology and innovation. He appreciates the positive impact that a young founder with a big idea and a few million dollars can make in the world. The tech press loves to fixate on his negative comments about Silicon Valley, but Gurley insists he is an optimist.
Even in some of the industry’s most dire moments, Gurley didn’t shy away from the venture business. He was there during the dot-com bust at the turn of the century, looking for promising founders. And when the financial crisis rocked the foundation of the global economy in 2008, he doubled down on startups.
“Environments like this tend to sort out the true entrepreneurs from the pretenders,” Gurley wrote during the height of the crisis. “When money is easy in Silicon Valley, it tends to attract short-term opportunists looking to make a fast-buck rather than build a lasting company. Only the best entrepreneurs set sail in rough seas like this.”
Chapter 7 notes
** That call also earned Gurley the ire of a young entrepreneur who would one day become another influential venture capitalist—Marc Andreessen. Andreessen was a co-founder of Netscape and is credited with helping to invent the consumer internet. Though Netscape eventually floundered and sold itself to AOL, Andreessen never forgot Gurley’s report. Years later, after both men had achieved personal success and enormous wealth, the two still carry a grudge. In an interview with the New Yorker years later, Andreessen remarked of Gurley: “I can’t stand him. If you’ve seen Seinfeld, Bill Gurley is my Newman.”
Chapter 8
PAS DE DEUX
Venture capital isn’t as much a profession as it is a brawl. If it were a sport, it would be like rugby without the mouthguards. There are no real rules, except that players should do whatever they need to do to seal a deal.
It doesn’t seem like a hard job. All you do is give away other people’s money. But it is. A VC’s calendar is packed with daily meetings—with founders, with their financial backers, with industry analysts, with journalists. VCs spend time talking to the CEOs of large, established companies about market trends and recruiting practices. They talk to investment bankers about private companies and public markets. They have to fend off hordes of eager founders seeking their favor. Even while relaxing at the bar in the Rosewood—the luxury hotel that has long acted as the social hub of tech money in Palo Alto—they’re likely to be interrupted by an awkward elevator pitch.
A venture capitalist’s job is to cut through all the noise and find the startups that will deliver outsized returns for the pension funds, endowments, family offices, even other high-net-worth individuals who have invested their money as limited partners, or LPs, in the VC firm. The lifecycle of a VC fund is typically ten years, by the end of which these LPs expect returns of at least 20 to 30 percent on their initial investments.
Venture capital is risky. Roughly one-third of VC investments will fail. But a heightened “risk profile” comes with the territory. If institutional investors prefer lower-risk investments, they can stick to reliable municipal bonds or money market funds. With low risk comes low returns.
To compensate for such high failure rates, VCs tend to spread their investments across a number of different industries and sectors. One grand slam investment with a return of ten, twenty, even fifty times the amount of the investment can make up for an entire investment portfolio of losses or weakly performing startups. In venture capital, so-called “moonshot” companies—run by entrepreneurs who aim to remake and dominate entire industries—are the most sought after, the ones that bring the greatest glory.
The investment equation is simple: a venture capital firm provides money to a startup in exchange for an equity stake in the company. For founders who decide to take on venture capital,†† a company begins raising its first round of funding early in its life cycle. This “seed” round typically involves modest investments in the tens of thousands to hundreds of thousands of dollars. After that, venture rounds continue by letter: Series A round, Series B round, and so on. Those funding rounds continue until either the company:
Dies. This is the most likely scenario.
Is acquired by another larger company.
Holds an initial public offering of its shares, allowing outside investors to