Exhibit 1.4 The Advantages of Shorter Holding Periods.
| Company | Capital Invested ($m) | Realized Value ($m) | Holding Period (years) | Multiple on Invested Capital (MOIC) | Gross IRR (%) |
|---|---|---|---|---|---|
| Company 1 | $1.0m | $5.0m | 2 | 5X | 123.6 % |
| Company 2 | $1.0m | $5.0m | 6 | 5X | 37.9 % |
Exhibit 1.5 Fund Portfolio Returns.
| Portfolio Company | Capital Invested ($m) | Current Value ($m) | Multiple on Invested Capital (MOIC) | Gross IRR |
|---|---|---|---|---|
| Company A | $6.50 | $39.20 | 6.08X | 60.60 % |
| Company B | $2.10 | $2.10 | 1X | 0.00 % |
| Company C | $9.60 | $33.10 | 3.8X | 46.20 % |
| Company D | $6.80 | $0.60 | 0.09X | –53.00 % |
| Fund | $25.00 | $75.00 | 3.00X | 51.2 % |
Top Takeaways
Launching a venture firm requires:
A bold vision aligned with market forces
Compelling and timely investment strategy
Investment performance/track record
And above all, the ability to be persuasive
NOTE
1 1. “SoftBank: Inside the ‘Wild West’ $100bn Fund Shaking up the Tech World,” Financial Times, June 19, 2018: https://www.ft.com/content/71ad7cda-6ef4-11e8-92d3-6c13e5c92914.
2 Why Choose a Career in VC
Fueling the frontiers of innovation, being an agent of change, supporting the next generation founders, asymmetric financial gains, freedom/autonomy from the 9-to-5 drudgery, or the thrill of building companies — the role of venture capitalists is never dull. If anything, it is like a drug — easy to get hooked and high, harder to let go.
CREATIVE CONSTRUCTION
One of the influential economists, Joseph Schumpeter, coined the term creative destruction, where industries are decimated when innovative trends occur: The “gale of creative destruction” whips through the “process of industrial mutation that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one.” On the other side are where the forces of creative construction, entrepreneurs and venture capitalists, are at work. When a paradigm shift occurs in any technological ecosystem, it is more likely that a founder and some venture capital investors are stoking that disruptive entrepreneurial fire. “See, venture capital is reducible to a few words. You have to be interested in managing change, and you have to recognize that change is necessary,”1 says Donald T. Valentine, founder of Sequoia Capital. To be a part of creating that new new thing can be immensely satisfying.
INTELLECTUAL STIMULATION
A career in venture capital investing is “the most fun you can have with your clothes on,” says Deepak Kamra of Canaan Partners.2 A day in the life of a venture capitalist is full of stimulating conversations with entrepreneurs who are changing the world. At various points in their startup journey, entrepreneurs seek investors, not only for the moolah but to test assumptions, validate their concepts, and prepare for the road ahead. Amid all these caffeine-laden dreams, the investor is exposed to a steep learning curve of technological changes, the shifting sands of market dynamics, sources of opportunity, and competitive constraints. For those who thrive on comfort in ambiguity, a rapid pace, headbutting with type A entrepreneurs, and “those crazy ones,” the career path of venture capital offers it all. Elizabeth “Beezer” Clarkson, managing director of Sapphire Ventures, says, “We forget how unusual this career is. We are privileged. Other sectors seem pale in comparison when we look at the range of energy and creativity that flows to us. It can be addictive.”
MENTOR CAPITALISTS
Those who have had a successful entrepreneurial journey often see venture capital as a pathway of imparting their lessons to the founders and entrepreneurs. “At a certain point in your career, it is more satisfying to help entrepreneurs than to be one,” says Marc Andreessen, co-founder of Andreessen Horowitz.3 Scott Weiss joined Andreessen Horowitz after selling his company, IronPort Systems, to Cisco. “Being a venture capitalist gives me the opportunity to mentor and offer direction to the entrepreneurs. They trust my judgment because I have been down this path before,” he points out. Several practitioners agreed that the VC career path allows them to continue to live vicariously through supporting other entrepreneurs.
ASYMMETRICAL REWARDS
Venture capital is an “antifragile” career with fundamental asymmetry. Hourly wage earners get paid for time, not value. This may be one of the few career paths that offer exponential financial returns while bringing innovation and positive change to society. In his book Antifragile, author Nicholas Naseem Taleb defines asymmetry to be when you have more upside than downside and tend to gain from volatility, randomness, stressors,