Monthly Archives: January 2009

The Ultimate Cure, a great novel

Not only is The Ultimate Cure a good novel which describes the start-up life, the venture capitalists and what it costs to be an entrepreneur (and it reminds me of Po Bronson’s The First $20 Million Is Always The Hardest) but it is also a great novel, about human nature and what drives us in life. Here it reminds me of Swiss rising star, Martin Suter and his psychological thrillers. Most importantly, it is a great pleasure to read.

Author Peter Harboe-Schmidt has done a really nice “oeuvre”. Here is just a small piece:

“Take your start-up as an example. Why did you do it? If you analyzed the pros and cons for doing a start-up, you’d probably never do it. But your gut feeling pushed you on, knowing that you would get something very valuable out of it. Am I right?”
Martin speculated on why he was so drawn to a world that at times could appear to be no more than sheer madness. Like a world parallel to real life with many of the same attributes, just much more intense and fast-moving. People trying to realize a dream in a world of unpredictability and unknowns, working crazy hours, sacrificing their personal lives, rushing along with all those other technology based start-ups. Medical devices, Internet search engines, telecommunications, nanotechnologies and all the rest competing for the same thing: Money. To make the realization clock tick a little faster.
“Funny you should say that,” Martin finally said. “I’ve always thought of this start-up as a no-brainer.I never tried to justify it in any way.”

About Kleiner Perkins first fund (episode 2)

Was the information provided in episode 1 correct? I decided to try and contact Tom Perkins, the famous VC and he answered!

“I looked at the data you sent but, honestly, I don’t know where they came from.  We have never given this sort of thing out,  and we would have a lot of trouble even to find it today. I don’t think we had so many investments in that first fund—seventeen seems far to many.  The ones which I recall I put into my book. Having said that, I do believe that the fund would have achieved a modest return without Tandem and Genentech.  Those two were most important in changing our way for V.C. in the future.”

What does Perkins mean? In each case, KP co-founded the companies and did not simply invest in them. So where were these numbers coming from? After some research via the web, I found on Google Books the next table, from the book Enterprise and Venture Capital by Christopher Golis.

If correct, they would be however different from the ones I had before even if they are quite similar.

I checked Perkins’ book and Perkins obviously mentions Tandem and Genentech. He also mentions Advanced Recreation Equipment (aka Snow-Job, a company which converted motorbikes into snowmobiles) and American Athletic Shoe (re-soled tennis shoes). He adds: “Unsurprisingly, both failed”. He also mentions Qume as a nice return. Not much more.

So I asked Golis where all this came from…  “I cannot remember where I got it as I actually wrote the 4th edition some 8 years ago.  However I only put the table in the 4th edition.   Comparing the bibiographies of the third and fourth editions I would say the source was Gompers.  However Nesheim, Lewis, or Kaplan are potentially other sources. Hope this is of some help.”

Well, well… To know more, you will have to wait for episode 3!

About Kleiner Perkins first fund (episode 1)

As I mentioned in my previous post about returns of venture capital, I was lucky enough to see the performances of Kleiner Perkins first fund (launched in 1972). Here is the slide I discovered in mid-December.

I was extremely surprised to find such data. They are usually difficult, not to say impossible to get. I asked the author where he got them. He thought he had read them from a book by a Kleiner Perkins partner. I contacted him and he replied: “Not possible that it came from me. I don’t have such information. Not sure I have ever seen the returns for KPCB 1. I don’t know where the information could have come from.” Too bad.

I also try to “measure the bars” and rebuild what it could have meant in terms of numbers. Here are my measures.

A couple of comments (if we admit all this is true):
– Genentech and Tandem were two home runs (out of 17 deals).
– Even if these two had not worked, the fund value would be $17.8M, i.e. a 2.8x multiple. This would have been a decent return compared to even the best VC funds…

But is this true? You will have to wait for episode 2!

Returns of Venture Capital

Venture Capital returns remain very difficult to analyze mostly because access to data is tough. There are some web sites such as venturereturns but more interesting are the official reports of endowment funds such as the University of California, Washington State or Castle in Europe. Most venture capital firms do not publish any data.

In chapter 5 of “Start-Up”, I have published the following table:

Now let me publish them for some specific funds:

I had not mentioned before KP and Sequoia first funds which is something I plan to work on in the next weeks. Anyone with data would interest me! Late last year I was lucky enough to “see” KP first fund’s portfolio performance in more details which I will describe in my next post…