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VC: An American History
A major exploration of venture financing, from its origins in the whaling industry to Silicon Valley, that shows how venture capital created an epicenter for the development of high-tech innovation.
VC tells the riveting story of how the industry arose from the United States’ long-running orientation toward entrepreneurship. Venture capital has been driven from the start by the pull of outsized returns through a skewed distribution of payoffs―a faith in low-probability but substantial financial rewards that rarely materialize. Whether the gamble is a whaling voyage setting sail from New Bedford or the newest startup in Silicon Valley, VC is not just a model of finance that has proven difficult to replicate in other countries. It is a state of mind exemplified by an appetite for risk-taking, a bold spirit of adventure, and an unbridled quest for improbable wealth through investment in innovation.
Tom Nicholas’s history of the venture capital industry offers readers a ride on the roller coaster of setbacks and success in America’s pursuit of financial gain.
VC tells the riveting story of how the industry arose from the United States’ long-running orientation toward entrepreneurship. Venture capital has been driven from the start by the pull of outsized returns through a skewed distribution of payoffs―a faith in low-probability but substantial financial rewards that rarely materialize. Whether the gamble is a whaling voyage setting sail from New Bedford or the newest startup in Silicon Valley, VC is not just a model of finance that has proven difficult to replicate in other countries. It is a state of mind exemplified by an appetite for risk-taking, a bold spirit of adventure, and an unbridled quest for improbable wealth through investment in innovation.
Tom Nicholas’s history of the venture capital industry offers readers a ride on the roller coaster of setbacks and success in America’s pursuit of financial gain.
400 pages, Hardcover
First published July 9, 2019
About the author
Tom Nicholas
1 book5 followersTom Nicholas is William J. Abernathy Professor of Business Administration at Harvard Business School. He is British and holds a doctorate from Oxford University. Prior to joining HBS, he taught at MIT's Sloan School of Management and at the London School of Economics.
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Displaying 1 - 30 of 57 reviews
March 15, 2020
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.
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!
Siegel's summary is here: https://t.co/EKa93JU4wL
Excerpt:
"VC: An American History 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."
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.
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!
Siegel's summary is here: https://t.co/EKa93JU4wL
Excerpt:
"VC: An American History 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."
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.
January 23, 2020
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.
June 28, 2019
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.
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.
A FEW INTERESTING POINTS FROM THIS BOOK:
• 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.
• 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.
• 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.
• 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.
• 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.
• 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.
• 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 & 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.
• 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.
• 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.
• 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.”
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.
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.
A FEW INTERESTING POINTS FROM THIS BOOK:
• 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.
• 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.
• 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.
• 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.
• 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.
• 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.
• 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 & 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.
• 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.
• 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.
• 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.”
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.
December 27, 2019
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.
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.
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.
July 27, 2022
Quite interesting -- American Whaling Industry & Samuel Salter
Some were interested in broader impact of Economy & Society, rather than self-enrichment.
While reading through this, I compared Tamil Nadu's Industry with American society - Why wouldn't I?
Initially, I thought, they were different.
Sometimes, it seems to be same underlying desire.
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?
People's desires, are same regardless of culture.
The way we might carry, organize our societies, view of the world is polar-opposite between cultures.
Families, Wealth et cetera. In Tirunelveli, Tamil Nadu - RMKV family, Pothys, VV Minerals et al
Americans seem to be good in scaling their business, thoroughly, efficiently, ruthlessly. Example: Taco Bell et al.
Oh Vey, a Popular Tamil-CEO is drumming for investing in know-how, high-intensive-products
At least, he seem to run software companies in Villages, building Global products.
Can you do that? Can you do that, uh, Mr.Reader?
Imagine, The Fresh Air, the Lovely Paddy Farm, Fresh-Vegetables, Decent Wages, Coconut Trees
In Tamil Nadu, there's plenty of money, oh - wait
What's the difference between West & Tamil Nadu in business sector?
Just some thought-experiment, Differences:
a) such wealthy tamil people are not aware of Global Scale?
b) Perhaps, their dreams are not big as Globe?
c) Infrastructure, better legal-framework [patent], wages?
d) Policies
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.
Recommended for anyone, who has cursory interest in Technology & Business.
Deus Vult,
Gottfried
Some were interested in broader impact of Economy & Society, rather than self-enrichment.
While reading through this, I compared Tamil Nadu's Industry with American society - Why wouldn't I?
Initially, I thought, they were different.
Sometimes, it seems to be same underlying desire.
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?
People's desires, are same regardless of culture.
The way we might carry, organize our societies, view of the world is polar-opposite between cultures.
Families, Wealth et cetera. In Tirunelveli, Tamil Nadu - RMKV family, Pothys, VV Minerals et al
Americans seem to be good in scaling their business, thoroughly, efficiently, ruthlessly. Example: Taco Bell et al.
Oh Vey, a Popular Tamil-CEO is drumming for investing in know-how, high-intensive-products
At least, he seem to run software companies in Villages, building Global products.
Can you do that? Can you do that, uh, Mr.Reader?
Imagine, The Fresh Air, the Lovely Paddy Farm, Fresh-Vegetables, Decent Wages, Coconut Trees
In Tamil Nadu, there's plenty of money, oh - wait
What's the difference between West & Tamil Nadu in business sector?
Just some thought-experiment, Differences:
a) such wealthy tamil people are not aware of Global Scale?
b) Perhaps, their dreams are not big as Globe?
c) Infrastructure, better legal-framework [patent], wages?
d) Policies
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.
Recommended for anyone, who has cursory interest in Technology & Business.
Deus Vult,
Gottfried
December 31, 2020
О ЧЕМ КНИГА:
Книга показывает, как венчурный капитал изменил подходы в развитии бизнеса и стал драйвером успеха современных американских технологических компаний.
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.
ГЛАВНАЯ МЫСЛЬ КНИГИ:
- 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.
ЗАЧЕМ ЧИТАТЬ ЭТУ КНИГУ?
- Чтобы понять основные принципы венчурного финансирования и историю его развития.
МЫСЛИ И ВЫВОДЫ ИЗ КНИГИ:
- 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.
- 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.
- Есть три стиля инвестирования:
1. В людей
2. В рынок
3. В технологии
При оценке компаний нужно оценивать все эти три части стартапа, но понимать, в чем из этого твоя сильная сторона, как инвестора.
- Удивительно, как китобойный бизнес в 19 веке был похож на современное венчурное инвестирование. Проценты возврата на вложенный капитал и подходы в работе практически идентичны. Все волны новых венчурных историй развивались одинаково.
- 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.
- «Кремниевая Долина уже больше не про кремний, а про связи». Успех фонда больше зависит не от денег, которые 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.
- 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.
- В среднем венчурные фонды приносили своим LPs 13,7% годовых с 1981 по 2006 гг
- 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.
ЧТО Я БУДУ ПРИМЕНЯТЬ:
- Более спокойно смотреть на новые возможности, которые даёт рынок, не боясь их упустить. Новые технологические волны будут появляться снова и снова.
ЕЩЕ НА ЭТУ ТЕМУ:
📗Уолтер Айзексон «Инноваторы»
Книга показывает, как венчурный капитал изменил подходы в развитии бизнеса и стал драйвером успеха современных американских технологических компаний.
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.
ГЛАВНАЯ МЫСЛЬ КНИГИ:
- 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.
ЗАЧЕМ ЧИТАТЬ ЭТУ КНИГУ?
- Чтобы понять основные принципы венчурного финансирования и историю его развития.
МЫСЛИ И ВЫВОДЫ ИЗ КНИГИ:
- 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.
- 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.
- Есть три стиля инвестирования:
1. В людей
2. В рынок
3. В технологии
При оценке компаний нужно оценивать все эти три части стартапа, но понимать, в чем из этого твоя сильная сторона, как инвестора.
- Удивительно, как китобойный бизнес в 19 веке был похож на современное венчурное инвестирование. Проценты возврата на вложенный капитал и подходы в работе практически идентичны. Все волны новых венчурных историй развивались одинаково.
- 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.
- «Кремниевая Долина уже больше не про кремний, а про связи». Успех фонда больше зависит не от денег, которые 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.
- 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.
- В среднем венчурные фонды приносили своим LPs 13,7% годовых с 1981 по 2006 гг
- 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.
ЧТО Я БУДУ ПРИМЕНЯТЬ:
- Более спокойно смотреть на новые возможности, которые даёт рынок, не боясь их упустить. Новые технологические волны будут появляться снова и снова.
ЕЩЕ НА ЭТУ ТЕМУ:
📗Уолтер Айзексон «Инноваторы»
September 17, 2019
Tax levers can affect affect labor mobility, especially in a world where talent flows are more global than they have ever been before.
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.
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.
Places where noncompete clauses are common impose large adjustment costs on labor mobility and entrepreneurship.
The new pathways being created globally suggest that Silicon Valley may not always be the magnet it is today for capital, people, and ideas.
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.
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.
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.'
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.
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.
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.
Places where noncompete clauses are common impose large adjustment costs on labor mobility and entrepreneurship.
The new pathways being created globally suggest that Silicon Valley may not always be the magnet it is today for capital, people, and ideas.
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.
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.
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.'
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.
December 17, 2019
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.
Three things I learned:
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.
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.)
3. Harvard MBAs account for about one-quarter of top venture capitalists today (share was likely even higher historically)
Three things I learned:
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.
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.)
3. Harvard MBAs account for about one-quarter of top venture capitalists today (share was likely even higher historically)
October 23, 2020
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.
August 9, 2021
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.
it is interesting to read about the 2000 .com bubble and think about the parallels to today.
it is interesting to read about the 2000 .com bubble and think about the parallels to today.
November 8, 2020
I bought this book at the Stanford campus bookshop (right after it was evacuated due to Covid-19) while on my first visit to the US. Overall, I thoroughly enjoyed Tom Nicholas' VC: An American History. Unlike some reviews, I thought the book struck a great balance between an academic tone (and analysis) and the narrative behind the development of venture financing (most memorably the various whaling voyages as well as the "copying" of the English textile industry). For example, I found the analysis of past VC IRRs incredible (and hard to find anywhere else)- in general, all the charts in the book were very fascinating for someone who is deeply interested in VC. Moreover, I thought it covered a wide-breadth of factors relating to venture financing such as the formation of prominent US clusters (mainly Silicon Valley), the legal development of VC funds, the "founding" investment approaches (market-product-person) and more. I hope that in the future Tom Nicholas, or other experts on the subject, expand on the future of venture capital (i.e. investment approach, clusters, legal developments, fund types). Moreover, it would be great to have a similar book (or even a paper) analyzing the development of venture capital in Europe!
If anyone wants to discuss the book, ping me a message! Moreover, I made 7 in-depth timeline slides for each chapter covering important details and highlights which I would be happy to share.
Context: I wrote this review 5 months after reading the book. I am an undergraduate student at the London School of Economics and am highly passionate about venture capital (hence I may very likely be a bit biased).
If anyone wants to discuss the book, ping me a message! Moreover, I made 7 in-depth timeline slides for each chapter covering important details and highlights which I would be happy to share.
Context: I wrote this review 5 months after reading the book. I am an undergraduate student at the London School of Economics and am highly passionate about venture capital (hence I may very likely be a bit biased).
February 14, 2021
Audible/Kindle/Hardcover. Tom Nicholas was one of my favorite and most entertaining professors at Harvard Business School. In fact, his class, "The Coming of Managerial Capitalism" is the most popular class and has been for years. Feels like Professor Nicholas used all of his entertaining energy on teaching, because this book is dry. Reading it reminds you how boring history is without narration and commentary.
Despite that, or perhaps because of its dryness, "VC" is also very informative. Starting with whaling, building through cotton manufacturing and the industrial revolution, and extending that arc through the dotcom bubble, Nicholas shows how critical institutions and infrastructure evolved, brick by brick to create the modern VC industry. We often overlook organizational, legal, and regulatory innovations that find a way to coordinate and align incentives. In the case of VC, the development of the Limited Partnership, with attendant tax policies (e.g., capital gains, ERISA allowing pensions to invest in VC), in addition to thousands of other breakthroughs, helped unlock capital flowing into highly risky ventures
Like any industry, there have been both positive and negative externalities. Based on my biased opinion (this is my field of work), the good far outweighs the bad. The American system is one that is envy of the international business world. And as Nicholas suggests, the development of VC is also a mirror into the evolution and ethos of America.
Despite that, or perhaps because of its dryness, "VC" is also very informative. Starting with whaling, building through cotton manufacturing and the industrial revolution, and extending that arc through the dotcom bubble, Nicholas shows how critical institutions and infrastructure evolved, brick by brick to create the modern VC industry. We often overlook organizational, legal, and regulatory innovations that find a way to coordinate and align incentives. In the case of VC, the development of the Limited Partnership, with attendant tax policies (e.g., capital gains, ERISA allowing pensions to invest in VC), in addition to thousands of other breakthroughs, helped unlock capital flowing into highly risky ventures
Like any industry, there have been both positive and negative externalities. Based on my biased opinion (this is my field of work), the good far outweighs the bad. The American system is one that is envy of the international business world. And as Nicholas suggests, the development of VC is also a mirror into the evolution and ethos of America.
August 10, 2019
Pros- Very detailed, gets to foundations and fundamentals of why VC space is how it is today. Also how VC and it's mindset is an integral part of America's Growth story and being the world leader. Illustrating its spin-offs and developments from early 18th century to late 20th century.
Cons- Not covering the dynamic 21th century happenings in the VC space, as it is going through a dynamic and fast-going phase. It's a big void that has to be filled to make it complete. Should have thrown light on way forward by analysing the happenings. I hope that would covered in the next book of the author Tom Nichols.
Verdict - "When it comes to venture capital, those who fail to learn its history are more likely to earn poor returns." So this is a must read to understand the evolution and craft of Venture Capital.
Tip - If you wanted to understand the essence of it without spending huge time in reading the entire book, check this, well written briefings of a VC Investor on this book -
https://t.co/EKa93JU4wL
He also gave his views on the way forward and his analysis and comparison of present happenings with past, and their faults. recommended, if you are time-packed.
-
Cheers,
Rohith - www.twitter.com/RohithDarisa
Cons- Not covering the dynamic 21th century happenings in the VC space, as it is going through a dynamic and fast-going phase. It's a big void that has to be filled to make it complete. Should have thrown light on way forward by analysing the happenings. I hope that would covered in the next book of the author Tom Nichols.
Verdict - "When it comes to venture capital, those who fail to learn its history are more likely to earn poor returns." So this is a must read to understand the evolution and craft of Venture Capital.
Tip - If you wanted to understand the essence of it without spending huge time in reading the entire book, check this, well written briefings of a VC Investor on this book -
https://t.co/EKa93JU4wL
He also gave his views on the way forward and his analysis and comparison of present happenings with past, and their faults. recommended, if you are time-packed.
-
Cheers,
Rohith - www.twitter.com/RohithDarisa
November 24, 2019
An interesting concept for a book. The history of the VC industry.
That said, it wasn't as meaty as I had hoped. Part of the reason for this is that there simply hasn't been that much innovation in the industry. There is maybe just a few milestones over the last hundred years.
That said, it wasn't as meaty as I had hoped. Part of the reason for this is that there simply hasn't been that much innovation in the industry. There is maybe just a few milestones over the last hundred years.
April 9, 2022
Tom Nicholas’s book VC: An American History is rich in quality data illustrating the history of venture capital. This post interprets some key data from the book about returns within and across venture portfolios, and reflects on two key implications: The prudence of investing in portfolios, not companies; and the importance of “staying power” for both general and limited partner venture investors.
Intra-portfolio Returns: Long-tail Investing
Figure 1 below shows the various returns on Venrock’s individual investments from 1969 – 1978. Of the 28 investment returns shown, all of them are clustered between -100% (Compat) and 75% YoY returns, with one exception: Apple Computer, which shows a stunning nearly 400% YoY return for Venrock. They made this investment ten years in, but it not only “carried the fund,” but also “carried the firm.”
No alt text provided for this image
Figure 1: VC: An American History, pg. 172
Figure 2 below shows a similar phenomenon for Kleiner & Perkins’s company-level returns from their Fund I portfolio as measured in 1984 (they constructed the portfolio from 1973 – 1980). The two outlying high performers are Genentech with a ~250x Multiple on Invested Capital (MOIC), and Tandem with a ~100x MOIC!
No alt text provided for this image
Figure 2: VC: An American History pg. 213
Though still early in its maturation the current value of SpringTide Ventures (STV) Fund I LP’s investments is already beginning to exhibit the characteristic “long tail” curve of venture returns. Note that STV is audited and that all markups are based on subsequent qualified financings. Of 22 total investments made from January, 2019 – October, 2021, 3 have exited early at an average multiple of 2.8, 5 have seen markups in unrealized value of between 1.5x and 6.0x, and one outlier, Superconductive, features a markup of nearly 22x MOIC at the time of their Series B financing in summer, 2021!
Inter-portfolio Returns: Macro-economic Cycles
Figures 3 and 4 below help illustrate the “boom and bust” cycle of venture capital with reference to the aggregate performance of all VC funds from 1985 – 2000, and with the performance of Sequoia and Kleiner Perkins (both top quartile funds) from 1970 – 2000.
No alt text provided for this image
Figure 3: VC: An American History pg. 277
Nicholas notes that, “The high levels of returns across the mid- to late-1990s is striking. Although returns for the ‘hot’ high-tech market of the early 1980s . . . are missing from the commercial databases.” Thus we can imagine two booms and two busts: A boom in the early 1980s followed by more modest returns in the mid-1980s, a tremendous boom in the early – mid-1990s, followed by a tremendous crash in the late 1990s and early 2000s.
Two Key Implications
Returns within any given venture portfolio are likely to vary widely with some companies in the portfolio resulting in loss of capital, some resulting in modest returns, and (hopefully) some that achieve such extraordinary returns as to make up for the rest of the portfolio. This long tail distribution of performance within portfolios is unique to venture capital. Given this, family office and individual investors new to the asset class would do well to invest in venture portfolios rather than in one or a small number of ventures. This can be done by building a portfolio of direct investments, or by investing with venture funds (emerging managers usually provide access that the large tier 1 firms do not).
Given the “boom and bust” cycles of the venture capital industry that all venture firms are subject to, limited partner investors in venture capital firms – and venture firm managers – should plan and organize themselves to exercise “staying power” across at least one boom, one bust, and one boom cycle. In fact, many institutional Limited Partners already have policies to invest with a given General Partner across at least 3 funds.
Intra-portfolio Returns: Long-tail Investing
Figure 1 below shows the various returns on Venrock’s individual investments from 1969 – 1978. Of the 28 investment returns shown, all of them are clustered between -100% (Compat) and 75% YoY returns, with one exception: Apple Computer, which shows a stunning nearly 400% YoY return for Venrock. They made this investment ten years in, but it not only “carried the fund,” but also “carried the firm.”
No alt text provided for this image
Figure 1: VC: An American History, pg. 172
Figure 2 below shows a similar phenomenon for Kleiner & Perkins’s company-level returns from their Fund I portfolio as measured in 1984 (they constructed the portfolio from 1973 – 1980). The two outlying high performers are Genentech with a ~250x Multiple on Invested Capital (MOIC), and Tandem with a ~100x MOIC!
No alt text provided for this image
Figure 2: VC: An American History pg. 213
Though still early in its maturation the current value of SpringTide Ventures (STV) Fund I LP’s investments is already beginning to exhibit the characteristic “long tail” curve of venture returns. Note that STV is audited and that all markups are based on subsequent qualified financings. Of 22 total investments made from January, 2019 – October, 2021, 3 have exited early at an average multiple of 2.8, 5 have seen markups in unrealized value of between 1.5x and 6.0x, and one outlier, Superconductive, features a markup of nearly 22x MOIC at the time of their Series B financing in summer, 2021!
Inter-portfolio Returns: Macro-economic Cycles
Figures 3 and 4 below help illustrate the “boom and bust” cycle of venture capital with reference to the aggregate performance of all VC funds from 1985 – 2000, and with the performance of Sequoia and Kleiner Perkins (both top quartile funds) from 1970 – 2000.
No alt text provided for this image
Figure 3: VC: An American History pg. 277
Nicholas notes that, “The high levels of returns across the mid- to late-1990s is striking. Although returns for the ‘hot’ high-tech market of the early 1980s . . . are missing from the commercial databases.” Thus we can imagine two booms and two busts: A boom in the early 1980s followed by more modest returns in the mid-1980s, a tremendous boom in the early – mid-1990s, followed by a tremendous crash in the late 1990s and early 2000s.
Two Key Implications
Returns within any given venture portfolio are likely to vary widely with some companies in the portfolio resulting in loss of capital, some resulting in modest returns, and (hopefully) some that achieve such extraordinary returns as to make up for the rest of the portfolio. This long tail distribution of performance within portfolios is unique to venture capital. Given this, family office and individual investors new to the asset class would do well to invest in venture portfolios rather than in one or a small number of ventures. This can be done by building a portfolio of direct investments, or by investing with venture funds (emerging managers usually provide access that the large tier 1 firms do not).
Given the “boom and bust” cycles of the venture capital industry that all venture firms are subject to, limited partner investors in venture capital firms – and venture firm managers – should plan and organize themselves to exercise “staying power” across at least one boom, one bust, and one boom cycle. In fact, many institutional Limited Partners already have policies to invest with a given General Partner across at least 3 funds.
Read
May 17, 2023The origins of the venture capital industry in Amer i ca are conventionally traced back to the founding of the Boston- based American Research and Development Corporation (ARD) in 1946.
Venture capital is concerned with the provision of finance to startup companies and it is heavi ly oriented toward the high- tech sector, where capital efficiency is at its highest and the potential upside is greatest.
Modern VC involves intermediation by general partners in VC firms, who channel risk capital into entrepreneurial ventures on behalf of limited partners— typically, pension funds, university endowments, and insurance companies
VC firms receive remuneration in the forms of annual management fees (typically 2 percent of the capital committed by limited partners) and “carried interest” as a share of the profits generated by an investment fund (typically 20 percent). VC funds tend to last about seven to ten years, and the firms behind them often manage multiple funds si mul ta neously.
The fact that venture cap i tal ists do exist is arguably because they are able to maintain informational advantages
US venture cap i tal ists have supported a large range of high- tech firms whose products, from semiconductors to recombinant insulin, telecommunications inventions, and search engines
leading- edge cotton textiles innovation in Lowell, Mas sa chu setts— essentially the first Silicon Valley– type cluster in America.
The high- tech revolution of the early 1990s witnessed a new era of hardware, software, and telecommunications innovations, mostly in response to the commercialization of the internet.
The payoff distributions in the two industries are strikingly similar. Whaling agents intermediated between the wealthy individuals who supplied funds and the captains and crew who undertook voyages
This is analogous to the oft- cited modern VC refrain of “I’d rather be lucky than smart,”
whaling partnerships meant that incentives were effectively aligned. Agents shared more in downside risk by putting large shares of their own personal wealth at stake.
whaling captains and crew were compensated systematically using performance- based pay.
Venture capital is concerned with the provision of finance to startup companies and it is heavi ly oriented toward the high- tech sector, where capital efficiency is at its highest and the potential upside is greatest.
Modern VC involves intermediation by general partners in VC firms, who channel risk capital into entrepreneurial ventures on behalf of limited partners— typically, pension funds, university endowments, and insurance companies
VC firms receive remuneration in the forms of annual management fees (typically 2 percent of the capital committed by limited partners) and “carried interest” as a share of the profits generated by an investment fund (typically 20 percent). VC funds tend to last about seven to ten years, and the firms behind them often manage multiple funds si mul ta neously.
The fact that venture cap i tal ists do exist is arguably because they are able to maintain informational advantages
US venture cap i tal ists have supported a large range of high- tech firms whose products, from semiconductors to recombinant insulin, telecommunications inventions, and search engines
leading- edge cotton textiles innovation in Lowell, Mas sa chu setts— essentially the first Silicon Valley– type cluster in America.
The high- tech revolution of the early 1990s witnessed a new era of hardware, software, and telecommunications innovations, mostly in response to the commercialization of the internet.
The payoff distributions in the two industries are strikingly similar. Whaling agents intermediated between the wealthy individuals who supplied funds and the captains and crew who undertook voyages
This is analogous to the oft- cited modern VC refrain of “I’d rather be lucky than smart,”
whaling partnerships meant that incentives were effectively aligned. Agents shared more in downside risk by putting large shares of their own personal wealth at stake.
whaling captains and crew were compensated systematically using performance- based pay.
November 2, 2022
If you're looking for Michael Lewis, keep moving. This book tells the reader how organizational structure, regulatory environment, and tax policy have shaped the VC sector; it does not give you a deep psychological insight into the financial wizards of years past.
It is not, however, as dry as some reviewers have indicated. It asks some provocative questions about whether earlier "long-tail" industries have enough in common with late 20th century venture capital to be part of the same story and, if so, whether that indicates that the US has fostered an economic culture that is unusually conducive to such "swing for the fences" financing. It also makes some pointed (if well-rehearsed) criticisms of the ill effects of VC on innovation, and suggests that what ails VC is mainly that the outsized returns of the most successful firms have drawn a lot of relatively untalented but well-connected people to the sector.
Perhaps so, perhaps not: Nicholas takes the older, often patrician capitalists at their word that earlier stages of venture financing were dedicated to building companies that produced something socially valuable. Because he mainly focuses on success stories, it is hard to tell how venal the "bad" firms—those that took investors' money and failed to find and develop solid companies, that chased quick profits—in fact were.
It is not, however, as dry as some reviewers have indicated. It asks some provocative questions about whether earlier "long-tail" industries have enough in common with late 20th century venture capital to be part of the same story and, if so, whether that indicates that the US has fostered an economic culture that is unusually conducive to such "swing for the fences" financing. It also makes some pointed (if well-rehearsed) criticisms of the ill effects of VC on innovation, and suggests that what ails VC is mainly that the outsized returns of the most successful firms have drawn a lot of relatively untalented but well-connected people to the sector.
Perhaps so, perhaps not: Nicholas takes the older, often patrician capitalists at their word that earlier stages of venture financing were dedicated to building companies that produced something socially valuable. Because he mainly focuses on success stories, it is hard to tell how venal the "bad" firms—those that took investors' money and failed to find and develop solid companies, that chased quick profits—in fact were.
May 17, 2020
The history of venture capital didn't start in northern California less than a century ago. It started long before California became a state and has been tied to the entrepreneurial story of America since its founding.
Wherever there has been the promise of out-sized returns at great risk, financial intermediaries (venture capitalists) have arisen to mitigate that risk. It started with whaling industry and was made famous by the Silicon Valley firms that invested in the tech giants Amazon, Apple, Google, Facebook, Uber, etc. etc. In between those two points in history is a fascinating story where the industry was kept alive first by wealthy families, military investment and universities.
Of particular interest is where the industry goes in the future. Nicholas mentions the innovative approach of Andreessen Horowitz to offer its portfolio companies a slate of services (HR, marketing, etc.) in addition to investment. Nicholas sees that as a sign of the industry returning to a long-term focus of building companies for public markets rather than short-term returns. Time will tell if that approach wins out, but what's not debatable is that venture capital will continue to be part of America's story.
Wherever there has been the promise of out-sized returns at great risk, financial intermediaries (venture capitalists) have arisen to mitigate that risk. It started with whaling industry and was made famous by the Silicon Valley firms that invested in the tech giants Amazon, Apple, Google, Facebook, Uber, etc. etc. In between those two points in history is a fascinating story where the industry was kept alive first by wealthy families, military investment and universities.
Of particular interest is where the industry goes in the future. Nicholas mentions the innovative approach of Andreessen Horowitz to offer its portfolio companies a slate of services (HR, marketing, etc.) in addition to investment. Nicholas sees that as a sign of the industry returning to a long-term focus of building companies for public markets rather than short-term returns. Time will tell if that approach wins out, but what's not debatable is that venture capital will continue to be part of America's story.
January 17, 2022
A great book, providing a history of venture capitalism in America and its role in expanding economic growth. The author, economic historian Tom Nichols, delivers both an expansive lesson on venture capitalism and a solid narrative on its steady rise as a prime contributor to economic growth. Starting with the young American Republic’s whaling industry and moving forward through the present, Nichols explains how venture capitalism has a long history in America. He methodically describes the slow evolution of venture capitalism from its informal beginnings of individual agents managing general partnerships for specific ventures through to today’s formal and focused portfolios for limited partners. The book concentrates less on the entrepreneurs at the working end of the investment and more on the evolution of the process by which these entrepreneurs receive sufficient funds at the right time. The limitations of venture capital are also covered, with Nichols explaining historical cases of overreach and failure. A great book for anyone wanting an introduction to the venture capital model. Highly recommended for those interested in understanding the venture capital component in America’s economic engine.
April 23, 2022
Tom Nicholas is a professor focused on VC and entrepreneurialism at Harvard. This is his first published book - a synthesis of the development of long tail investing in the US since the New England whaling industry. This is a somewhat dense reading experience especially at the start where old industries (whaling, textiles) were discussed. But overall Nicholas did a fantastic job.
The book was published in 2019 - therefore it is a bit disappointing that Nicholas decided to largely constrain his scope to the post dotcom era. The past decade was mostly glossed over. Hopefully in the next version, some of the recent developments can be either added or discussed in more depth: the evolution of the Sutterhill model (Snowflake), the influx of hedge fund capital (Tiger), and the industrialization of some VC firms (A16z). Of course, blockchain can also be an interesting area as some firms are emerging as top players.
Overall it is a great book and does not require any prior knowledge of the VC industry. Be aware it is NOT a book of investment philosophy or strategy. It is a history book.
The book was published in 2019 - therefore it is a bit disappointing that Nicholas decided to largely constrain his scope to the post dotcom era. The past decade was mostly glossed over. Hopefully in the next version, some of the recent developments can be either added or discussed in more depth: the evolution of the Sutterhill model (Snowflake), the influx of hedge fund capital (Tiger), and the industrialization of some VC firms (A16z). Of course, blockchain can also be an interesting area as some firms are emerging as top players.
Overall it is a great book and does not require any prior knowledge of the VC industry. Be aware it is NOT a book of investment philosophy or strategy. It is a history book.
December 7, 2022
It was first to note was the track records for VC; 62% were loss making, while 5% generated multiples of more than 10 on the original investment (more than enough to cover losses). The distribution of returns is difficult to identify ex ante. Initially, I thought this was hedging, spreading their odds over different business, but it was something more complex than that. Nevertheless, knowing it is high risk, high returns mindset.
"VC contracts are designed to allocate cash flows and control rights among investors and entrepreneurs in such a way that value of the firm is maximized, incentives are provided and protected from against downside risk". Allocation of control rights is not 100% left to the founders or entrepreneurs. Though by design, VC would like the original entrepreneurs, the creators to focus on what they do best, while they place experts (or their choice) to handle the administrative parts of the business.
Wealth remains and expands within an enclosed circle? A thought that popped into me as I read this book. More to learn, and likely to read it once more for better understanding.
"VC contracts are designed to allocate cash flows and control rights among investors and entrepreneurs in such a way that value of the firm is maximized, incentives are provided and protected from against downside risk". Allocation of control rights is not 100% left to the founders or entrepreneurs. Though by design, VC would like the original entrepreneurs, the creators to focus on what they do best, while they place experts (or their choice) to handle the administrative parts of the business.
Wealth remains and expands within an enclosed circle? A thought that popped into me as I read this book. More to learn, and likely to read it once more for better understanding.
Read
December 16, 2019I was excited to read a history of venture capital, and the first chapter was so interesting on risk and whaling ventures in New England. The book is super-informative (I took many pages of notes!) but it is very academically written. There were many points where Nicholas spends time justifying sections where it almost reads like a pitch to an editor/thesis adviser about uniqueness that got left in (e.g. while many books cover Silicone Valley, the way I'm doing it is useful because it's through this unique lens of venture capital), and during some chapters he gets into the weeds listing fund amounts. The history seems ripe for dramatizing, with high stakes investing, people leaving firms, and it would have been helpful if chapters would lead with a story of some of the characters to pull readers in. However, it's super useful, much-needed, and a great addition to our collection.
May 17, 2021
Great summary of American VC industry starting from the whalers, formulation of the limited liability laws, SBICs, Boston route 128, Silicon Valley, the dot-com boom bust leading upto the emergence of modern day tech behemoths. Splattered along the way are important figures who helped shape the industry through business insight as well as astute investment. But what will stick me the most is David Swensen's observation that over the long run the returns from VCs are not superior to public equities despite the higher risks assumed. Despite having a fat right tail, the average is not amazing. Which means you have to be lucky and unless you have specific insight into the underlying innovation you should not punt.
February 25, 2020
A nice, if dry history of VC in the US.
While the recent history of VC firms like Greylock, Sequoia was interesting, I'm still partial to the description of the whaling ventures, and most appreciated the returns chart showing how whaling returns align almost precisely with VC shops. The last decade of VC megaboom has left this book a bit outdated, but getting the context on different models that have been tried and were considered failures (especially the government versions of VC made it a worthwhile read.
I got a better understanding of the tension between invention and professionalization beyond just tech startups, and now appreciate just how *old* most VC firms are.
While the recent history of VC firms like Greylock, Sequoia was interesting, I'm still partial to the description of the whaling ventures, and most appreciated the returns chart showing how whaling returns align almost precisely with VC shops. The last decade of VC megaboom has left this book a bit outdated, but getting the context on different models that have been tried and were considered failures (especially the government versions of VC made it a worthwhile read.
I got a better understanding of the tension between invention and professionalization beyond just tech startups, and now appreciate just how *old* most VC firms are.
August 31, 2021
This took a significant time to read - a highly academic book that represents the evolution of high risk investing from a historical lens. A must read textbook for any aspiring or existing venture capitalist.
Make no mistake, reading it felt like work - definitely made me smarter and further convinces me of the societal and financial value of VC.
I wish it was written to entertain - the first 100 pages were super slow. However, if you perceive this as a pre-requisite textbook to venture capital, you will fill it with post-it notes like I have; haven’t done that since my undergrad days at LSE.
Make no mistake, reading it felt like work - definitely made me smarter and further convinces me of the societal and financial value of VC.
I wish it was written to entertain - the first 100 pages were super slow. However, if you perceive this as a pre-requisite textbook to venture capital, you will fill it with post-it notes like I have; haven’t done that since my undergrad days at LSE.
February 3, 2020
A bit dense, but a solid follow-up to Janeway's "Doing Capitalism in the Innovation Economy" and Perez's "Technological Revolutions and Financial Capital". To truly get a longitudinal understanding of venture finance, I would recommend reading Perez, Janeway, and Nicholas in that order.
February 22, 2021
The first chapter on whaling is persuasive and interesting. The second chapter on the first industrial revolution is interesting but not persuasive. The rest of the book is just names and dates without much of an argument.
I don’t take off points for being from a strong pro-VC viewpoint, I knew what I was in for. The books conclusions re: net RoR don’t seem to justify it’s rosy outlook on the industry, however. Regardless of viewpoint, the book would have benefited from a more structured argument on the modern industry in the last 2/3rds.
I don’t take off points for being from a strong pro-VC viewpoint, I knew what I was in for. The books conclusions re: net RoR don’t seem to justify it’s rosy outlook on the industry, however. Regardless of viewpoint, the book would have benefited from a more structured argument on the modern industry in the last 2/3rds.
April 17, 2023
This is an excellent book for people who want to understand the history of venture capital in the United States. Nicolas’s insight that VC is similar to the whaling business in the 1800s is a very good one. He also reveals why it is so difficult to succeed as a venture capital investor. Funds depend on the identification of rare, blockbuster investments, and only the best firms with the best access are capable of attracting such entrepreneurs. Most other venture firms are simply not capable of producing returns that are sufficiently attractive to warrant the risk
July 14, 2023
Serious, erudite study of the development of the American venture capital industry that captures both the contingent and structural aspects of the peculiarly American quest for long-tail outsizes returns from whaling to early industrial finance to the postwar technology boom and the rise of Silicon Valley. Interesting look from a public policy perspective at the role of government as purveyor of capital and buyer of goods and services, and the emergence of the modern VC investor. Well-written, though certainly not light reading.
January 7, 2023
Most interesting part was about diversity and the whaling industry (the start and end of the book), I enjoyed those bits. Quite long-winded and the same points were often repeated throughout the book. Felt a bit like an info dump with lots of bar charts and graphs. Could be edited for brevity and conciseness. Struggled to get through this so it took me around 2 months just to finish this massive book.
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