Book by John L Nesheim
Les informations fournies dans la section « Synopsis » peuvent faire référence à une autre édition de ce titre.
Chapter One: Introduction to Start-Ups and Their Funding
The research on which this book is based provided a lot of data about start-ups of all kinds that use technology, from semiconductors to Internet sites. The findings include their probability of success and how they are typically organized. Let's begin with thirty-one facts about typical high-tech start-ups -- many of them contrary to popular stereotypes.
1. The chances are 6 in a million that an idea for a high-tech business eventually becomes a successful company that goes public.
2. Fewer than 20 percent of the funded start-ups go public.
3. Founder CEOs own less than 4 percent of their high-tech companies after the initial public offering. Boom periods like the early Internet years often raise that to 10% and higher.
4. Founder CEOs can expect their stock to be worth about $6.5 million if the company succeeds in going public. Boom periods like the early Internet years produce billionaires.
5. Successful venture capitalists expect to personally earn about $7 million (in addition to cash wages) over five years for each $50 million pool of capital they share in managing.
6. Business plans are typically poor and are not well received by venture capitalists.
7. "Unfair advantage" and "sustainable competitive advantage" are missing in most business plans but are considered by investors to be critical if the high-tech start-up is to have an acceptable chance of succeeding. Plans lacking such an advantage rarely receive venture funding from experienced, successful venture capitalists.
8. On the average, a venture capitalist finances only 6 out of every 1,000 business plans received each year.
9. Venture capital investors own a large 70 percent of the start-up by the time it goes public: 70 percent of hardware companies, 60% of software companies and 50% of Internet companies.
10. The personal costs of doing a start-up are high, affecting families and friends as well as individuals. Fear and burnout are common. However, many CEOs have balanced those costs with the rewards of personal and professional satisfaction and the potential financial paybacks, which can be more gratifying than the rewards of working for a large corporation.
11. Bankruptcies occur for 60 percent of the high-tech companies that succeed in getting venture capital.
12. Mergers or liquidations occur in 30 percent of start-up companies.
13. A vice president's stock is worth about $2.5 million or one third of what the CEO is worth at the time of the initial public offering. Boom periods can increase the wealth tenfold.
14. The average worth of the stock for each of the employees (not including vice presidents and other key employees) on the date of the initial public offering is about $100,000.
15. Investors in venture capital pools aim to earn in excess of 25 percent each year on their money, about 8 percent more than if they had invested in all the stocks of the companies making up the Standard & Poor's 500 company index. In boom periods they can triple their returns.
16. The 10 percent of the start-ups that succeed compensate for the other 90 percent of the poorer performing companies in the venture capitalist's investment portfolio. In essence, the successful founders are paying for the substandard performance or bankruptcies of the bad investments.
17. Cash compensation for U.S. start-up managements remains below levels offered by larger corporations in spite of the scarcity of start-up talent and tax law reductions in the United States. Technical talent is paid near or at the going rate for such employees.
18. The median annual starting salary for a founder CEO in 1990 was about $120,000. By 1998 it had risen to about $150,000. Pre-IPO cash bonuses had become common by 2000 and increased total pay to $190,000 by the time the company went public.
19. The vice president of sales in a start-up often earns more cash compensation than the CEO. This occurs when incentive compensation plans are linked to sales that exceed those of the business plan.
20. Of the start-ups that get to an initial public offering, the median company takes at least three and typically five years to get to the public offering stage. Internet and biotech companies have been able to go public based on their "stories," that is, without earning profits by the time of the initial public offering.
21. Equipment lease financing and leasing of facilities and leasehold improvements have proven to be reliable and competitively priced sources of capital to augment equity raised to finance a start-up.
22. Having as a founder a person experienced with the responsibilities as CEO greatly increases the chances of getting a start-up funded. A close second is having a complete management team ready to go to work, with experienced people for each of the key functions, including the first CEO willing to step aside for a new, experienced leader when the business begins to grow rapidly.
23. About $100 billion is committed to pools of venture capital. It is managed by more than 2000 actively venturing individuals in over 500 firms, mostly in the United States, mainly in Silicon Valley, with a few in Europe and Asia.
24. The intensity of competition between venture capital firms has swung back and forth. It favored the entrepreneur at the height of the boom days of the personal computer, biotech, and Internet eras. However, whatever the trend, venture capitalists still end up owning the vast majority of the stock of a start-up, typically in excess of two-thirds of the company.
25. Mergers and acquisitions of start-ups increase when the market for initial public offerings cools off and when initial public offering valuations are historically very high.
26. Investors' interests in new issues rises and falls depending on the interest of institutional investors in the stocks of public companies traded over the counter, as well as in blue chip stocks traded on the New York Stock Exchange. In general, windows for IPOs open and close, based on whether there is a hot market for stocks in general. E*Trade and other Internet era financial service firms have brought access to IPO offerings to the general public. By 2000, "day traders" were a factor in moving stock prices.
27. Pricing of private rounds of venture capital by investors follows the same financial guidelines and measurements used to price securities of publicly traded companies. Investors translate risks and rewards into acceptable levels of expected return on investment, which becomes the basis for the dilution of founders' shares.
28. Competition for the shares of a start-up is the best way to increase its valuation and to reduce dilution for founders. Competition is enhanced by careful planning of the strategy for the capital-raising campaign. However, such deliberate planning is noticeably absent among founders of high-tech companies, especially those started by engineers.
29. Venture boom-to-bust cycles have become a way of life. The boom times of the personal computer of the 1980s ended. Biotech arrived and ended. The Internet boom arrived in the 1990s. These caused wide swings in the financial return on portfolios of venture capital firms. Many firms failed and closed their doors, leaving nothing to their investors. Other venture firms survived and some thrived. This resulted in a hierarchy of venture firms, interrelated deal-making ("deal flow"), and politics. Portfolio returns have dropped as low as single digit ROIs and a few have risen above the 60 percent range.
30. Mixed sources of venture funding have become a way of life. As a number of venture firms died out, a need and opportunity was created for funds from other sources. One new source of venture funds is large public corporations whose business development leaders became very active in the Internet boom. There continues to be funding from non-American sources. Angel investors grew and were prominent in the early years of the Internet. Friends and family funding, as well as bootstrap funding, has continued since the earliest days.
31. Internal start-ups within established corporations are now a frequent phenomenon; they have allowed emerging growth companies to sponsor an entrepreneurial spirit while retaining an uninterrupted focus on the parent company's bread-and-butter business. For internal start-ups to be successful, special attention must be paid to the unique characteristics of such new enterprises, particularly freedom and compensation.
Critical Issues
There are a number of key economic forces driving the venture capital funding of high-tech business.
Chih-Chao Lam founder, Acknowledge and ShoppingList.com This is the book I wish I'd taken to heart in my first start-up. ShoppingList.com is all the more well-grounded for my having read High Tech Start UP.
Ken Tidwell Vice President, Engineering, Clip2.com Next best thing after the founders to have at the kitchen table.
Thomas M. Uhlman President, New Ventures Group, Lucent Technologies Required reading for the next generation of corporate venture capitalists.
Donald T. Valentine General Partner, Sequoia Capital A must-read for all Internet era entrepreneurs.
Mario Rosati Partner, Wilson Sonsini Goodrich & Rosati Great book for high-tech entrepreneurs.
George Gilder Gilder Group, author of Telecosm Super book by the start-up guru of Silicon Valley.
John C. Dean Chairman and CEO, Silicon Valley Bank From idea to IPO, Nesheim provides a virtual road map to start-up success.
David Ben Daniel Professor of Entrepreneurship, Cornell University An invaluable, practical guide for high-tech entrepreneurs.
Chong Huai Seng Publisher, Asian Entrepreneur A must-read for entrepreneurs, angels, and venture firms seeking the best practices.
Les informations fournies dans la section « A propos du livre » peuvent faire référence à une autre édition de ce titre.
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