Book Review: The Little Book
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The title of the book may be The Little Book of Venture Capital Investing: Empowering Economic, but Louis Gerken delivered quite a large amount of venture capital (VC) coverage. The dramatic success companies like Google, Facebook, and Apple have given venture capital an aura of glamour and huge profits. The reality of VC and business start-ups is more complex and challenging. The role of companies coming out of this process has been transforming our lives. It fits in with the increasing popularity of entrepreneurship, which is now an important alternative career path. Entrepreneurship and business start-ups have moved from the creative fringes into the mainstream of what financial professionals need to learn about.
The author is very well qualified to be our guide into venture capital. He is the founder of Gerken Capital Associates, an alternative asset fund manager. Previously he was Group Head of Prudential Securities Technology Investment Banking Division, oversaw Wells Fargo's venture capital business, and was co-founder of a technology consulting firm. He brings to this book his hands-on experience, and broad knowledge of the VC world. His goal (which is achieved) is to give the reader an "insider's view of how VCs work."
Louis Gerken takes the reader on a historic journey as venture capital went from wealthy families like the Rockefellers and Whitneys, to the West Coast technology investors, and recently to a decentralized structure which now includes angel investors and accelerator funds. A big jump took place when funding started to come from institutions and high-net worth individuals. This was accompanied by the structure of General Partners and Limited Partners.
The intense professionalism is illustrated by the VC process of evaluating often thousands of proposals to make 3 or 4 investments. Even with all this investigation by experienced VC operators, there is a lot of challenge and risk. Forty percent of investments lose money, 40% break even, and 20% are profitable. The risk of capital loss in the initial seed stage is estimated at 66%. These sobering numbers are worth considering as most media coverage of business start-ups stress the big winners, and very rarely mention all the losers.
Venture capital as a business and career is relatively small, and very specialized. As Don Valentine of Sequoia Capital notes "You have to be interested in managing change." The VC firms "face enormous competition for the finite pool of investment capital that is available." On the plus side, those involved accumulate expert knowledge and hard-to-duplicate networks. They bring more to the table than just money: "Most important is our ability to identify companies where we can invest not only our financial capital but equally important, our intellectual capital."
The areas of change and future growth for the VCs include medical innovation, 3D printing, social media, and the cashless society. Clearly VC is for people who try to spot the coming technologies, new and changing economic sectors, and profit big time from this. Every day we see these changes covered in the media, and in our lives. The Little Book of Venture Capital is an invaluable book for NYSSA members to profit from the future.