Venture Capital - Extremely Efficient

I just finished reading Jeffrey Bussgang’s book, Mastering the VC Game. You can see the most recent books I’ve read or am reading in the sidebar.

It’s a great book for anyone who wants to get into Venture Capital, is looking to raise money, or just wants to understand how it all works.

I enjoyed the book. It’s a quick read. Jeff’s explanations are simple and straightforward. I especially liked his real world examples and interviews with the entrepreneurs.

One of the most compelling lines in the book was this one:

VC’s acting in concert with entrepreneurs function as an essential and powerful engine of the U.S. economy. In the forty years since the very frist venture-backed start-up–Digital Equipment Corporation (DEC), wich was founded by Ken Olsen with a $70,000 investment in 1959 and went public in 1968 with a market value of $37 million, a 528-fold return!–VCs have invested more than 441 billion in some 57,000 companies in the United States. More than 12 million people (about 12 percent of the U.S. workforce) now hold jobs and make career at venture backed companies, and those businesses have combined sales of 2.9 trillion or over 20 percent of the total business revenues in the United States. And the VC game has led to the creation of some of the most iconic of American companies: Amazon, Apple, eBay, Google, LinkedIn, Microsoft, Staples, Starbucks, Twitter and YouTube.

I found this to be very powerful. What drove it home for me is there are only approximately 880 VC firms in the U.S. This makes venture capital an extremely efficient economic driver.

Lately; the VC world and the Angel Investing world have been under fire. The American Jobs and Closing Tax Loopholes Act of 2010 is looking to change the way “carried” interest is taxed. The banking bill sponsored by Chris Dodd is looking to change the definition of accredited investors and eliminate pre-epmtion over state regulation.

It seems to me, despite the concerns over Wall Street, banking etc. Venture Capital is an area we don’t want to be messing with. It is a powerful driver for economic growth and job creation.

Venture Capital has created twenty percent of the total revenue generated in the U.S. and twelve percent of the jobs in the U.S., There are only 882 companies employing about 7,000 people. Venture Capital a tiny space that makes HUGE impact. Doing anything that impedes this efficiency is being short.

Venture Capital is about being long. It would be great to see the government go long for once too. Shorting is no way to regulate.

Let’s not throw the baby out with the bath water. As the old saying goes, if it ain’t broke, don’t fix it.