In Randall E. Stross' book "eBoys: The First Inside Account of Venture Capitalists at Work," we have the opportunity to get inside the heady world of Silicon Valley's venture capital industry and take a firsthand look at how ventures are backed, built and sold, enriching the founders and venture capitalists beyond anyone's wildest imagination.
The mecca of venture capital has long been Sand Hill Road in Menlo Park, Calif., where dozens of firms operate quietly but effectively within shouting distance of one another. In 1995, Bruce Dunleavie and Andy Rachleff, two veterans of the industry, decided to create their own company, Benchmark. Their goal was to have a firm with a "fundamentally different architecture," with no one person at the top. The men had connections, money and their own brain power, and they immediately set to work.
They added two more partners to their ranks in very short order, Bob Kagle from the venture capital world and Kevin Harvey from the technology sector, and then brought in David Bierne, who had built a highly successful executive search business centered around technology.
Benchmark was a firm composed of equals--"communist capitalism," as one partner called it--that focused on the technology field in general and Internet firms in particular. These men were in the right place at the right time, but they also had the brains and the courage to take advantage of the situation before them. Thousands of business plans came across their collective desks, but they invested each year in only a handful and then only when all partners agreed.
Stross sat in on the group's discussions and was witness to their thought processes as they determined which companies to back. Why, for example, would the firm even want to consider investing a few million dollars in an unknown company that proposed to run a flea market on the Internet? Why, indeed? But the partners eventually invested $6.7 million in eBay in 1998. When the company went public in September 1998, Benchmark's stake was worth $400 million.
After Louis Borders sold his eponymous book store to Kmart, he decided to create an Internet site that would not only sell groceries, but would also provide delivery service. Benchmark provided the initial capital to Borders for what is now Webvan, another highly successful investment.
The partners of Benchmark were intimately involved in each of their portfolio companies, talking with the founders and advising them on strategy, recruitment and execution. They sat on their companies' boards, helped select the top management team, picked outside advisers such as accountants, lawyers and advertising agencies, and even helped choose sites for warehouses and distribution centers. We can almost imagine the partners at Benchmark feeling more of a sense of pride about the success of their portfolio companies than they do about the enormous returns they have managed to generate in the process.
For these men, it is not about the money. The partners at Benchmark don't seem to be interested in jet-set lives or collecting fine art. They express concern about the effect their considerable wealth might have on their children. They also show a healthy awareness of the fact that the market valuations for many of their portfolio companies were often higher than logic would dictate. As one partner says, "Has everyone forgotten we're in a totally hysterical market? Our companies are money losers valued at billions of dollars!"
These men live to find and nurture new businesses. As Stross puts it, "the venture guys...fund the brand-new and the not-yet-invented...It is the venture guys who fund and guide the companies whose technology is most likely to diffuse and endure in a historically significant way."
Stross concludes his book by writing: "The calendars of the partners, revolving as they did around looking at new business plans, meeting new entrepreneurs, considering new deals, gave a feeling of perennially beginning afresh. For them, it was the best place in the cosmos to get a first peek at the future."
This book is an excellent portrait of five men who have not only been highly successful, but who also seem to have their feet planted firmly on ground that can be all too shaky.
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