Contrary to popular perception, venture capital plays only a minor role in funding basic innovation. Venture capitalists invested more than $10 billion in 1997, but only 6%, or $600 million, went to startups.

The majority of that capital went to follow-on funding for projects originally developed through the far greater expenditures of governments ($63 billion) and corporations ($133 billion).

We estimate that more than 80% of the money invested by venture capitalists goes into building the infrastructure required to grow the business—in expense investments (manufacturing, marketing, and sales) and the balance sheet (providing fixed assets and working capital).

the venture capitalist buys a stake in an entrepreneur’s idea, nurtures it for a short period of time, and then exits with the help of an investment banker.

Usury laws limit the interest banks can charge on loans—and the risks inherent in start-ups usually justify higher rates than allowed by law.

Historically, a company could not access the public market without sales of about $15 million, assets of $10 million, and a reasonable profit history.

One myth is that venture capitalists invest in good people and good ideas. The reality is that they invest in good industries—that is, industries that are more competitively forgiving than the market as a whole.

we estimate that less than 10% of all U.S. economic activity occurs in segments projected to grow more than 15% a year over the next five years.

Growing within high-growth segments is a lot easier than doing so in low-, no-, or negative-growth ones, as every businessperson knows.

a consistent pattern of capital allocation into industries where most companies are likely to look good in the near term.

the critical challenge for the venture capitalist is to identify competent management that can execute—that is, supply the growing demand.

Timing Is Everything.

More than 80% of the money invested by venture capitalists goes into the adolescent phase of a company’s life cycle.

the venture capitalist’s challenge is to identify entrepreneurs who can advance a key technology to a certain stage—FDA approval, for example—at which point the company can be taken public or sold to a major corporation.

investment bankers’ commissions are typically 6% to 8% of the money raised through an IPO. Thus an effort of only several months on the part of a few professionals and brokers can result in millions of dollars in commissions.

The preferred provisions offer downside protection.

the presence of several VC firms adds credibility. In fact, some observers have suggested that the truly smart fund will always be a follower of the top-tier firms.

In return for financing one to two years of a company’s start-up, venture capitalists expect a ten times return of capital over five years.

the fund typically pays for the investors’ annual operating budget—2% to 3% of the pool’s total capital—which they take as a management fee regardless of the fund’s results.

The investors get 70% to 80% of the gains; the venture capitalists get the remaining 20% to 30%.

On average, good plans, people, and businesses succeed only one in ten times.

VC reputations are often built on one or two good investments.

nearly all basic research money, and therefore invention, comes from corporate or government funding.

the United States is unique in its willingness to embrace risk-taking and entrepreneurship.

Leaving and returning to a corporation is often rewarded.

every company goes through a life cycle; each stage requires a different set of management skills. The person who starts the business is seldom the person who can grow it, and that person is seldom the one who can lead a much larger company.