Dana Mead: Understanding Venture Capital [Entire Talk]

Transcript

Dana. Thanks, Tina. Hi. So, Tina has told me, so far this year you've had all entrepreneurs, is that correct? So now you get to talk to someone that sits on the periphery of the ecosystem around innovation because entrepreneurs in our view, certainly in our firm, sit right in the middle and are the most important part of that ecosystem. We sit on o... Read More

Summary

This video is a conversation with Dana Mead, a venture capitalist at Kleiner Perkins. He discusses the role of venture capitalists in the innovation ecosystem, the areas of focus for their firm, and the process of investing in new ventures. He also talks about the growth and changes in the venture capital industry over the years and the unique characteristics of the innovation ecosystem in the Bay Area.

Questions & Answers

Q: What is the role of venture capitalists in the innovation ecosystem?

Venture capitalists sit on the periphery of the ecosystem around innovation, providing support services to entrepreneurs. They are like accountants, auditors, and lawyers, helping to move innovation forward.

Q: Can you explain what ventures Kleiner Perkins invests in?

Kleiner Perkins focuses on three practice areas: digital (including mobile and social), life sciences (with initiatives in cancer and stem cells), and Greentech (including hybrid cars and smart grid).

Q: What are some major investment areas in the life sciences practice?

In the life sciences practice, Kleiner Perkins focuses on areas like diagnostic devices, therapeutics, personalized medicine, and IT-enabled services. They have invested in companies like Teladoc for telemedicine and Awarepoint for real-time asset tracking in hospitals.

Q: Can you explain how venture capitalists get paid?

Venture capitalists receive a management fee based on the money they manage and a carry, which is a share of the profit made from successful investments. The management fee is typically a percentage of the managed capital (e.g., 2.5% of $100 million), and the carry is a percentage of the profit made from the investments ($100 million multiplied by the percentage share).

Q: What are the common entry points for venture capitalists?

There are three common entry points for venture capitalists. Some start with a good undergraduate degree, gain some experience, and get a graduate degree. Others start with a different level of operating experience (8-10 years) before joining venture capital. Some enter venture capital after 20+ years of operating experience, often after selling their own company.

Q: What are the three big buckets of activities for venture capitalists?

Venture capitalists spend their time on three main activities: looking at new investments, networking, and working with portfolio companies. The amount of time spent on each activity varies depending on the stage of the venture capitalist's career and the size of their portfolio.

Q: How do venture capitalists mitigate risk in new ventures?

Venture capitalists try to mitigate risk by identifying the major risks involved in a venture and finding ways to manage or minimize those risks. They look at technical and clinical risk, market risk, and management risk. Their goal is to solve for those risks before investing a significant amount of capital.

Q: What are some success factors for startups that Kleiner Perkins has invested in?

Some of the success factors Kleiner Perkins looks for in startups include passionate founders, large underserved markets, reasonable financings for both investors and entrepreneurs, a sense of urgency, and a focus on recruiting top talent. They also look for entrepreneurs who are focused on the big idea and making a difference, rather than just the exit.

Q: What advice do you have for entrepreneurs seeking venture capital?

Entrepreneurs should be balanced in their views, not afraid to talk about the risks, and show passion and optimism for their ideas. They should leverage their network for help and advice, be persistent, and focus on getting top people on their team. It's also important to create their own innovation ecosystem and surround themselves with people who are positive, enjoyable to be around, and excited about what they're doing.

Q: Why has the VC industry not done well in the last 10 years?

The VC industry has not done well in the last 10 years because there haven't been many three-year periods of high returns like in the past. The global financial crisis in 2007-2008 also had a negative impact. However, the industry is starting to improve, and there is optimism for the future. The scarcity of top tier firms has made it easier for them to raise money.

Q: What are the unique characteristics of the Bay Area's innovation ecosystem?

The Bay Area's innovation ecosystem has well-trained people, a capital infrastructure (including VCs and lawyers), collaboration, diverse populations, and a positive culture that encourages innovation and risk-taking. The proximity of people between 280 and 101 is also a unique factor that fosters collaboration and networking.

Takeaways

Dana Mead from Kleiner Perkins discusses the role of venture capitalists in the innovation ecosystem and provides insights into the venture capital industry. He explains the three practice areas of focus for Kleiner Perkins (digital, life sciences, Greentech) and the process of investing in new ventures. He emphasizes the importance of mitigating risk, the qualities of successful startups, and the unique characteristics of the Bay Area's innovation ecosystem. The VC industry has faced challenges in recent years but is starting to improve, and the Bay Area remains a vibrant hub for innovation.