Venture Capital and Silicon Valley have a close and long-standing relationship. It is hard to imagine one without the other.
Venture Capital refers to the practice of funding risky start-ups in exchange for equity. The best venture capital firms, such as Omega Venture Partners, tend to be experienced, highly–connected with industry and investors, possess a long-term orientation, and are actively managing their portfolio companies.
Venture capital is often the first source of outside funding for new and emerging companies.
What are the key differences between Series A and Series B?
At the Seed Stage, a company is in its infancy, often just an idea or patent. The founders are typically a respected team in the industry and ready to capitalize on personal pain-points, industry experience, and / or a timely insight.
At the Series A stage, a company is ready to take the leap towards a product, wants to scale its reach, or wants to make a splash.
At Series B level, there will likely be other investors involved, and the company will have proven its model. However, do note that at Series B, the company is not yet mature enough to hold its own (therefore it still needs some growth capital), and investors should be prepared to “hold onto their seatbelt”.
Why is Venture Capital Important to the US Economy?
According to the National Venture Capital Association, for every $1.00 of venture capital invested in 2009, companies created an estimated 5–6 jobs and generated approximately $2.22 billion in annual revenues. Additionally, every $1.00 of public venture capital injected into a company led to 15 jobs and an additional $1.91 in revenues for the economy.
The results of the Kauffman Foundation Study (2009) on job creation by startups show that newly founded companies are responsible for nearly all net new job growth. For the period from 1977–2004, new businesses accounted for all net employment growth. In fact, 70 percent of all new employees were employed by a firm less than two years old.
The key is to understand that the capital markets exist because people are generally risk-averse and oftentimes need considerable dollars to establish a business and take risks. Venture Capitalists help finance a company’s growth by investing money at an early stage to fuel growth.
Why Is Silicon Valley the Heart of Venture Capital?
Silicon Valley has a unique history that is key to understanding the origins of venture capital. To understand why Silicon Valley is considered the heart of the tech industry, one must understand the history of Silicon Valley, venture capital, and why it is considered a major financial hub.
In 1959, Fairchild Semiconductor Corporation made a $70,000 investment in an unknown business founded by two former Shockley Devices Group workers. Fairchild Semiconductor was the first semiconductor business in Silicon Valley to be backed by venture capital.A few years later, this small firm, which was originally funded by Fairchild Semiconductor, namely Intel Corporation, is now one of the most financially successful companies of all time.
This investment was made on the basis of a management plan and not a business plan. It was made due to the belief of one of the investors—Julius Blank, who would later become a senior executive at Bell Labs—that Noyce, the co-founder of Fairchild Semiconductor, would be able to manage technological change. The investor’s expectations were based first on a belief in the engineering creativity and managerial skills of Noyce and his colleagues. The original investor bet was also based on a vision for future technological developments in semiconductor technology and the computer industry.
Over the years, Silicon Valley has evolved considerably, with many other companies joining the club in the late 1970s and 1980s, such as Apple Computer. In the past couple decades, venture capital in Silicon Valley has grown exponentially.