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A History
of
Venture Capital
Hervé Lebret
January 4, 2007
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The Ancestors
pre - 1958
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1957 – The Traitorous 8
Shockley was so difficult with his colleagues that 8 left Shockley Labs. to create a new company
The eight men were Julius
Blank, Victor Grinich, Jean
Hoerni, Eugene Kleiner, Jay
Last, Gordon Moore, Robert
Noyce and Sheldon Roberts.
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1957 – Arthur Rock
Arthur Rock, a banker on the East Coast, is contacted to help them raising $1.5M; an amount he will find in the person of Sherman Fairchild, the largest individual shareholder of IBM and owner of Fairchild Camera. In 1957, Fairchild Semiconductor is founded.
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And also …
Georges Doriot (a Harvard professor) founded American R&D in 1946 in Boston.
ARD DGA
William Draper II (VP Dillon Read), Rowan Gaither (founder of Rand) and Frederick Anderson (retired general) launch DGA with Rockfeller Group money in 1958
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The Ancestors’ investments
Fairchild Semiconductor was very successful and reached 12,000 employees but the founders were bought back their shares by Fairchild… they still became wealthy.
ARD financed High Voltage (a $1.8M return for a $200k investment) and Digital Equipment in 1957 (a $70k inv. worth $355M after 14 years).
ARD stopped in 1972.
DGA seems to have been less successful though
and closed in 1969 when Rockefeller withdrew.
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The First Generation
Part 1
1958-1965
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The First Generation
Davis joined Rock. They raised $3M with Moore, Noyce, Kleiner among others
1961 - Davis & Rock
Tommy Davis, a Harvard-educated
lawyer and then vice president of Kern
County Land Company. Davis wanted
to leave the Land Company because it
had little interest in high-technology
investments though Davis had already
made a successful investment in the
high-technology firm, Watkins-Johnson
Both Rock and Davis are Harvard
Alumni, and Rock was a student of
Doriot
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The First Generation
Bill Draper III who was working since 1958 with his father at DGA and Pitch Johnson (a former Doriot student) launch the Draper & Johnson investment company
1962 – Draper and Johnson
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And also…
Reid Dennis goes back to 1961 to remember
the time he persuaded his then-employer to
make its first venture capital investment,
although the Fireman's Fund Insurance
finance committee didn't call it venture
capital. It was a "special situation."
Don Lucas a General Partner at DGA will
help in the restart of National in 1967; at that
time, he has already left DGA to invest on his
own.
“The Group” is an informal group of
individual investors including Dennis, but
also John Bryan, Bill Edwards and others
Reid Dennis, Don Lucas
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Some 1st gen. investments
1961-1965
Fireman's Fund Insurance invested $1
million in an optical-character recognition
company, Recognition Technology. “At the
height of the market, that investment was
worth over $40 million, which, in the 1960s
was an outstanding performance. By the
time it was all over, Fireman's probably
realized a $15 million or $16 million profit on
the investment.”
Rock & Davis $3M fund returned $100M. It
invested in Scientific Data Systems (SDS), a
company Xerox bought to compete against
IBM, in Teledyne (ex-Amelco) and later in
Intel when Moore and Gordon left Fairchild.
One member of “the Group”,
Dennis, investment was $10-
20k? in Ampex which will be
worth $1M in the end.
Don Lucas invested in the restart of National. Much later, he
invested in SDA (Cadence) and Oracle. He also seems to have
been a mentor to Costello and Ellison, 2 famous entrepreneurs.
Draper&Johnson will invest in
Tandem
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The First Generation
Part 2
1965-1972
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The First Generation
Johnson and Draper go on their own: Johnson launches AMC - the Asset Management Company (still active)
1965 – Sutter Hill, AMC
Draper launches Sutter Hill (also still in business) with Paul Wythes (Beckman, Honeywell) and acquires the assets of J&D. Bill Draper will have a long career and will also launch Draper International in 1996 and Draper India in 2001.
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The First Generation
Tommy Davis leaves Rock to create Mayfield with Wally Davis (no family relation). First fund is $3.5M.
Rock may have helped in the creation of Venrock, the Venture arm of Rockfeller.
Arthur Rock will go on his own and still does with A. Rock and Co.
Rock is to become the VC icon (Time Front Page in 1984)
1969 – Mayfield, Venrock
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The First generation
1970 – Palo Alto Investments
Jack Melchor who had founded MEL Labs in 1956
and
Burt McMurtry after 10 years at Sylvania
found together
Palo Alto Investments
The company will return $100M out of $3.3M in investments like Rolm, Triad,…
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Willian Elfers leaves ARD as Doriot does not let control and creates Greylock with Daniel Gregory and Charles Waite.
1965-70 - Boston The First Generation
(From left to right) Howard E. Cox, Jr., Charles P. Waite, Henry F. McCance, Daniel S.
Gregory, William Elfers.
C.Waite
W. Elfers
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1965-70 - Boston The First Generation
ARD alumnus Willian Burnes co-founds Charles River Venture in 1970.
ARD alumnus Peter Brooke (then at FNB Boston) launches TA Associates in 1968 as a division of Tucker Anthony, a regional investment bank.
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Some 1st gen. investments
1965-1972
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The Giants
1972-1978
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Kleiner Perkins
Tom Perkins (HP and former Doriot Student) and Gene Kleiner (Fairchild and Investor in Davis & Rock) raise together their first fund in 1972.
They consider themselves as the first VCs with an industry and entrepreneur background
1972 Thomas Perkins Eugene Kleiner
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Sequoia
Don Valentine, a co-founder of National and Fairchild marketing director creates in 1972 the VC arm of the Capital Group, later named Sequoia.
1972
About valuation “When people come as a team (usually it is three or four people and typically
heavyweight on engineering), it is a complex process. But I think all of us have seen it in the
earlier days, times when I can remember saying, "Well, look, we'll put up all the money, you put
up all the blood, sweat and tears and we'll split the company", this with the founders. Then if we
have to hire more people, we'll all come down evenly, it will be kind of a 50/50 arrangement.
Well, as this bubble got bigger and bigger, you know, they were coming and saying, "Well, you
know, we'll give you, for all the money, 5 percent, 10 percent of the deal." And, you know, that
it's a supply and demand thing. It's gone back the other way now. But, in starting with a team,
it's a typical thing to say, well, somewhere 40 to 60 percent, to divide it now. If they've got the
best thing since sliced bread and you think they have it and they think they have it, you know,
then you'll probably lose the deal because one of these guys will grab it.”
Transcript of oral panel – the Pioneers of Venture Capital – September 2002
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Kleiner Perkins
Perkins and Kleiner will be joined by Caufield and Byers (from AMC)in 1977 and the partnership
becomes KPCB.
30 years of activity
Later come
famous icons
John Doerr (Intel)
and
Vinod Khosla
(Sun founder)
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Sequoia
Joining Valentine, the firm will grow with famous to-become partners.
30 years of activity
Pierre Lamond (National) - 1981
Mike Moritz (Time Magazine) – 1986
Doug Leone (HP, Sun) – 1988
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The Reid Dennis Legacy
Reid Dennis, Burton McMurtry (Palo Alto Inv.) and Burgess Jamieson (Westven) found Institutional Venture Associates (IVA) in 1974
with American Express money.
David Marquardt joins as an associate.
1974
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The Reid Dennis Legacy
1976
Then Dennis launches Institutional Venture Partners (IVP) in 1976.
The same year, McMurtry and Marquardt found Technology Venture Investors (TVI)
with James Bochnowski (Shugart Assoc.)
Later join Pete Thomas (Intel), James Katzman (Tandem) Robert Kagle (BCG)
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The Giants success stories 1972 and after
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Some investments of the Giants
1974 and after
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Hits and misses
from a couple of interviews
Venture Capitalist First Big Hits First Big Miss
Arthur Rock SDS, Teledyne Bool and Babbage, Compaq
Pitch Johnson Bool and Babbage, then Tandem
Bill Draper Qume Apple
Burton McMurtry Roam Tandem
Dennis Reid Recognition Technology
Don Valentine Atari but also Apple, Cisco Sun
Tom Perkins Tandem Apple
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The Maturity
1978-1993
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The new players
1978
Founders
Dick Kramlich (Arthur
Rock & Associates )
Frank Bonsal (Alex
Brown)
Chuck Newall (T.
Rowe Price)
1976
DuBose Montgomery was a
founder of Menlo Ventures in
1976. Carlisle joined in 1982
and Jarve in 1985
Ed Glassmeyer co-
founded in 1978 with
Stewart Greenfield of
Oak Investment Partners.
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The new players
1981
Bill Bowes is the founder and
prior to founding USVP, Bill
was the founding shareholder
(and its first employee) of
Amgen
1982
Paul Ferri, a venture capitalist for more
than 30 years, was the founding partner of
Matrix Partners in 1982. Prior to Matrix, he
founded Hellman Ferri Investment
Associates (1977 to 1982) and was a
general partner of WestVen Management
(1970 to 1978).
Sevin Rosen was founded in 1981 by
L.J. Sevin (Mostek) and Ben Rosen (TI)
1981
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The new players
1983
Bill Davidow, SVP
Sales & Marketing at
Intel launches MDV
In 1979, Adler & Company of
New York established an
office in Silicon Valley. In
1983, two Adler partners,
James Swartz and Arthur
Patterson, spun-off to create
the bi-coastal firm, Accel
Partners, having offices in
New York and Silicon Valley.
1983
1984
Gregory Avis Roe Stamps Stephen Woodsum
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The new players
Tim Draper (3rd gen. Drapers; from Alex Brown) founds Draper associates
and is later joined by
John Fischer (from ABS ventures) and
Steve Jurvertson (HP)
1985
David Morgenthaler
founded the firm in 1968.
Morgenthaler began
raising institutional funds
in the 1980s
1984
Rick Frisbie, founder of
Battery Ventures
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Some investments 1978 and after
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The New Kids
Around the Block
1993-2005
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Benchmark Capital
1995
In 1995 Bruce Dunlevie and Andy Rachleff, two veterans of the industry (from MPAE, Merill
Pickard, Anderson & Eyre), 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.
Bruce Dunlevie Andy Rachleff
Bob Kagle Kevin Harvey
David Bierne
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August, Foundation
Lightspeed, Redpoint
Redpoint was founded in 1999 by top
partners each from Brentwood Venture
Capital and IVP
The VC arm of Weiss, Peck & Greer
Venture Partners (1971) spun-off in
October 2000
Marquardt (TVI) & John
Johnston (TVI, H&Q) launch August in 1995.
Jim Anderson (the A in MPAE), Kathryn Gould (Oracle),
Bill Elmore (Inman) launch Foundation in 1995.
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Some investments 1995 and after
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Some historical and economical
perspective
1959-2005
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Some key drivers
1957: some great IPOs: HP, Varian
1958: The SBIC (Small Business Investment Corporation) act provides federal fund matching and will enable the dramatic increase of venture capital. The different structures of VC funds (LPs,…) probably had an impact of its dynamics.
1974: The oil crisis together with the new ERISA act that mandates criminal penalties for pension fund managers who lose money with high-risk investments nearly stops inv. in venture capital
1979: A new ERISA act which decreases fiduciary responsibility together with a good IPO market in 1980 (Apple, Genentech) creates a new inflow of money
1983: Too much money for two many companies: the Disk Drive companies crash. Venture Capital matures in the 80s. The semiconductor industry competes with Japan and lay-offs. The crisis will end with…
1993: the beginning of the Internet
What is the real impact?
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ARD DGA The Group
& Fireman
Greylock
Don Lucas
Arthur Rock
CRV
TA Assoc.
Fairchild
KPCB
Intel
Johnson
Draper &
AMC
Sutter HillMayfield
VenrockPAIHP
National
Sequoia
Rock
IVA
IVP TVI
NEA
BankAmerica
(Westven)
MatrixMDV DFJ
BenchmarkAugust
Redpoint
Davis &
MenloOak
USVP
Accel
Summit
Morgenthaler
Battery
Bryan&
Edwards
MPAE
Foundation
Lightspeed
Sevin Rosen Brentwood
1960
1970
1980
1990
A genealogy
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The SBIC Ups & Downs
Source: Creating Modern Venture Capital: Institutional Design and Performance in the
Early Years by Caroline Fohlin
1959-1993
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Median re t urns of vent ure capit a l
-5
0
5
10
15
20
25
30
35
1973 1975 1977 1979 1981 1983 1985 1987 1989
year
The maturity The 1980’s
Source: The Rise and Fall of Venture Capital, Gompers
The late 80s brought maturity, but
was also a big crisis for
technologies. The semiconductor
companies cut their work force
and the technology & VC sectors
suffered until 1993 or so.
0
1
2
3
4
5
6
7
$ B
illio
ns
1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993
Year
Ne w C om m itm e nts to V e ntur e C a pita l Funds in C onsta nt 1 9 9 3
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The Impact of Venture Capital
Source: The Rise and Fall of Venture Capital, Gompers
1993
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Median I RR ( % )
-30
-20
-10
0
10
20
30
40
50
1985 1987 1989 1991 1993 1995 1997 1999
Year
The Internet bubble
Source: The Venture Capital Industry Report, Dow Jones
The recent numbers may not be accurate as they are too recent;
they however some negative effects of the Internet bubble.
The 90s enthusiasm and 00s crisis Median m ult iples ( 'x ')
1.8
1.61.7
1.9
1.71.6
2.3
2.1
1.6
2
2.2
2.8
1.4
1.1
0.60.7
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
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0
500
1'000
1'500
2'000
2'500
3'000
3'500
4'000
4'500
1971 1976 1981 1986 1991 1996 2001
0
10
20
30
40
50
60
70
80
90
Nasdaq (end year) VC funds ($B)
1
10
100
1'000
10'000
1971 1976 1981 1986 1991 1996 2001
0.01
0.1
1
10
100
Nasdaq (end year) VC funds ($B)
The Nasdaq and the VCs 1971-2006
Natural scale
Log scale
1974: the oil crisis and ERISA act
1990: US recession and
declining IRRs
1984: the HDD crisis
2001: the Internet crash
Source: Compilation HL
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A chronology of funds (1/2)
Fund number and year of creation
Source: Compilation HL
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A chronology of funds (2/2)
Size of funds (in $M)
Source: Compilation HL
Notes
1: fund 2000 back to $471M
2: fund 2001 back to $830M
3: fund 2001 back to $450M
4: fund II (1981) $45M, III (1984) $126M
5: fund 2000 back to $600M
6: fund 2000 down to $650M, then $450M
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TOP US VCs
0
2'000
4'000
6'000
8'000
10'000
12'000
14'000
16'0001
98
6
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
Year
$M
Mohr Davidow
Redpoint
DFJ
Benchmark
USVP
Crosspoint
Brentwood
Accel
Sevin Rosen
Oak
Sierra
NEA
Matrix
CRV
Austin
Sequoia
Onset
Interwest
Menlo
IVP
Battery
Mayfield
KPCB
A subjective “Top VC” list
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And the returns?
Although the data are not so easy to obtain (the numbers below are not fully consistent…), the VC world has generated exceptional returns. The individual success stories are known. Some previous slides give some more numbers. The reader can compare to the typical Wall Street numbers…
Exceptional IRRs
Source: Compilation HL
Source: Compilation HL
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Israel
1992-2005
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The Israel VC size
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The largest Israel VC funds
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Israel success stories
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and Europe?
1972-2006
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A list of European funds
Source: Compilation HL
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Timescale
1996-2005 Source: Compilation HL
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Timescale
1996-2005
-
1'000
2'000
3'000
4'000
5'000
6'000
7'000
8'000
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
€M
Wellington
Viventures
Ventech
TVM
Sofinnova
Siparex
Quester
Prelude
Polytechnos
Partech
Partcom (Iris)
Nordic VP
Logispring
Kennet
Innovacom
Index
IDG
Holland
Gilde
Galileo
Eqvitec
Ealy bird
DVC
DFJ eplanet
Doughty Hanson
Crescendo
CDC Innovation
Capricorn
Capman
Benchmark
Banexi
Auriga
Atlas
Apax GE
Apax FR
Apax UK
Amadeus
Alta Berkeley
ACT
Accel
3i
Source: Compilation HL
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And a few people
a relatively recent activity
Founded in 1972 by Christian Marbach and Antoine Dupont Fauville
with strong links in the USA: Peter Brooke and Jean Deléage (TA
Associates) will be critical. 22MFF helped by a law on Venture Capital.
The first attempt of Doriot in the UK, Technical Development Corporation, launched in
1962, was sold at a loss to the ancestor of 3i. A second attempt in 1965, European
Enterprises Development (EED), set up in Paris, was more successful despite an
unsupportive environment. The financial uncertainties of mid-70's led it to stop its
activities in 1976. Its example however had led a number of institutions to get interested in
the activity. From 1977, the EEC started to study action plans to finance enterprises, inter
alias high tech start-ups.
http://www.europeanvc.com/history.htm
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And a few people
a relatively recent activity
http://www.europeanvc.com/history.htm
TVM launched
in 1983 with €87M
Sir David Cooksey was the Founder of
Advent Venture Partners in 1981 and was
Chief Executive from 1981 to 1987 and
Chairman from 1987 until his retirement in
2006.
Bryan Wood
Founder 1982
Michiel de Haan
Founder 1980
Vincent Worms and Thomas McKinley
1982
Founded in 1945 by British banks;
the 3i group was created in 1987
when the banks sold their stakes to
a public limited company. A US company created in 1969 by
Alan Patricof which has a
European presence since the 80s
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1997
1998
2001
2000
And a few people
a relatively recent activity
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Some European deals
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Some historical perspective
archive.org
1996-2000
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From archive.org
logos and pictures
Johnson
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From archive.org
logos and pictures
Before founding MDV in 1983, Larry
was a General Partner, Vice President
of Hambrecht & Quist
Robert Barrett, one of
the founders of Battery
Richard Frisbie, a founder
of Battery
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From archive.org
logos and pictures In 1985, Timothy C. Draper left Alex. Brown & Sons to become the third generation of venture capitalists in his family with the
formation of Draper Fisher Jurvetson. Tim restructured a family-owned Small Business Investment Company (SBIC) that had
been set up by his father in 1979. Using SBA leverage, he created a highly successful early stage venture capital fund. Since
then Draper Fisher Jurvetson has become synonomous with early stage (start-up) venture capital. Among other successes,
Tim Draper was a founding investor in Parametric Technology, Digidesign, Parenting Magazine, Upside Publishing, and PLX
Technology
From left to right: Dulenvie, Rachleff,
Kagle, Harvey, Beirne and Val Vaden