The Little Book of Venture Capital Investing: Empowering Economic Growth and Investment Portfolios

I’m a recent college graduate and am working for a prominent member of Congress. In my role I hear so much about the challenges of finding jobs and about how hard it is to access capital for funding ideas that have the potential to grow into companies that create job opportunities for millions of Americans. This book by Lou Gerken is a great read for anyone interested in turning their own dreams, or the dreams of others by means of investing, into a lucrative business. It is my hope that more understanding of how VCs can serve as a valuable tool for economic growth will lead to a stronger economy and a better country for us all.

Makes the history of venture capital investing interesting with stories about various serial entrepreneurs. Never realized how many of the big tech crazes were results of V.C. investing. Great overview of the industry without being overly technical or bogged down. Agreed with the persistent perspective that new businesses are catalysts for economic growth, and how regulatory/governance issues, purposely or not, are hindering small business development currently. Exciting industry to learn about and see the inner workings of. Great starting point for anyone interested in starting your own business, working in the VC industry, or simply curious about the process of how a lot of businesses are funded. Definitely recommend it as an enjoyable and informative read.

i buy and read every book connected to Value Investing (Buffett: “What other type of investing is there?”).This book added to my knowledge and will return its cost many many times over just from Chapter One -A historic overview of Venture Capitalism-. I sincerely thank Sacred Traders for suggesting this book, like ,any others; please keep them coming…..

The book is a comprehensive review of the venture capital industry and provides insights for investors on how to participate in it; it also offers interesting advice for fund managers in raising capital and improving the investment process. Lou Gerken is at ease in explaining success stories and failures, and shows how to learn from both. However, one area where the book doesn’t go deep enough is whether investing in venture capita funds is today worth the associated risks: the only statistical evidence offered is a single page summary of returns prepared by Cambridge Associates but those statistics are biased because they do not include the negative returns of the funds that failed and also are deeply affected by the selection of the reference periods and of the benchmarks. If it was possible to access the internal statistics of some of the largest investors, such as CALPERS (more than € 60 billion invested in hundreds of private equity and venture capital funds in a period of 20 years), one could have a truer view of the trend in average returns to investors because they are based on hundreds of investments of different vintages; those statistics normally show that in recent years (i.e. after 2004) the returns have decreased to the point that, considering the risk involved in venture capital and private equity, it may no longer be wise to invest in that sector. The venture capital and private equity professionals, both on the side of the limited partners and of the general partners, obviously do not share that view, which would mean the end of their jobs; they claim that recent results are affected by the J curve (i.e. in the initial life of the fund there are many costs and no exits, and the investments made are valued at the initial book value, thus underestimating –hopefully- the value creation underway) and, most importantly, they claim that all the funds that have been affected by the 2009/10 crisis (i.e. almost everyone) should not be counted in the statistics because of the unprecedented and non recurring situation of the crisis. The common belief is that sooner or later the average returns will match the confortable double-digit levels of 10 years ago; that is a real leap of faith and the book doesn’t explain why it should be so. It is quite possible that today’s external conditions are substantially different than yesterday’s; in the end, making money in an industry (adjusted for risk) depends on the demand/supply in that industry, i.e. whether there is an oversupply of capital chasing a limited supply of deals, and the size/duration of the unbalance. Up to 2008 there was an irrational exuberance that allowed many venture capital funds to be quite successful and the big question is if that condition is present today or will continue in the future.
Gerken however offers an interesting insight on how to select the fund managers that have the highest probability of making money even if the industry itself doesn’t offer the expectation of returns higher than the cost of capital. That part is the most valuable and original contribution of Gerken, and it quite credible because it is based on his successful professional experience.