The VC Way: Investment Secrets from the Wizards of Venture Capital

Rating:
Summary: Venture Capital 101 (Not Suitable for Individual Investors)
Review: In The VC Way, Zygmont delineates the common character traits of venture capitalists. In that task Zygmont does a credible job, having interviewed a number of well known VCs such as James Swartz (Accel Partners) and Donald Valentine (Sequoia). His prose is well-balanced between commentary and primary data, and this book will serve as a good primer on the VC world for those that are seeking either VC cash or employment.

If you fall in either category, you should consider purchasing the book. Among other things, you'll learn the following:

(1) Venture capitalism is a competitive industry where VCs are effectively "money salesmen" selling money in exchange for a equity stake

(2) The Internet is not a technological revolution but simply a new communications medium. In that way, it was appropriate that there were a spate of ideas generated by MBAs with no technical background, because the Internet is a marketing revolution rather than a technical one.

(3) The personality of the entrepreneur is critical. In particular, VCs look for energy, conviction, and above average intelligence ("smarter than the average bear"). Educational pedigree matters because it's just another filter the person has gone through.

(4) VCs are willing to step in and make changes. Zygmont cites the common example of Donald Valentine (Sequoia) replacing the founders of Cisco with more able managers.

(5) VCs have specific domain expertise (the "big picture knowledge" about an industry including the trends and competitive pressures that an entrepreneur might not be aware of.

(6) VCs market themselves as well as the companies that are parts of their portfolio. Zygmont raises the example of Ann Winblad's Tuesday Madness college business plan competition.

(7) Entrepreneurs must be optimistic. Izhar Armony (Charles River) in fact equates optimism with entrepreneurialism.

Unfortunately, the book does not target itself to the proto-venture capitalist or entrepreneur but instead the individual investor. Zygmont touts the book as a "precious resource for anyone who wants to imitate the strategies and successes of these money masters." I believe that this was a marketing mistake that was driven by the need to differentiate itself from the myriad VC 101 books on the market today and capitalize on the personal investment boom.

Be forewarned: VC investment strategies cannot be profitably be applied by the individual investor. By the author's own admission:

(1)"A venture capitalist is closer to the mutual fund manager than he is to the pick-your-own stock shopper, especially if you're talking about the manager of a focused fund." Only those with sufficient cash basis can afford to spread their money across the recommended 10 minimum investments.

(2) "Involvement and participation in the companies they invest in is key to top-shelf VCs". However, unless you are Warren Buffet, it is highly unlikely that you as a individual investor will be able to cajole your way into a company's board room.

Ergo, if you want to learn more about VCs and know very little about the industry, buy this book. If you are individual investor, however, I would find very little in this book to recommend.

Paul Erdos

Rating:
Summary: Useful, though limited in scope and somewhat dated
Review: This is a decent first book for those trying to get into, or familiar with, the VC field. It contains behind-the-scenes stories of what makes a VC successful. It also contains different viewpoints from a variety of individuals; this bandwidth is good to provide the reader. The author is obviously a fan of venture capital, but he provides ample justification for his view by presenting numerous tales of the important role VCs play in entrepreneurship in this country. This book can be highly useful, as long as the potential reader is aware of what this book does and does not discuss.

Thus, the reader should be aware that this book is almost completely focused on communications and high-tech industries - primarily the internet, software, and IT. There are exactly four pages total devoted to two other major areas of VC interest and investment: healthcare and the life sciences. Although these areas take much longer to bear fruit, they can provide longer returns - often due to the patent protection they provide - compared with the areas discussed in this book. Such companies have longer life-spans before they have revenue, generate a product, or are a candidate for a liquidation event. The skills necessary for this type of investment are not directly addressed here. Finally, the author is somewhat dismissive of these two areas since they are rarely the billion-dollar deals he tends to dwell on. Consequently, the directory of firm provided at the back of the book are absent of the major players in healthcare and life sciences - such as MPM, which is a billion-dollar fund.

The book was published in 2001, and that could explain why it is so consumed with communications and high-tech. The past few years have been very difficult for those starting and funding new companies, and readers limiting themselves to this book will get somewhat historical - rather than current - information.

Finally, for some reason, the author occasionally drifts into social commentary, as when he describes one company located in a not-so-great neighborhood. He describes the music playing in that area as "some variant of trailer trash rock or hip-hop."

Rating:
Summary: Actually, A Variety of Ways
Review: Zygmont offers "investment secrets from the wizards of venture capital" but I think the greater value of the book is the direct access it provides to the minds of various VC decision-makers as they interact with him in casual but remarkably candid conversation. "This book is about their methods." There are no "secrets", per se. "This book also compares [and contrasts] venture-investing rules and principles to general investing practices. The idea is to let general investors mine for insights that might help them when they're putting together their own portfolios." Zygmont organizes his material within 12 chapters and then offers his conclusions about "The Composite VC" followed by a list of VC firms and investor and entrepreneur resources. His formula is really very simple and straightforward: "Ask them." He interviewed a number of the most successful venture capitalists who, at the time of the interviews, were associated with the most prominent VC firms. What do they share in common other than the obvious (intelligence, courage, ability to tolerance risk, high energy level, etc.)? Commitment, idealism, honesty, charm, pride, and reverence (or humility). This book will be of greatest value to those who are preparing to seek venture capital, obviously, but can also be of substantial value to senior-level executives who ask this question: "What would a venture capitalist have to say about my company?" Although the responses from those whom Zygmont interviewed would probably vary, perhaps significantly, all would probably ask essentially the same questions before making an evaluation. If you share my high regard for this book, I urge you to check out Done Deals and Inside the Minds.