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The venture capital (VC) industry began in 1946 when Georges Doriot (whom many consider the “father of venture capital”) and others started American Research and Development Corporation, the first publicly owned venture capital firm. Arguably its best investment was the $70,000 it spent in 1957 to help fund Digital Equipment Corporation. Eleven years later, that investment was valued at more than $355 million after the company’s initial public offering.
Venture capital consists of funds obtained from backers that are invested in young, innovative companies (often in the tech and healthcare sectors) in exchange for an equity stake that hopefully can be translated into a profit when the company goes public or is merged with or sold to another company. The National Venture Capital Association (NVCA) reports that “venture capital is a catalyst for job creation, innovation, technology advancement, international competitiveness, and increased tax revenues.” Some of America’s most well-known businesses were founded with the help of venture capital, including Facebook, Apple, Amazon, Whole Foods Market, Google, FedEx, Starbucks, Staples, and Intel.
Associates, analysts, managing partners, general partners, and entrepreneurs in residence are the key players in this industry, but venture capital firms also need chief financial officers, controllers, accountants, lawyers, and marketing, public relations, computer security, information technology, and office workers.
Venture capital firms are located throughout the United States, although most are headquartered in major cities. There are also opportunities throughout the world—especially in Europe, Israel, China, and India. Most VC firms have fewer than 15 employees. In fact, the NVCA reports that the average VC firm had 7.1 principals, down from nearly 9 principals in 2007. Many funds have only a few partners and support staff (secretaries, receptionists, etc.). As a result, VC firms need new hires to hit the ground running and begin producing immediately. This means that there are few opportunities (except in support positions) for those with just a bachelor’s degree and no industry experience. Most venture capital firms seek workers with a college degree, plus several years of experience at a management consulting firm, private equity firm, or investment bank. Others seek experienced professionals from the information technology, health services, engineering, or biotech sectors, or offer partnerships to successful entrepreneurs who are in their 30s and 40s.
Venture capital partners have excellent earnings. In 2014, venture capital and private equity professionals with an MBA had average earnings (base pay plus bonus) of $296,155, according to the 2015 Private Equity and Venture Capital Compensation Report. Those without MBAs received $264,464. Partners in venture capital firms can earn tens of millions of dollars when a start-up goes public.
In 2014, venture capital firms invested about $30 billion into 3,665 companies, according to the NVCA, and new commitments to venture capital funds in the United States increased to $30 billion, up significantly from $17.7 billion from 2013. Fifty-seven percent of venture capital investment was concentrated in start-ups in California. The next most-popular states for VC investment were Massachusetts, New York, Texas, Washington, Illinois, Florida, Colorado, Utah, and Pennsylvania.
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