Top of the World: How Steve Jurvetson and Four More Broke Into Venture Capital

Steve Jurvetson's cover story in Red Herring: "Top of the World: How Steve Jurvetson and Four More Broke Into Venture Capital."

Jun. 12, 2006

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Even by the standards of business school, the lecture belabored the obvious. As the Northern California springtime sun washed over the Stanford University campus, two dozen students were in a classroom learning that people tended to associate with people similar to themselves. According to the professor, this trait brought both risk and rewards to venture capitalists, raising questions for VC firms looking to recruit new talent.

But instead of dozing off, or bolting, the students sat attentively, waiting for the man to exhaust his supply of PowerPoint slides. A guest speaker sitting at the front was generating excitement, and little wonder everyone stayed awake long enough for him to take his turn: Less than a decade ago, he had been sitting where these students were now sitting, and today his last name was the third name on the letterhead of a legendary Silicon Valley venture capital firm.

As the beginnings of a boom brightened the world of high technology, Steve Jurvetson was going to explain how one becomes a venture capitalist. The answer is not the same as it was only 10 years ago when Mr. Jurvetson made the jump from B-school to VC.

Venture capital is not the gated community it seems, but for maybe 40 years membership has been largely restricted to the entrepreneurial set: engineers, inventors, and deep-pocketed investors who preferred to sink money in technology rather than real estate or racehorses. That has been changing and so it seems fair to ask, what are the paths one takes to a lucrative career in venture capital-and what do VCs look for when they hire?

Had there been any African-Americans in the classroom when Mr. Jurvetson offered an answer, the news might have been disappointing. Mr. Jurvetson, a lanky man in his early 30s, put it bluntly. Ask a venture capitalist what sort of person makes the best VCs, and the venture capitalist will describe someone remarkably like himself, Mr. Jurvetson said. But Draper Fisher Jurvetson maintains a hiring philosophy that runs counter to the prevailing wisdom of Silicon Valley. DFJ actively seeks to roil its talent pool with young, risky hires, or so Mr. Jurvetson told the class. The firm looks for people who may have personal and professional histories that differ from the firm's top partners, he said. But that is rare.

Capital of Venture Capital

DFJ is located on Sand Hill Road in Menlo Park, which abuts Palo Alto, the home of Mr. Jurvetson's famous alma mater. Sand Hill Road, of course, is to venture capital what Madison Avenue is to advertising, or Savile Row to tailoring, and on Sand Hill Road it is a conceit that venture capital is a meritocracy where ideas and creativity trump pedigree.

A decade ago, most VC partnerships managed anywhere from $50 million to $100 million in assets, a big one perhaps $250 million or more.

Calling venture a cottage industry seems a little quaint now that it is professionalizing, but how about its claim to being a meritocracy? How does one become a VC in 2006? Mr. Jurvetson was unusual in going nearly straight from business school to apprenticing with his mentor, Tim Draper, whose father, Bill Draper, and grandfather, Gen. William Draper, were both VC pioneers.

Today, the paths to employment are more varied, as are the types of people seeking positions with them, but only to a degree. As Venky Ganesan, a partner at Globespan Capital, says, "Venture capital as an industry seems to have some kind of sex appeal." Given venture's paucity of women, you'd probably be right in guessing the appeal is more venal than carnal. Payoffs for VCs can be enormous, and a full partner can become very rich indeed. Typical salaries for GPs fall in the $200,000 to $500,000 range, with a shot at a chunk of the carried interest on top of that. That's the carry on a portfolio: while 70 to 80 percent of the carry goes to the LPs, there usually remains a multi-million-dollar chunk to be divvied up among general partners. And if you have a Baidu or a Skype in your portfolio, as Mr. Jurvetson does, an initial investment can end up being worth over $1.5 billion.

$2-million fee for a $100-million fund may have seemed a bit steep. A $20-million charge to manage a $1-billion fund was outrageous, especially when all the money went to a handful of general partners.

To justify their fees-and to vet the growing numbers of deals they needed to invest their vast pools of funds in-VC firms turned to business school grads. Unlike their predecessors, the MBAs often had no operating or investing experience, but they could crunch the numbers and provide the due diligence the I.Ps wanted.

For Mr. Jurvetson and his partners the difference between old hands and young blood is not just academic, it's what makes the industry interesting. Like Mr. Morgenthaler, Mr. Jurvetson's views are shaped by his own experience. He describes countless interviews with stodgy VC firms as a graduating Stanford Business School student in 1996. But all that was before he interviewed with Tim Draper.

During the interview, Mr. Draper took Mr. Jurvetson to a hockey game. Not one to stand on ceremony, the VC slid down one of the arena banisters, a feat that seemed to dazzle his young guest. "That's when I knew I found the perfect firm," he says.

Fresh Perspectives

In keeping with that quirky tradition, DFJ hires so-called associates and analysts whose job is to offer fresh perspectives on deals.

"In many cases their backgrounds are very different and they push out the matrix," says Mr. Jurvetson. The analyst positions are meant to be two-year stints to glean some real-world experience before business school. The associate positions at DFJ are, at least in theory, partner track, but in today's chastened environment, associate positions are harder to come by.