Chat Transcript: Author Randall Stross
July 13 -- The current high-tech boom owes much to venture capitalists, the people who put the money behind the ideas. Get an insider’s perspective on the workings of one of the most influential Silicon Valley firms, Benchmark Capital, the venture capitalists who backed such notable start-ups as eBay, Webvan and Ariba. Randall Stross, the author of eBoys, chronicled the two years he spent in the inner sanctum of Benchmark Capital, where he had unfettered access to the firm, sitting in on monumental decision-making sessions and gaining insight into the way venture capitalists work. Stross joined us today in an online chat.
Moderator at 2:59pm ET
Welcome to ABCNews.com's chat with Randall Stross. Let's begin.
Moderator at 3:00pm ET
How were you able to get such open access to Benchmark Capital? Did you encounter any resistance to your idea to cover the firm?
Randall Stross at 3:01pm ET
It took me a long time to persuade the partners to let me undertake the project -- 18 months from the time I first approached them to the time they consented. I think if I approached them today when they are much bigger and much better known, they would probably say no. By tradition the venture capital industry has been closed to outside observation and I happened to catch benchmark early in the firm's history when it wanted to shape itself and I think it viewed breaking the taboo of not permitting outsiders to observe was one way of shaking things up.
George at 3:02pm ET
What specifically does a VC look for in a new Internet startup before investing and what kind of investment pay off is expected?
Randall Stross at 3:02pm ET
Well the simplest way of answering is to say that the venture investor is looking for a very large opportunity.
Randall Stross at 3:02pm ET
And they will turn down good ideas that address small markets. They're looking for good ideas that address big markets.
Randall Stross at 3:03pm ET
But what makes it tricky is its the nature of this business to invest in new markets that don't yet exist, or there would already be incumbents and little opportunity for new entrants.
Randall Stross at 3:04pm ET
They're also looking for entrepreneurs who possess the right stuff, who will be able to reinvent the company three months after the initial investment when prior assumptions are proven wrong and the new company has to be conceived on the fly.
Randall Stross at 3:04pm ET
Oftentimes you hear venture capitalists refer to they're investing in the person.
Randall Stross at 3:05pm ET
The returns have until recently been expected to be at least a 5x return in three years. For a brief time in the heady days of 1998, the threshold climbed to something like a 10fold increase in three years and that was actually realistic, briefly.
Randall Stross at 3:06pm ET
But, as a general point, venture capitalists measure gains in terms of multiples, not in terms of mere percentages. And again, the only way you have a chance of attaining such rapid large gains is by entering businesses that do not yet exist.
Keith Holmes from proxy.aol.com at 3:06pm ET
Dear Randall, Given the recent tech shakeout in the NASDAQ market, what should a startup company know about the current state of VC money. Thanks
Randall Stross at 3:08pm ET
