Musings on Entrepreneurship and Innovation
Wednesday, April 27, 2005The Center for Venture Education
Dr. Henry Kressel, a partner at Warburg Pincus, a global private equity and venture capital firm that has raised $19 billion since 1971, was recently quoted by Photonics Spectra as saying:
If you look at the senior roster at any of the venture firms, it has people who have been there, have done it, and when they work with new companies, they're credible. To get there through an apprenticeship is extremely rare.
Patrick Von Bargen, the new CEO of the Center for Venture Education (CVE), wants to make effective apprenticeships less rare. In the process, Patrick and his colleagues hope to increase the effective capacity of the venture capital industry and allow it to proliferate beyond the current centers in Silicon Valley, Boston, New York, and London.
The CVE was spun-out of the Kauffman Foundation with the mission to accelerate the development of a new, more diverse generation of venture capitalists through a highly tailored educational curriculum and by matching Fellows with mentors who are partners with active venture capital firms. Since 1997, the program has graduated 69 Fellows, 37 of whom have subsequently become general partners of venture firms such as Canaan Ventures, Venrock, TL Ventures, ARCH, USVP, and NEA.
Each class is limited to 15 to 25 Fellows, each of whom must have a graduate degree (preferably in business, science, or technology) and at least five years of full-time professional experience. The average age of this year's class is 36. The tuition for the 24-month program is $50,000, payable in advance. The educational advisory board that oversees the educational component of the program includes high profile academicians such as Tom Byers at Stanford, Steven Kaplan at the University of Chicago, and Jeffry Timmons at Babson.
Patrick joined the CVE as its new CEO in March 2005, after spending two years as Managing Executive for Policy & Staff at the Securities and Exchange Commission, where he reported directly to SEC Chairman Bill Donaldson. Prior to his tour of duty with the SEC, Patrick was Vice President of the Council on Competitiveness and, from 1999-2002, was Executive Director of the National Commission on Entrepreneurship, another Kauffman initiative. Before that, he was chief of staff for Senator Jeff Bingaman for 12 years. But, Patrick's professional roots are in, and around, the venture industry. Early in his career, he worked with Sequoia Capital and practiced venture law in San Francisco and Boulder.
On many occasions, I've made the point that less than 1/2 of 1% of startups in the U.S. are backed by professional venture capital. The primary reason is that VC isn't a good fit for the vast majority of companies. Part of the equation, however, is that some parts of the economy are probably underserved by venture capital, as evidenced by the emergence of firms such as Village Ventures and its affiliates.
The parochialism of venture capital is recognized by many but understood by few. A big part of the reason that venture capital sticks to places such as Boston is due to path dependence and reinforcing feedback: Emerging technology companies attracts VC, which attracts more promising technology startups. Parochialism is also a strategy to mitigate risk when operating in highly uncertain environment, because it facilitates the development and maintenance of trust. Nevertheless, there is an opportunity cost to parochialism: VC-backable businesses seem to be springing up everywhere.
Firms such as Warburg Pincus are well aware of this shortcoming and have expanded the scope of their operations by opening offices around the world. Others, such as Village Ventures, have developed formal networks of geographically distributed affiliates. Yet others, such as Garage Technology Ventures, have cultivated less formal networks. However, while geographic proximity addresses part of the issue, reliance upon social affinity among VCs is also a factor that strongly influences industry dynamics.
Dr. Kressel knows what a VC looks like: A VC looks like Dr. Kressel. The social closeness among the VC community helps foster trust, but it also limits diversity and, as a consequence, the industry has blind spots - a dangerous affliction in a rapidly changing world. But the homogeneity of the industry is reinforced by the absence of effective apprenticeship programs. Firms don't add or change partners on a whim. Even with the opportunities for change that a new fund brings, the names at the top of the page tend not to change quickly. Consequently, there is not much of a career ladder for aspiring VCs to climb. That means that when change is forced by time, VCs often have to look outside the firm and outside the industry for partner candidates. In such a high stakes/high requisite trust environment, it should be no surprise that firms choose new partners who "look like" the existing partners. By "looking like," I don't necessarily mean potentially superficial similarities such as age, sex, educational background, and ethnicity. Rather, I mean the more fundamental characteristics of how people think and who they know.
Knowing Patrick, I expect that the CVE will hope to influence the social dynamic of venture capital in a positive way by creating lower-risk ways for aspiring VCs and existing venture firms to get to know one another. The long-term consequences of CVE's success could include a more robust, diverse, and distributed venture capital industry.
I hope Patrick and his colleagues are successful.
