The Top Venture Capital Firms ("VC") Firms
Official Ranking with List by Assets and Investor Performance
The Top Venture Capital Firms in America
Venture capital firms receive capital from investors who already have wealth and want to grow more of it through non–traditional means. Then, they take that money and invest it into startup companies and other ventures that a traditional bank wouldn't be interested in, based on the risk. Investing in startup companies can be a risky proposition, and not for the faint of heart. Still, many people do it because they know that the rewards for success can be lucrative. Some venture capitalists just take their own money and invest it, but some form firms that use their money and that of others, and then choose where to invest based on consensus.
A number of factors make a great venture capital firm. The success it has with investing is important, but other factors have to be considered in order to determine why a VC firm is successful and what it can offer to investors that other firms may not. What makes a successful VC firm? What do these firms do differently that catapults them to the forefront of their industry? Those are questions both investors and startups want answers for, but those answers may not be as clear–cut as one would expect. Some VC firms stand out, though, and understanding what they do and how they do it can help investors get a handle on what makes a good VC firm and how these firms attain (and retain) their success.
1. New Enterprise Associates (NEA)
NEA is located in Menlo Park, California. In 2014, its early–stage deal count was 44, and it had just over $690 million in early–stage investments. The company operates in the United States, Asia, and Brazil, and focuses on a number of industries, not restricting itself to just one or two areas in which to invest. Common industries for NEA to invest in include communications, energy services, networking, software, IT services, healthcare supplies and devices, biotechnology, pharmaceuticals, refining, production, and the exploration of energy services.
Throughout 2014, the VC firm worked with a number of different types of startups that showed a great deal of promise. These included Fire1, a developer of therapeutic medical devices. NEA also worked with Jet, a company involved in e–commerce and focused on how to address the logistics of doorstep delivery for online retail companies, along with the distribution of those items. Another deal was with Lumena Pharmaceuticals, which develops oral medications used specifically to treat a rare liver problem in adults and children called cholestatic liver disease.
Branching out into different countries and industries seems to work for NEA, indicating that the focus is not on an industry or region but on something else the startup is offering. A unique business idea – or one that can be executed better than the competition – is important, but there is more to investing than that. The owners of NEA see something in the startups they invest in, whether that's a great idea, a great founder, or something less tangible.
Sometimes, a gut feeling is all that's needed in order to want to invest in a startup, although successful VC firms will analyze that feeling to ensure that it matches with a realistic level of risk and reward.
2. Kleiner Perkins
Kleiner Perkins, also located in Menlo Park, California, made 33 early–stage deals and $490 million in early–stage investments in 2014. It invests in many of the same types of industries as NEA, including computer hardware, healthcare supplies and devices, biotechnology, pharmaceuticals, and software. The company also focuses on commercial services, financial services, and media. It prefers to do business in the United States and China, and has had recent deals with Farmers Edge Precision Consulting, Chill, and Crossfader.
Kleiner Perkins is investing in almost the identical industries that NEA is targeting, putting the two VC firms in direct competition with one another for the best and the brightest of startups. This competition is good for the startups, too, because they have the opportunity to get more than one investment firm focused on what they have to offer. The more companies that decide to invest in a particular startup, the better off that startup generally is, and the more likely it is to succeed, all other things being equal. Rapid developments and advancements are taking place most frequently in the categories where Kleiner Perkins shows the most interest. That indicates a good strategy on the part of the VC firm, because it is involved where the action is, providing more value for those who provide their money for investment.
Kleiner Perkins did face many headwinds in 2014 and 2015 with litigation from a former associate named Ellen Pao, but you can expect them to rebound.
3. Andreessen Horowitz
Another Menlo Park, California, company, Andreessen Horowitz, had 50 early–stage deals in the works in 2014, for a combined total of just over $1 billion in early–stage investments. The company is large and well–established, and wealthy individuals who want to build more wealth into their portfolios know they can come to this VC firm and trust what it provides. It focuses its efforts entirely in the United States, and limits itself to only a few industries, such as software, consumer products and services. CipherCloud, Zenefits Insurance Services, and Optimizely are recipients of recent deals.
The focus of this VC firm is different from some of the others, as it operates only in the United States, and its universe of target industries for startup funding is limited. Still, there doesn't seem to be any shortage of startups for Andreessen Horowitz to fund, and the company has the capital to back up its interest in software, services, and consumer products. One of the reasons it has plenty of investor opportunities is the breadth of the categories on which it focuses. Consumer products and services, for example, offer latitude for investors and good opportunities for funding startups.
While it looks as though this VC firm doesn't have enough options because of its limited geographic area and restricted areas of funding, it has done well for itself and its investors. Becoming one of the top–rated VC firms takes time, and it doesn't happen by making bad decisions or investing in companies that don't perform well. Andreessen Horowitz knows what to look for in a startup, and it shows in its success rate.
4. Khosla Ventures
Founded in Menlo Park, California by Vinod Khosla, Khosla Ventures had 45 early–stage deals and early–stage investments totaling $809 million in 2014. This VC firm focuses on China and the United States as its preferred regions for investing, and sticks to startups in the software industry. Recent deals include Datera, Summon, and Tule Technologies. Sticking to one industry could seem like a bad choice, since it limits opportunities, but that hasn't appeared to slow Khosla Ventures. Instead, the firm has continued to add more deals and more startups to its list.
One of the reasons that sticking to a specific industry works for this VC firm is that it helps Khosla fine–tune its methodologies and or how it plans to move forward. It can learn everything about a particular type of industry and spend its time focused on what that industry is offering in the way of startups, instead of having its hands in many arenas. It is often easier to focus on just one type of industry. Technology, in particular – and especially software – is an industry that is growing with amazing speed. In order to keep up with that industry, it may be necessary to stay out of others.
The founder of Khosla Ventures is why the VC firm is successful. We have met Vinod and admire his ability to make deals happen.
5. SV Angel
SV Angel is located in Palo Alto, California, and was founded by investors, Ron Conway and David Lee. It had 47 early–stage deals in 2014 and early–stage investments of $736 million. The company is focused only on commercial services and software and operates only in the United States. It further narrows its market by emphasizing Silicon Valley, San Francisco, and New York. Harry's (specialty shaving equipment) and Delighted (one–click customer survey tools) are a couple of companies with which it has reached recent investment deals.
That sharpened focus ensures that the VC firm is taking on only the best startups for its investors. Not every investor is comfortable taking risks in multiple sectors, so it's possible to reduce the risk to those investors by ensuring that they receive an opportunity to invest only in specific sectors. By limiting the scope of its investing even further – to certain geographic areas – SV Angel is indicating that it believes the best startup opportunities for investors will come from those areas. That can backfire for some VC firms, as they will miss out on important opportunities for investing. However, this model of limited geography and limited industries appears to be working well for SV Angel. For investors who want to focus only in certain regions, or who see growth as coming from only a specific industry, VC firms like SV Angel are often the right choice. That way, investors won't be asked to put their money into industries in which they don't see a potential for growth and a high level of return on their money. The level of trust that develops can keep investors coming back to the VC firm, and allow that firm to grow larger and fund more startups in the future.
We are a big fan of David Lee, and his ability to invest in startups and master them.
* * *
Learn about how to invest in top startups and get our exclusive ranking of the best VC firms in the world: