THE print hanging behind the receptionist’s desk at Foundation Capital screams,
“Our greatest thrill is to loan you money” — in chunky, capitalized red letters. That’s encouraging news for Michael Bauer, because he wants money and has put himself in a prime position to get it.
Mr. Bauer has set up shop on the second floor of Foundation Capital’s offices here to pursue his dream of creating an energy company from scratch. He pays no rent to operate out of the building, which is designed to evoke a Mediterranean villa. And he’s free to enjoy all the trappings of this venture capital firm, including its ample parking, woodsy surroundings and outdoor patio.
Mr. Bauer has won these cozy environs through a new role as an “entrepreneur in residence.” This coveted position, called an E.I.R. in Silicon Valley shorthand, is emblematic of the valley’s economy of ideas. Most E.I.R.’s receive a monthly stipend of up to $15,000 to sit and think for about six months. In return, the venture capital firm usually gets the first shot at financing the idea that emerges from this meditation.
“The E.I.R. takes out some of the risk because they are known quantities,” said Adam Grosser, a partner at Foundation Capital. “They have a track record of success and a proven ability to disrupt a market with their ideas.”
Venture capital firms have been struggling to find a company that will make them not just rich, but fabulously rich. They dream about investing in the next Intel, Apple, Sun Microsystems, Yahoo or Google. But after Google appeared in 1998, the hunt to find the next superprofitable household name stalled. The likes of Facebook and Twitter have garnered plenty of attention but have yet to strike on a business model capable of sending an I.P.O. into the stratosphere. Ten-year returns for the venture capital industry have sunk to 8.4 percent, annualized, in the decade ended last Sept. 30, from 40.2 percent in the 10 years ended Sept. 30, 2008, a number inflated by the spectacular success of Google and other dot-com companies at the beginning of that period.
The entrepreneur-in-residence model has gained prominence as a calculated way for a venture capital firm to nurture a successful company into being and to increase the odds of solid returns. The firms often tap someone who has successfully started and sold a start-up, hoping that lightning will strike twice.
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