Is The Venture Capital Party Over?
party over
Mark Twain famously said “The reports of my death are greatly exaggerated.” Such is the case for the demise of the venture capital industry.

Wired Magazine recently wrote about the end of the party for venture capital based on several factors. Most notable was the premise that VC has thrived because of access to easy money and that was attributed to QE or quantitative easing by the Fed over the last decade.

The problem with “analysis” like this is that its usually written by journalism majors with little to no actual business experience. Does this mean they are wrong? Not necessarily, but conclusions like that from Wired ignore history and a bigger picture.

Are there more venture capital firms and Excel masters than the market demands? Probably. There has been a mad rush into VC over the last decade and it drew thousands of fund mangers with little to no business building experience. They thought the key to VC was found in spreadsheets and due diligence insights. Most missed the key and their fund performances reflect this.

The founding of Venture Capital in the US is usually attributed to Georges Doriat. In the modern era there are few firms more synonymous with VC than Kleiner Perkins and Vanguard. They all shared a key trait that few VCs today posses … they were entrepreneurs first and investors later. They were also investing their own money to start. They weren’t Philisophy and Economics majors from Stanford who thought business success came from Bootcamps and sitting on boards.

Is the industry going to go through a correction? Likely. There is a saying that anyone can raise a first fund. Few can raise a second fund. Why? Because the second fund relies heavily on first fund performance and the math is not good for most VCs. That said, there is still a massive amount of capital in the sidelines by all accounts. And its looking for yield in alternative investments….aka “private deals”. So, VC isn’t going anywhere, but there may be a big shuffling of the chairs.


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