Venture Capital – A Lame Duck Industry?

Venture Capital In Deep Trouble?

Venture Capital In Deep Trouble?

There seems to be a fashion at the moment for a variety of poorly performing industries to try to thrust their collection plates under the noses of government ministers and expect a billion dollar credit crunch bailout package. In most cases its perfectly obvious to anyone with an ounce of sense that some businesses are just too dumb to stick around. That the US automotive industry has been losing money hand over fist for years will hardly come as a surprise to anyone arriving at an airport car rental lot with the keys to a Ford, Buick, Chevrolet or Oldsmobile – China has been making better quality vehicles for over a decade!

Perhaps next for the bailout will be the US Venture Capital Industry, which despite demanding massive returns in short order from entrepreneurs turns out to be in just as poor shape as Woolworths or GM. This recent article in Forbes Magazine illustrates how bad the situation is,  with even well known funds such as Draper Fisher Jurvetson, as well known for Skype, Hotmail and Baidu as their nanotech and synthetic biology investments,  struggling to return more than a couple of percent to investors.

As the Forbes piece and this graph  illustrates, venture capital has been in a terrible state for twelve years already, and for many funds which previously invested in venture funds, stashing the cash under the bed looks like a much safer bet! Certainly returns from management fees seem to have taken precedence over giving returns to investors, and if the CEO of GM were doing that I’d expect him to be in deep trouble with his investors

As I discussed in the recent article “Credit Crunch or Creative Destruction?мебели“, falling returns is the least of the VC industry’s problems, with many predicted to have trouble with upcoming capital calls.

As with many sectors of the economy we’ll see a shakeout. I’ve met and dealt with some great VCs over the last decade, but I have also been appalled by some of the pig ignorant egomaniacs the industry periodically attracts.  In any case, the VC industry has been telling entrepreneurs how to run their businesses for decades while neglecting to run their own. A shakeup should do the entrepreneurial sector a power of good.

If there are any VCs left, this is how to pitch them….

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