I attended the MIT VC Conference this past weekend, and there has been a fair amount of PR/controversy from the opening discussion. Several well known (and quite successful) venture capitalists were answering a series of questions pertinent to the venture industry and relevant to technology entrepreneurs. The panelists addressed the issue of weather or not the venture industry is in a crisis and if so does the VC industry need to reinvent itself.
The resounding answer was that, yes, the industry needs to reinvent itself. Then there was a long discussion on the issues and what caused the current situation, with some of the general consensus being that there was too much venture capital money in the system chasing too few good investment opportunities, thus destroying returns for the industry as a whole.
I’d agree with that. In fact, I’d hope that people would want to emulate the venture capital industry. Why? Because it shows that the industry is getting has gotten good returns and thus, others want a piece of the action! If the VC industry was total crap no one would want to invest their money in the space. I’d rather be in an industry that everyone wants to be in…
Think about where the venture capital funds come from - usually large pension funds and endowments. These are managed by professional money managers, who seek to create returns for their stakeholders. Pretty simple. If they see good investment returns from a specific sector they will seek to put more capital to work in that sector. Venture had good returns for a while, and so money flowed into venture capital funds, thus depressing returns. If the venture industry had always stunk, no limited partner would have allocated capital to it. The VC industry is a victim of its own success.
So, venture capital funds will have to reinvent themselves. This is exactly what venture capitalists have been asking of their entrepreneurs - the reinvention of large industries through innovation.
I’m pretty sure we can do it. And I’d be bored to be in an industry that was fat and happy.
