Wow, it’s been a while since I’ve seen a positive article on the VC market outlook (not since that nasty Kauffman Foundation piece, which I found really hypocritical*.)
Robert Ackerman has just written an article for peHUB on why he’s bullish on venture capital as an asset class. Of course, he’s an investor in technology growth companies, so he’s got a particular bias. However, I think he makes some great points about why VC isn’t lost as an area for LPs to put their capital.
- Innovation isn’t slowing down.”Groundbreaking developments in cloud computing, social media and mobile technologies are giving rise to an entirely new technology ecosystem. What’s really interesting is that innovation is pushing out in all directions simultaneously.”
- The VC overhang is …, well, over. The excess capital from the dot com era has finally been bled away, leaving a more correctly sized venture market. Check out the chart to the right that shows flip of dollars raised by venture vs. dollars invested – and the huge drop in both.
- Corporate M&A has picked up, with corporations basically, “corporations have made the strategic decision to cede research and development to innovative young companies, which they can then acquire at some period down the road.”
- Finally, Robert mentions the JOBS act. To be honest, I’m not sure what to think about this legislation. Supposedly it will make it easier for small companies to go public. I hope that’s the case!
Anyways, it would be good for innovation in the US if we had a healthy venture capital market. If we’ve finally worked our way through the bust of the dot com period, and worked our way through the slow mid 2000′s and maybe if the US economy is going top pick up, then it could be a good time to be investing in venture capital funds.
*Here is what I wrote as a comment on Pando Daily re: that Kauffman study:
@Eringriffith, I don’t get how an organization that has the stated purpose of promoting entrepreneurship is advocating cutting venture capital investments. Doesn’t that seem counter to the Kaufman Foundation’s supposed mission?
that’s a good question for them–in a way you could make the argument that advocating for the best venture capital promotes more rationalism in the market which makes it more for the entrepreneurs? but yeah it does seem like a paradox.
@eringriffith Pretty sure there is some Kaufman study somewhere that says “entrepreneurs say access to capital is one of the major challenges in starting and growing a business.” And weren’t they sponsors on the recent Startup Act that makes it easier for individuals to buy pieces of startups – the same types of investing that VCs make? But with less information, protective rights and without preferred stock usually? It’s ok for dentists to make these kinds of VC style investments, but not sophisticated limited partners of venture capital funds? I don’t quite understand this.