Paul K, a colleague at Kauffman and relentless blogger, published a brilliant short paper on the venture industry today -- RIGHT-SIZING THE U.S. VENTURE CAPITAL INDUSTRY. It's must reading for the charts alone. A snippet:
External capital is sometimes required by some private companies in their early stages, and it is good that there is a class of professional investors with enough financial resources to provide that assistance when it is needed. However, venture capital and entrepreneurship are separate phenomena, even among growth companies, and conflating the two, let alone implying that the former causes the latter, is untrue and unhelpful.
My frustration with the VC mytique is the persistent belief that it is the foundation of entrepreneurship (hey, that's a good tag line ...). Most of the folks I know in this world acknowledge that the trend is to invest in later stage companies. I hear the word profitable a lot. A profitable startup is not a startup. You can have profitable companies or startup companies. Not both.
Paul's paper focuses much more on the hard numbers at stake in contrast with the low returns. I agree, but still wonder if Sarbox isn't killing the startup scene (including VCs).
Agree mostly. ( I believe you can have a profitable startup and that growth rate is the key factor ).
Anyway, I also think there has been too much venture capital chasing too few great opportunities and too few great entrepreneurs. The dot com bubble was a perfect example of this -- 3x as much money but not 3x as many smart people ).
I have see way too many companies with "good ideas" funded on the way to burning all the cash. NO wonder 1 of 10 make it.
Posted by: Michael Pochan | June 16, 2009 at 12:27 PM