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VC industry dynamics
Lots of discussion these days about the changes in the VC industry.
What’s Really Going on in the VC Industry? What Does it Mean for Startups? | Both Sides of the Table
M&A will involve younger companies in the next 12 months, because big tech needs the new stuff, not the old. Electronic Arts buying Playfish for over $400 million, Google’s $750 million purchase of Admob and Intuit buying Mint for $170 million are three recent examples.
It’s finally happened: the venture industry’s 10-year index has turned negative. Not that it’s a surprise to anyone – this has been predicted for a while – but it is a milestone for an industry that has long boasted of outstanding returns that make a lack of liquidity worthwhile. By Russ Garland
Despite Short-Term Improvement, VC 10-Year Index Goes Negative -
Yale had phenomenal returns for many years (until this year, which was a disaster) and thus was copied by fund managers around the world. This created demand to invest hundreds of billions of dollars into VC funds. This in turn radically increased competition amongst VCs, thereby driving down their returns (public pension funds like California’s release the returns of their VC investments and they aren’t pretty ).
The decline of VC
Lindel pointed out that UTIMCO's portfolio return on all VC funds over the past 10 years was in the range of 9pcnt and that he thought that wasn't very good. He did point out that VC is well ahead of the public equity markets in their portfolio and so to the extent they have their equity dollars in VC (or other private equity), that is better than public equity right now.
Back to the roots?
I just came across a great report by Industry Little Hawk entitled the Venture Capital Rebound (pdf). In the report, the authors reach a similar conclusion to Paul Kedrosky (read Paul's great research for the Kauffman Foundation here ) -- that too much capital has gone into venture capital. Paul has argued that we need to shrink the amount of venture funding by 50% -- a statistic that almost every VC agrees with.
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Downsize the VC industry?
VC Diet Is Working
If VC investments go back up to $25bn to $30bn per year, then the diet didn't stick and we are back to an overfunded industry that will produce subpar returns on average.
3.8
VC's Cutting Their Fees (Wsj)
VCs take a paycut
The problem with VC Motivation
Thematic vs Thesis Driven Investing
Recent trends VC funding
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