Why Venture Funds Don’t Want Your Cash

The ever-interesting Gary Rivlin includes a brief mention of yours truly in an article in today’s NY Times. It is on the current conflicting pressure on venture funds to get bigger (more money wants in) and get small (big funds underperform) at the same time:

Why Venture Funds Don’t Want Your Cash
By Gary Rivlin
Venture funds have started raising new funds in recent months, but if too much venture money chases too few deals, the industry may have another mess on its hands.

[Update] Various folks have sent notes saying that this all has more to do with competition-averse VCs than it does with fixing the “broken” economics of over-funded venture firms. I disagree.

While venture firms are no more fond of competition than the next profit-seeking sorts, venture capital simply stops working when there is too much money being thrown at the asset class. What is the incentive for CalPERS to allocate capital to the venture biz if they are only getting low teens returns on top of already-low liquidity? Having uncorrelated returns doesn’t compensate for risk-adjusted miniscule performance.


  1. George Bischof says:

    Nice quotes in the NYTimes piece. You make an assertion we believe in:
    The optimal fund size, Professor Kedrosky and others say, is a $250 million fund managed by four partners. “There’s 25 years of data that shows that funds roughly this size give the best returns, but it’s like everyone went temporarily nuts for a while,” he said.
    If possible I’d be interested in talking to you about your research. Thanks.