Howard Anderson and Having Your Venture Cake

In an interview with venture guy Howard Anderson currently running on the Venture Capital Journal website, Dan Primack cites a comment made here. He asks Anderson about why he has left the venture business, having said that the industry has bleak prospects for at least the next five year.

Specifically, Dan asks Howard to respond to my point that the VC industry is become more institutional, efficient, and, yes, grown-up. Trouble is, Dan asks the question as if I’m saying that Howard’s criticisms of the venture asset class are incorrect because the industry is becoming more efficient.

Whoops, that wasn’t what I said/meant. While I disagree with Anderson that venture capital as a monolithic asset class was broken, I was arguing that the increased efficiency of the industry is one reason to expect that the venture asset class is nevertheless in for big changes. It ain’t a cottage/craft business anymore, much to the eventual chagrin of many of its participants.

To return to the Anderson interview though, he does make a fun point about carry and management fees. He argues that if people really believe in the venture asset class they should forego management fees and take another ten points of carry instead. How many VCs would take that deal and opt out of seven-figure salaries in hopes of bigger gains down the road? A vanishingly small number, Anderson rightly argues, and he uses that to make the point that if participants don’t believe in the upside from an asset class why should anyone else.

Fair enough, but many venture participants think they are already having it both ways. They think they will get the eventual upside, and they think that they can justifiably draw seven-figure salaries today. From their admittedly self-serving point of view, why change?


  1. Howard isn’t saying that “venture capital as a monolithic asset class is/was broken” either. He addresses that issue in his answer to the second question…

  2. Howard’s reasoning about management fees is faulty.
    It implies that entrepreneurs should also work for free in return for a better deal from their VCs. I don’t see that happening.
    Entrepreneurs need to put food on the table and save for the future and send their kids to college.
    Likewise, VCs need to put BMWs in the garage.