There are some savvy comments in a TheDeal piece about “the anointed” venture investing firms — Sequoia, Kleiner, etc. — and whether such firms will continue to dominate the industry. Consider this musing on firms and returns from an endowment fund manager:
This fund manager believes that beyond a handful of firms led by Kleiner Perkins and Sequoia, a firm’s reputation is not at the fund level but at the individual level. “Kleiner fishes in a very well-stocked pond. If you take one partner at the firm other than John Doerr and put him in a no-name firm, he probably won’t do as well. But take someone at a no-name firm and put him in Kleiner, and he’ll probably do better,” he says.
More importantly, there is the issue of whether serial persistence of returns — the best VC funds staying best — will continue. Will there, instead, be a lead swap as the prior generation of monied VCs move on and the next generation, many of whom are not at the marquee venture firms, take their place?
Even as the [venture] industry has grown and matured, the elite performers have outperformed the rest of the industry over and over again. Recently, Palo Alto, Calif.-based Focus Ventures found that the same small group of firms has consistently created a significant share of the industry’s profits over the last two decades.
The report suggests that the same small group of firms is likely to dominate the next cycle of wealth generation as well.
But will that prove correct? With the venture capital industry in a state of flux, some insiders argue that there is less certainty that previous performance is an adequate predictor of the future. Indeed, there are signs a major shakeout is unfolding, as more prominent firms break up or restructure and new firms spin out.
“There was a fair amount of stability in the 15 years leading up to the last bubble, but the post-bubble period this time has been, and will be, a great deal less stable,” says Clint Harris, managing partner at Wellesley, Mass.-based Grove Street Advisors…