Bill Burnham has a thoughtful piece up about how hedge funds are quietly becoming a competitive threat to venture firms. As Bill says, the economics of both dictate it becoming more likely — a VC focus on management fees combined with a hedge fund’s more flexible comp model.
As some of my readers will know, there are already sizable hedge funds out there doing fairly traditional venture investing, so this isn’t entirely new, but it is a useful look at a fast-changing market.
The biggest issue, of course, is cultural. Having become accusted to high liquidity and fast portfolio turns, few hedge managers are going to be very entertained by five-year holds to an uncertain exit.