More Bubble Trouble for Venture Investors

There is a little talked about problem for some venture investors. Many made much money during the late-90s bubble and have struggled to perform since, but people still forgive them. Other funds made money before the bubble, but didn’t make much/any during it, and that is turning out to be a bigger program, with LPs looking askance at re-upping with them.

In a sense, it is the LP community saying “If you weren’t able to make money during the tech bubble, then without significant changes you don’t deserve to be in the business”. Trouble is, of course, significant personnel changes at a venture firm is another alarm. Look at what Matt points out is happening at Worldspan for a good example .


  1. Well, if you’re looking to “the LP community” for rational decisions, you are, IMHO, barking up the wrong tree.
    This is a (gross) generalization, I readily admit – – but the LP community has a greater financial interest in herd-like behavior than it does in original, “out of the box,” thinking.
    I haven’t a prayer of proving this here, but the risk-reward for most LPs (and their advisors) mitigates against stepping out of line. E.g., for a start: If everybody does the same thing, their decisions – even if a disaster – are defensible, and in particular, not fireable. After all, “Everbody else saw it the same way!…” And as long as you stay in the game – as an investment officer-type at a state PF, e.g. – you’re going to be in very, very good shape down the road.
    Among the ironies this entails: a) The contrast between this, herd-like behavior, and the importance of contrarian thinking to the success of (ahem) “real” investors; and b) the amounts of money at stake when you compare state PFs’ commitments to state PF investment advisors’ compensation schemes – and even what they can reasonably expect to trade up to in time.
    Most significant of all, however, is the surprising amount of American wealth – including, especially, retirement savings – that is managed less rationally than many (even very smart) people seem to appreciate.