What’s Broken, Venture Capital or Venture Capitalists?

It is interesting watching the growing schism between each side of the “is venture capital broken?” debate. On the one side you have VCs saying that “something is rotten” and venture capital returns cannot recover without a new, hot sector and without an IPO market. On other side you have people saying that the returns are available, but onlyin new sectors, in new geographies, and so on.

Here is Steve Jurvetson on one side:

“Does the model need to change? The answer is yes but in a completely
different area – expanding inter-nationally. As we look back over the
last six years, the lion’s share of gains have come from China. Next
would be Europe.”

And here is Steve Dow on another:

“There are lots of [places] to put money,” he said recently. “This is a
discussion about an industry and an asset class which has focused too
much on putting money to work and not enough about how to create

And here is Accel’s Joe Schoendorf putting all the mopey behavior in historical context:

Mr Schoendorf says the industry is in its fourth downcycle since he
first came to the Valley in 1966. “This one is probably not yet as bad
as the one in the 1970s. The one in the 1970s lasted a decade. We had
such an excess and what you are going to see is a lot of people who
can’t raise their next fund.

So, is it that venture capital is broken, or is it venture capitalists who are? I increasingly lean to the latter, with too many partnerships disconnected from entrepreneurs and pining for the low-capital, CRM-centric days of yore. Yes, while there are plenty of problems with the venture business, I bet they feel a lot worse if you’re sitting around in a boardroom waiting for the second coming of Siebel.


  1. having raised a fair bit of of private and public equity funding over the last 10 years i have been able to observe the VC mindset in feast, famine, and what I would call subsitence mode. the feast mode between 98-2000 was invest alot, take a lot of crap from the entrepreneur because you didn’t someone else would. once the bubble burst we had the famine time, nuclear winter – everything was destroyed and nothing would grow – duck and cover! the overhiring within the VC community as well as the dilution of the gene pool was laid bare – natural selection took over (to some degree) and now we have VC 2.0. leaner, definitely a bit meaner – and not nearly as much fun as before. i can’t put my finger on it, but something is missing. but for the money, the value add just doesn’t seem to be there anymore. of course that will always exist with firms like Kleiner, Seqouia, etc. where they hold all the cool baseball cards – but that makes for a rather incestous playing field. not sure what to do about it.

  2. I think it is both. VC funds are huge and perfect for infrastructure invesments but not for the low-capital startups of today. VCs – there are too many and they run together like herds (not packs :-)spoiling the markets for each others’ me-too client companies.

  3. It could be a good time to be an Angel investor. Especially in the tech space. We’ve definitely seen a few VC firms move towards these types of smaller investments in a larger amount of deals.