The Venture Capital Capital Calamity Thing

Yo, BusinessWeek, the Trouble with VCs is not a new story. And Web 2.0 is not a “legitimately exciting frontier”. Nevertheless, it is good fun reading this wildly bearish piece about the venture capital business. It touches on some legit issues, and will get attention. The VC industry is at a crossroads, no question, but things also look way worse than they are if you look at the VC biz solely through an IT lens.

It’s not that venture firms are destitute. They’ve got plenty of base hits. But the home runs are increasingly elusive. And venture capital is a home-run business, where the top 10% firms make up nearly 80% of the returns.

Internally, many investors are worried that only a handful of firms will break even on the current crop of funds, much less post stellar returns. In hushed conversations over breakfasts at Buck’s and lunches at the Sundeck, VC veterans are wondering aloud whether they should get out, or, after years of playing boardroom quarterback, whether they’ve still got the chops to actually build a startup.

However you slice it, unless something changes, venture capital is in for upheaval. Some venture capitalists are going to find themselves out of a job. Overall, the industry may become more the font of outsourced research and development for big firms and less the breeding ground for the next great tech powerhouse. And returns will be lackluster for the majority of firms left out of the best deals.


  1. a) yes – i often imagine that the irr’s from t-bills are higher than those of many vc firms
    b) i expect home runs to pick up – obviously google was a post-bubble home run, skype, while not in the same category, was a home run for investors, i can see facbook being a home run for investors (although not so much the next great tech powerhouse) there seem to be a reasonable flow of $500M acquisitions, which will certainly keep vc’s in business – and even the $300M range like a zimbra is nothing to complain about
    definitely hitting singles won’t cut it, but as long as there is there is some volume of doubles and triples with the occasional home run vcs will be in good shape.