The Twilight of Venture Capital

It’s not often you have a former member of the Forbes Midas List of top venture capitalists declare finis to his own business. That is, however, what happens in a new post by ex-VC Bill Stensrud, formerly of Enterprise Partners.

In the post Bill says that the venture business is driven by new generations of tools — platform technology that allow new generations of companies to rapidly come to market exploiting gains made by prior generations. That is what happened, Bill argues, in semiconductors, software, etc., where people with new tools got to confront old problems, with the result being profits to entrepreneurs and VCs alike.

But that is no longer the case, and people are being forced to use old tools, with calamitous results:

The waterfall of new tools that started with the transistor in the 1960s has slowed to a trickle. The technology is, as a result, consolidating with a handful of monster players controlling the path to market for almost all technologies. Refining the old tools has become a business requiring massive injections of capital and long incubation periods. A new startup “has to be really smarter than the rest of the folks because everyone has this tool”. There are a few of these but nowhere near enough to support the massive scale that the Venture Capital industry has achieved. As a result there are billions of dollars chasing a small and declining base of quality deals.

… I know of no example of an industry which conducted an orderly and systematic downsizing when the opportunity it addressed disappeared or radically changed. We can look around at the auto and recording industries for recent tragedies. The Venture Capital industry is no exception. Instead of recognizing the hand writing on the wall, VCs are inventing new places to put money and trumpeting the “opportunity” they represent.

What industries? Well, cleantech for example.

Is there a market for Clean-tech? Possibly? Will there be a few companies created which succeed. Probably. Is there a fundamentally new tool that creates the dynamic required for a large scale venture capital industry to thrive and provide good returns? NO!!

Read the whole thing here.

Related posts:

  1. The Venture Capital Capital Calamity Thing
  2. What’s Broken, Venture Capital or Venture Capitalists?
  3. The Institutionalization of Venture Capital
  4. The Venture Capital Cargo Cult
  5. Venture Capital Investment in India