According to a 2009 Global Insight study, venture-backed companies accounted for 12.1 million jobs and $2.9 trillion in revenue in the U.S. in 2008. In the last 30 years, the US venture capital industry has established itself as bedrock of innovation-led growth of the US economy, and a model of success that other countries around the world have sought to emulate.
In recent years, however, phlegmatic returns have given rise to the criticism that the US venture model is bloated, or at worst, broken. I came across a recent paper published by veteran industry researchers – Professors Steven Kaplan of University of Chicago and Josh Lerner of Harvard University – that counters that notion. They contend that the industry may be strongly positioned for the years ahead. Some interesting findings are –
a) Historically, the industry returns have been strong when LP commitments have declined. This suggests that 2009-2010 vintage year funds should perform well.
b) Major corporations are reducing their central R&D facilities and are instead relying on acquiring technology through purchase of small entrepreneurial companies. This is a positive long-term trend for the venture capital backed companies.
I hope that asset allocators at big pension funds and endowments will take note of this study and resume at least a modest level of capital commitments to the venture capital. We all know that the incessant debates and stimulus measures coming out of Washington DC will not alter one important fact about our economy. Innovation and small businesses are the most important drivers of national jobs and prosperity, and we need a well functioning venture capital industry to keep that 'little engine' running on track.
I also came across an interesting survey of large pension and endowment managers conducted by colleagues in the Kauffman Fellowship program. It has been featured in the September issue of Venture Capital Journal. The survey concludes that the investors are willing to support funds established by experienced managers and are favoring smaller VC funds with late stage/ growth equity strategy. They have a penchant for US based funds, but many would like to reap the benefit of stronger growth in the emerging markets.
These are sage words. Hopefully our confidence in US innovation and venture capital will return soon.
In recent years, however, phlegmatic returns have given rise to the criticism that the US venture model is bloated, or at worst, broken. I came across a recent paper published by veteran industry researchers – Professors Steven Kaplan of University of Chicago and Josh Lerner of Harvard University – that counters that notion. They contend that the industry may be strongly positioned for the years ahead. Some interesting findings are –
a) Historically, the industry returns have been strong when LP commitments have declined. This suggests that 2009-2010 vintage year funds should perform well.
b) Major corporations are reducing their central R&D facilities and are instead relying on acquiring technology through purchase of small entrepreneurial companies. This is a positive long-term trend for the venture capital backed companies.
I hope that asset allocators at big pension funds and endowments will take note of this study and resume at least a modest level of capital commitments to the venture capital. We all know that the incessant debates and stimulus measures coming out of Washington DC will not alter one important fact about our economy. Innovation and small businesses are the most important drivers of national jobs and prosperity, and we need a well functioning venture capital industry to keep that 'little engine' running on track.
I also came across an interesting survey of large pension and endowment managers conducted by colleagues in the Kauffman Fellowship program. It has been featured in the September issue of Venture Capital Journal. The survey concludes that the investors are willing to support funds established by experienced managers and are favoring smaller VC funds with late stage/ growth equity strategy. They have a penchant for US based funds, but many would like to reap the benefit of stronger growth in the emerging markets.
These are sage words. Hopefully our confidence in US innovation and venture capital will return soon.
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