Several articles have lately been speaking of decline in the
VC culture and performance. These
arguments posit that the VCs are (a) not backing truly disruptive innovation,
(b) sprinkling capital across too many young companies that are founded on racy
hope, not viable business models, and (c) investing in a vast number of me-too
ideas that smack of Wall Street’s momentum-driven culture. You know, grab a fast mover and sell off to
the next fool before it starts to crash.
These discussions are fueled by multiple trends. One is the hyped up valuations of social
networking companies, both in public and private markets, that defy measurable metrics
and financial logic. Though a handful of
companies have generated remarkable returns for a handful of VCs, most
observers see signs of a boom-to-bust cycle rather than a sustainable return to
healthy investments and returns.
The other is lackluster financial performance of the venture
firms in the last decade. A recent report
by the Kauffman Foundation, the entity that founded the Kauffman Fellowship
program to train the next generation of VCs, highlights the sub-par
distributions from their investments in venture firms.
