If you’ve ever been turned down for funding by a VC, take heart. A recent HBR article says many of them appear to be no better at spotting winners and creating returns than the stock market, writes Hugh Mason.
The message of authors Joseph Ghalbouni and Dominique Rouziès to VC’s in a recent HBR article is damning. In a phrase:
Shape up or ship out.
I’m indebted to David Straker of Changing Minds for this excellent summary:
- Venture capital hasn’t worked for a decade.
- Quarterly IRR has been in single figures or even negative.
- Investing in VC firms has been no better than equities.
- From 1980 to 1997 VCs posted average quarterly returns of 22%.
- Problems were caused by internet.
- Where over-zealous investments hurt the golden goose.
- VC must be radically restructured if it’s going to influence innovation and give solid returns.
- IPOs (main profitability source) are fewer and further between.
- Time to liquidity has been lengthening.
- Alternatives, such as angel investors, are gaining favour.
- The best investment prospects are going elsewhere.
- ‘VCs must double their returns on investors’ capital, significantly scale up the VC asset class, or face the prospect of the industry’s shrinking in half.’
- ‘To make the math work in the current climate, the VC industry must, above all, get smaller
- Think first about how to help the CEO build a great company.