Takeaway
- Industry survey shows venture capital industry is broken.
- VCs have few exits for existing investments.
- Funding gaps slow technology development.
A recent survey from executive search firm Polachi Inc. polled more than 100 venture capital executives, 70% of which were partners or managing partners. It found that a majority, 53%, of respondents, indicated the venture capital industry is “broken.”
With a less than receptive IPO market and the credit markets tightening down on M&A activities, VCs are finding few exits for their existing investments. PE shops are faced with refinancing over $300 billion of LBO debt over the next two years. Endowments and pension funds that serve as the limited partners firms are reassessing their investment in the entire asset class and are hamstrung by the denominator effect.
Will this funding gap affect the US’ ability to develop new technologies and create new jobs? Many ask, “Why aren’t there more Googles” and “What will be the next big thing?”
Personal computers were the catalyst in the 1980s, the internet was the catalyst in the 1990s and social networking has been a catalyst in recent years, but what will be the growth driver in the next decade?
#1 It took at least a decade for
It took at least a decade for Google founders and most entrepreneurs to hit it big. A large majority of the entrepreneurs never made it big and that risks VC understood. Well, a trader can make 100 million a year trading on borrowed money or someone esle's money on Wall Street (let's call it riskless gambling for traders - not for investors though!). The incentive structure has changed so dramatically. How can one make millions or billions overnight or in 1-2 years? That incentive structure is broken. You talked about the Internet and social networking to create value, but those aren't core any more in b-schools.
I wrote an op-ed on this issue - http://beta.thehindu.com/opinion/lead/article17116.ece?homepage=true