Stumbled across this NY Times story a few weeks ago: “Some Unrest Is Bubbling Beneath the Top Tier” on venture capital performance (free, but needs registration).
It graphically illustrates what insiders have known all along, i.e. – performance amongst VCs (and funds) varies tremendously – and talks about how LPs believe that “the industry is far less healthy than it advertises and that but for the most successful venture firms, it is struggling. ”
Eric Doppstadt, Director of PE for Ford Foundation put it more forcefully: “I find it shocking that an asset class that has provided so little payback continues to attract so much capital.”
This criticism has been around for a while now (see here and here) and although it is true that returns in VC have been (are?) highly concentrated, I dont think this is (or should be) be reason enough to doubt the asset class as a whole.
But something else in the article caught my eye: “According to the venture capital association, every year since 1997 the profit distributions from venture firms have been lower than the amount that they have invested” – is this simply the hangover of the dot-com bust – now in its final stages – or symptomatic of a deeper malaise (see “Beginning of the End for Venture Capital?“)?
I dont know for sure…but definitely something to think about.
Finally, here is an “estimate” from the same article that starkly illustrates the concentration of returns (attributed to Diana H. Frazier, Managing Partner at Flag Capital Management): “…(between) 1986 to 2002, only 32 firms accounted for 56 percent of money distributed”