LP Entrapment

The easiest way to raise a new fund is to ride the coat-tail of Apple or Facebook because Limited Partners can question either thesis.

Prominent Venture Capital firm Kleiner-Perkins (KPCB) shows off its lack of entrepreneurial vision with its reported upcoming new fund in a string of previous LP entrapments. First, green-tech, which we predicted a long time ago does not yield VC vintage returns. Then the iFund, for the creation of $1B companies from ASPs (average sales price) less than $10 (really?) to a social fund with Facebook, which companies at any point Facebook can choose to displace or disable (really!), to now a Cloud fund for technology utilities to appease the many technology laggers who have a hard time competing with Apple (desperately). Do none of the LPs realize that the risk of investing in technology is not technology?

But in the end, Limited Partners won’t hold VC firms accountable for sticking to the Private Placement Memorandum (PPM) thesis, as long as the firm still creates some meaningful return from it. And when a VC firm manages this many concurrent funds, its large investment networks have enough deal diversification to make any investment that walks in their door fit one or more of the available PPMs. Lack of accountability to the original thesis in the PPM is the outcome of a Venture Capital demi-cartel, the opposite a free-market of investing with optimal entrepreneurial discovery would endure.

I continue to be amazed by the games VC firms play to stay in the game, that deflate not propel the opportunity for disruptive innovation. And that is why I dare challenge the intentions of the VC gods.

[Links: PEHub]

P.S.: From Paris with love.

The sign of an intelligent nation is its willingness and ability to reinvent itself, upstream. Let’s inspire the world with new rigors of excellence we first and successfully apply to ourselves.

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