Oh my, I feel sorry for Shervin Pishevar at Menlo Ventures because he demonstrates by his comment referring to Silicon Valley as a meritocracy that he cannot be the agent of change that makes Venture Capital earn its stripes as an asset class that can produce consistent outlier asset class returns.
A meritocracy is the outcome of a free-market. And to suggest that Venture Capital with ten levels of bottom-heavy diversification, chockfull of collusion (otherwise known as syndication), and in-transparency to all marketplace participants is a free-market tells you how well Venture Capitalists understand rudimentary economics that are at the bedrock of their portfolio companies’ path to produce authentic socio-economic value.
The false negatives and false positives produced by Venture Capital are the reason why other financial instruments (including corporate innovation) continue to take innovation away from Venture Capital’s overwhelmingly defunct arbitrage.
There is nothing wrong with the concept of Venture Capital, but there is something seriously wrong with the economic equivalent of the Neanderthal implementation we use today.
The reason why Venture Capital underperforms the consumer adoption rate during the same period, loses trust from Limited Partners and the public, is proven wrong by corporate innovation, and is regressing down to which some 80% of all capital committed to VC in 2011 went to just 7 large funds, is because we consistently violate free-market principles. We failed to establish a meritocracy that taps the vast entrepreneurial resources available because we failed to adhere to free-market principles (as described in The State of Venture Capital).
It is precisely the investors who perpetuate these economic lies (for reasons I refuse to understand) and thus artificially restrict innovation; we need to stay away from as entrepreneurs. Because not only our economy requires compliance with free-market principles to get out of the slump and succeed again, so do the companies we create that can contribute to blowout success.
Here is the original article on PEHub (with my comments thinking Michael Moritz made that foolish statement first).
