The NVCA and Cambridge Associates are fighting back against the scathing report of the Kauffman Foundation in which VC is characterized as its own enemy, by publishing new performance numbers that attempt to prove the VC performance is inching back. I commented publicly on an article published by Reuters PE Hub, and for the purpose of my readers (in addition to theirs), here is my response:
“Couple of problems with the “recovery” of Venture Capital.
One: VC performance should be indexed based on the market pull of innovation, not 100-year-old asset classes or indices that are in violation of free-market principles (and therefore inaccurate). Should I remind everyone that Apple proved 400% market traction while VC could not outperform organic technology adoption of 7% during the same period, disproving their excuses?
Two: Two-year post IPO performance at minus 30% leaves the public with the damage of valuations that don’t convert to value. Yes, it is relatively easy to push a valuation through another IPO funnel, and bail out before the public finds out its real value is a lie.
Three: The so-called recovery of VC is primarily due to the contraction of the marketplace by fleeing LPs, and highly skewed by companies rushing into the slipstream of Facebook’s impending IPO. Many companies on the docket today do not have the socioeconomic value of Facebook, but only an expert can tell.
The economic model under which Venture Capital operates is economically incompatible with the needs of innovation. But I take my hat off for how skillfully VCs continue to get away with fooling LPs and the public while there is only a handful of VCs that make any consistent money.
It is astounding to me how these “weathermen of venture capital” succeed in convincing LPs that because we have a few cold days in winter, global warming must not be an issue.
Can you not see the ice melting?”
