Another perspective to the VC/entreprenuer marketplace

Sevin Rosen made a lot of news about their recent decision to hold off raising their next fund.

This article shows some numbers that would offer a different opinion.

Blogged with Flock

Comments

[steve]

Without commenting on the Sevin Rosen situation, I'd argue the Thompson numbers Matt cites on VentureBeat are a gloss at best.

For one thing, the numbers are an amalgamation of the last ten years -- a period which includes the tech bubble of 1999, which most of us I think agree is/was an anomoly. Take out the bubble and the numbers for VC would be quite different. The numbers for the period since the bubble, 2000-2006, are pretty much a meltdown, with the vast majority of VC funds way under water way past the typical "J curve" period when underwater-ness is expected.

Likewise, the Thompson numbers are averages, which I think are amongst the worst type of overall performance indicator for an asset class.

A simple case in point: if you took out the VC returns generated by just two deals -- Google and YouTube -- I suspect those averages would *significantly* decrease. Maybe even go negative.

Any case, maybe two basic rules of thumb of apply:

1) The "VC model" is not now, never was, and never will be "broken" -- there will always be excellent financial gain opportunities funding new ventures, particularly high technology and biotech ventures.

2) But there is not an infinite amount of opportunity -- successes are "hit driven" or subject to intense, uncorrelated, seemingly irrational forces -- and on top of that, investments are long-term illiquid. Ergo, caveat emptor, and be very, very, very wary of fads and the herd mentality.

BTW, CalPers publishes its specific returns from specific VC's and funds:

http://tinyurl.com/ao32a

[bijan]

i had a feeling you were going to weigh in on this :-)

I'm glad you did.

I agree that the numbers don't tell the whole story.

I think your "1st rule" is really my main point in light of Sevin Rosen's announcement.