Paul Kedrosky: VC Is Broken

[from Pessimism From Venture Capitalists - Bits - Technology - New York Times Blog]

Self-serving protestations to the contrary aside, there is no institutional venture market without regular and sizable IPO exits. With 10-year venture returns set to soon lag long term S&P returns, this is an asset class in a serious state of brokenness.

Comments

[Ryan Lanham]

There's a bunch of problems.

1. IPOs decoupled from cash flows.

2. Venture funding chased ideas without cash flows. (See 1)

3. Cash flows are increasingly hard given the read/write web.

4. Internet tends to kill regionalism making big deals essential.

5. There was a period of surplus of ready capital that allowed less than talented folks to play in venture markets.

My answers?

Invent micro-venture funds that are analogous to microfinance. Spread the seeds and lower the profile of the efforts. Plant grass rather than coconuts, and use these jobs as the minor leagues for the high profile SF jobs.

Reinvent university intellectual capital. Make the majority of university tenure in the sciences (and especially engineering) about commercializing ideas(.) This should be particularly true at state schools. Minimize prestige for peer reviewed published articles.

Reallocate land grant institutions to the aid of specific zones of space -- that is, to territories. Make them responsible for moving the economics of those zones. Hammer administrators who don't respond.

Figure out how to create new markets between IPOs and venture funds. I have ideas here but space is a limitation. In short, allow some tax free 1st round investment by anyone in very small denomination pools that then are allocated to micro-venture fund managers. One might buy 100 dollars worth of a long-shot university idea but get a chance at 100 shares at an IPO in 10 years--that sort of ratio.

Figure out how to create hybrids between free software foundations and for-profit efforts that are fair and reasonable allowing some tax free contributions to carry a reward of some potential future equity in spin-offs. This might be done by pools of universities.

Create government matching funds for micro venture investments in key areas--energy, cancer, green stuff. Use stock proceeds to grow these initial pools. Shut down those that run out. Government simply becomes a passive investor. Could work at local, state and federal levels to spread risks.

[gregorylent]

dire straights just went through my brain, money for nothing, chicks for free ..

vc is NOT broken, since caveman times people have helped other people get things done.. it ain't going to stop ... crikey ...

would love to see some short-sightedness take a hike though