Venture capital is dead! Long live venture capital!

Dan Primack sited a study on PE Hub today that found that over 50% of VC professionals believe that the VC industry is “broken”.  My response:


Seriously. It seems like the venture industry these days spends more time lamenting its future than actually working towards a future that’s different.  And they couldn’t be more short term in their perspective.  VC sentiment has started to become like consumer sentiment – something that moves on a monthly basis. Are we forgetting that our business is about spotting long term trends and funding business cycles that are measured in years, not months?!? 

It’s possible I’m simply in the wrong demographic (almost 85% of the respondents were east- or west-coast VCs), the wrong fund stage (we raised capital in late 2007 and as a result are still in our active investment phase), have the wrong fears (in the “very worried” category “Exit Markets” was a 2x favorite over all other choices – but good companies continue to find liquidity), or am simply in the wrong mindset (I think now is a great time to start a business and an equally great time to be an early stage investor). 

My partner Jason has a thoughtful response to the study (as you might imagine he shares my optimistic view) in which he points out a few key reasons why now is a great time to be an investor (you can read the full article here):

  • Its never been cheaper to start a business
  • There are a ton of entrepreneurs around working on interesting projects
  • Many of these entrepreneurs have been around the block a few times
  • The venture markets aren’t dependent on the credit markets, etc.
  • What we thought/hoped would happen 10 years ago has – the world of technology is larger and more lucrative than we even imagined

I’m done talking/listening about how the venture model is broken. If that’s how you feel and you’re in venture, perhaps you should find a new job.

  • Fantastic post. I'm an Entrepreneur turned VC specifically because I believe now is the best time to be investing in new companies. After all, I've got the disease that most entrepreneurs have: the ability to see the opportunity in any situation. I recently attended the CVCA (Canadian Venture Capital Association) yearly shin-dig in Calgary. Tim Draper keynoted. I was surprised to witness the amount of fear and CYA from VCs who are really just worried about their management fees. They claim the issue is that there are no exits and their portfolio companies are unable to raise additional cash. The funny thing is that, so far, In June there has already been 55 acquisitions. (See my tweet about that earlier today… )

    • sethlevine

      i agree, danny. lots of fear and cya (and focus on maintaining management fees and cush lifestyle). are you going to the canadian venture event in banff this October? i’ll be speaking there.

  • Shai

    Seth, from your perspective, when someone states “the vc model is broken”, what do you think they are referring to? Reason I ask, is that there are many definitions of what “broken” means, so would like to hear your thoughts on this. From my perspective “broken” could be referring to few items mainly 1) too much money in venture 2) lack of exits 3) exit horizon being extended – if my definition is the case, saying “broken” is not an incorrect statement.

    • sethlevine

      part of the problem shai is that i don’t think they really know what they mean. i suspect it’s a general “things aren’t working” where things mean 1) their ability to raise capital; 2) their ability to predict good companies and 3) their ability to exit them. what i think it means is that there are too many venture capitalists out there and there is a shift in the market from vc’s who sit in their offices, have companies come to them and who prognosticate/pontificate to a new set of vc’s who are much more active, develop, follow and shape views on major technology trends and frankly just work hard. the former i expect will see their ranks significantly thinned. the latter will hopefully prosper!

      • Exactly right, you nailed it with this reply. Also it's a problem for the “old set of VC's'” whose funds are structured for BIG BETS ONLY and therefore can not participate in the capital efficient new startups because the “gap is too big” in more than one way.

  • charles.merriam

    The models are adjusting to the harsh business and regulatory environment of the last eight years. The taxing of stock options on pre-IPO companies, the large AMT liquidity hits, additional S.O. regulation, denial of pooling of interest, a decreased funding of sciences, and a decreased emphasis on technology. Like it or not, Silicon Valley has always been very sensitive to national politics.

    While the new administration seems to have the “make stuff and sell it” rhetoric, little outside science funding has changed.