MoreLIP: Get Well Soon, Venture Capital
06/26/2009 — George Lipper, Development Capital Networks
Little did I think I’d find myself in sympathy with the venture capital community.
I’ve long appreciated their contribution to our economic growth over the past three decades, particularly in the launch and growth of technology-based businesses. The brainpower, vision and decisiveness of members of that community are inspirational. Yet I’ve often found myself taken aback by arrogant behavior and ostentatious pomposity, a kind of "we’re-number-one and you-better-take-notice" attitude.
But I concede a growing sense of compassion in the wake of disappointing event after event recently.
After a too-brief hiatus in the wake of the dot-com disaster, the industry came back to willing LP participation. Venture capitalists continued gathering $25-$30 billion a year, which they quickly invested elsewhere, only to find that the passageway out was narrowing at both the showy IPO front door and the less glitzy M&A side door. Stuck! Ready to exit and no place to go.
And in the past few months, the industry scuffed across several other troubles:
With the economic downturn attributed significantly to Wall Street interests, VCs now find themselves in an undesired grouping with hedge funds and other PE entities, targeted for more careful supervision and regulation.
And given the nation's need for additional revenue, VCs face elimination or at least reduction of favored tax treatment.
Then, just last week, a Senate Committee agreed that VC-supported companies would become eligible for future SBIR programs, should the program be renewed. However, it was at a participation level called "disappointing" by the industry.
I’ve been a mild critic of the industry in recent years, as investment statistics disclosed that -- while the NVCA keeps tooting its horn about being THE source of money to launch America’s high growth companies -- venture capital has gradually invested a significantly smaller proportion of its funds (less than 5%) in the seed and startup stage, leaving that funding segment for risk-takers.
In a recent survey, NVCA members anticipated they’d be spending more than half their funds offshore in future years.
Now the industry is looking toward slimming down, raising and investing significantly less money, reducing staff and trying to regenerate its reputation of days gone by.
May they make it! We wish them a speedy recovery. America needs their skills and how-to knowledge in the pursuit of climate threats, clean energy, health care and competitive economic growth.