Last week, Josh Wolfe wrote about some of the trends he’s seeing around the venture industry and how that might play out in the years/decades to come. Amongst those was a prediction that 30-50% of venture firms may cease to exist. When you combine this data with the fact that 17% of venture funds make it to fund 4 and 44% of VC
What (I believe) is the biggest flaw in the conventional venture narrative - The Power Law! It's a bug, not a feature, of venture investing. It's a byproduct of BAD investment practices, and rationalizes the gambling behavior of so many investors.
Manage risk properly (at the portfolio construction and capital deployment level), optimize on BOTH QSBS tax incentives, and play MoneyBall!
- Concentration of $s/deal fundings we've all seen/discussed
- Lack of material innovation in the (mainly early stage) fund structure/funding process - the typical early stage fund looks just like the first fund launched in '59
- Last financial industry to NOT be a proper profession (no training required, no 'certification' or body of knowledge to study to become a GP of a venture fund, ZERO barrier to entry
- NUMEROUS well documented conflicts of interest between vcs and startups (too much $s/'blitz-scaling' for a markup to support next funding round, et. al.)
- Shitty returns when (if...really) all funds were rolled into an index
- NO industry standard performance computation required from funds; DPI is a default metric, but remains niave by institutional investing standards
I could go on...
So, 'extinction' from the current environment would be Darwinian and welcome given the facts.
What (I believe) is the biggest flaw in the conventional venture narrative - The Power Law! It's a bug, not a feature, of venture investing. It's a byproduct of BAD investment practices, and rationalizes the gambling behavior of so many investors.
Manage risk properly (at the portfolio construction and capital deployment level), optimize on BOTH QSBS tax incentives, and play MoneyBall!
It's possible....
Great work. So much territory to comment on.
Facts:
- Concentration of $s/deal fundings we've all seen/discussed
- Lack of material innovation in the (mainly early stage) fund structure/funding process - the typical early stage fund looks just like the first fund launched in '59
- Last financial industry to NOT be a proper profession (no training required, no 'certification' or body of knowledge to study to become a GP of a venture fund, ZERO barrier to entry
- NUMEROUS well documented conflicts of interest between vcs and startups (too much $s/'blitz-scaling' for a markup to support next funding round, et. al.)
- Shitty returns when (if...really) all funds were rolled into an index
- NO industry standard performance computation required from funds; DPI is a default metric, but remains niave by institutional investing standards
I could go on...
So, 'extinction' from the current environment would be Darwinian and welcome given the facts.
The question is; What replaces it?
That's where there is plenty of published research. See https://bit.ly/3c0RTh0
Or just read anything Dan Gray writes.
The answers are there. We are in that tipping point of change.
And it is long overdue...
Such a a great post