I’m at the Kauffman economic bloggers forum in Kansas City (you can view it on a live webcast if you want). One of the great joys of this forum is that it gives me a chance to meet people I otherwise would not come across, including Robert Cringeley, who is best known for his technology writings, but who also writes interesting stuff about finance. Here’s what he recently wrote on venture capital:
…let’s take a look at how venture capital has failed America….
The big VC hangover today was caused by this simple misunderstanding. Firms thought they could scale-up their businesses and make even more money as a result. If your $100 million venture fund is replaced by a $1 billion fund, why not just make every deal 10 times as big? Because it doesn’t work that way. Companies are over-capitalized. Good deals are passed-over because they can’t absorb enough cash. Money is wasted. Founders are inevitably discarded and alienated. The rusted hulks of failed and over-funded startups are often forced to merge just to hide the real carnage. Everybody ends of hating everybody else and that’s where we are today.
I think the venture capital industry has been hit by the innovation shortfall. Over the past ten years, the VCs put a lot of money into start-ups that they thought was going to work. Big bets in areas like biotech, MEMs and a variety of other cutting edge assets.
Unfortunately, the number of big innovative wins over the past decade has been comparatively low, and the successful IPOs comparatively few. To some unknown degree, there is a shared responsibility–a combination of government regulation that suppressed useful innovations; problems in the VC industry that led to funding the wrong companies; and bad coin flips on the technology, which meant that some things that we thought were going to work, didn’t–at least not yet.