Posted by Tom Foremski - November 9, 2009
Returns for VC funds have been bad for several years. But why?
Georges Van Hoegaerden has put together a very compelling list of reasons why VCs should be generating much better returns.
In his post Why do we keep listening to VC as the barometer of innovation? he writes:
- Technology has moved from hardware, to software, to software services with immediate market recognition and impact, allowing for simple business models and reduced risk with regard to customer adoption.
-The Internet with its ever increasing penetration provides a boundless addressable market for technology that a successful proposition can tap into at almost no additional expense.
- Until this year (thankfully LPs are now waking up) there have been truckloads of support from Limited Partners to the Venture sector, allowing VCs to pick their preferred fund size and implement their ideal diversification strategy.
- We produce more highly skilled local students and have access to a much larger petri-dish of (global) entrepreneurs than every before, that should account for a much larger supply of disruptive ideas and development resources.
- The penetration of applications to vertical markets (healthcare, oil and gas, real estate, etc.) remains pretty much untapped, leaving low hanging fruit investment opportunities unserved.
- The deployment of macro-economic principles with the application of technology to drive more efficient marketplaces remains untapped, leaving winner-takes-all investment opportunities unserved.
Excellent points. So why have many VC funds floundered?
Mr Van Hoegaerden believes it's because many VCs do not have the operating experience to manage investments, and that many VCs have been practicing a "micro" private equity approach to investments.
I keep hearing about a shakeup in the VC industry. I'm waiting to see what it looks like.