Economic innovation for a bright new world
The Venture Confession
that he does not like the Venture profession much. To which purportedly Jim Breyer, partner at Accel responds:Total BS from this snake oil salesman. At 70+ years old with no friends left, he wants us to like him now. Oh puuuhhhlease! This guys is a jerk, dont take money from him, stay away as far as you can. Khosla is always about Khosla, super arrogant punk. He will destroy your company.
To which I need to respond:
Well Jim, as the former Chairman of the NVCA you should be ashamed of the “best practices” of Venture Capital as well. Negative 10 year IRRs, a handful of companies with any social economic value produced by VC as the arbitrage in an 80% greenfield and Venture Capital performing under the adoption rate of technology in the worst of economic circumstances, and a loss of trust by the public in that arbitrage is the despicable outcome of the mediocrity that holds our most precious asset (innovation) in a headlock.Perhaps what Vinod is eluding to is that Venture Capital is a mediocre asset class and arbitrage despite the enormous capacity and adoption greenfield to innovate. With less than 35 out of 790 (original) VCs making any(!) money and around ten doing so with Venture Capital as the monolithic thesis, Venture Capital has proven to be the improper economic construct to drive innovation.And I can fully understand why few smart people want to be associated with that performance or its “best practices”.
Venture Capital is a dumb economic construct to capture and arbitrate our capacity to innovate. For reasons why visit 2010: The State of Venture Capital.
Not so bad economy
Well, average returns of VC funds over the last 10+ years are still in line with the economy, both are negative. More money-in using the current flawed VC economics, in violation of free-markets, only subscribes to how clueless Limited Partners are or how large the size of the Private Equity overhang still is.
Read the online article with our response at All Things Digital
.About Venture Capital Trusts
No Charles, you are wrong. Venture Capital (no matter who feeds it) is the improper economic construct to support its underlying asset (innovation). Multiple facets are highlighted on my website, but the short of it is that you can’t expect to generate outlier returns from a uniform deployment of investment risk (I coined subprime VC).And the last thing government should do is meddle in the business of innovation. The role of government is to ensure markets operate and obey according to strict free-market principles. And we lack the most fundamental free-market principles that our forefathers instilled upon us. That is why we fail to detect the groundbreaking innovation that fantastic entrepreneurs in this country can create, and we instead have amassed the messy noise of false negatives that turns Limited Partners and the public off.The answer to improving the success of innovation is not to deploy the same deflated risk through new distributions, but to deploy the appropriate risk to the outlier entrepreneurs that deserve it.
Find the original article and my response to it online here
. IPO cracks; A $375 billion PE hangover
- We wrote about The IPO bubble and described once again how our financial markets are not free and therefor disproportionately and artificially assign benefit to a few. Steven M. Davidoff, writing as The Deal Professor for The New York Times Dealbook site chimes in with his own version. [Links: The New York Times Dealbook
] - Private equity funds have $375 billion hangover, which they can easily throw overboard in the macro-economically defunct marketplace of Venture Capital. I wonder if bubbles grow bigger in a vacuum. [Links: Pensions & Investments
]
The IPO bubble
But we can rebuild the trust in the IPO process (and thus innovation) with some simple, but groundbreaking financial reform.
Read the complete article...
A bubble in a bubble
Here is a great way to learn how to blow your own bubbles:
Stock Mapping, Despite VC
- For those who are fooled by the belief that the stock market is a free-market and therefor accurately represents the health of companies or its authentic attraction The Wall Street Journal site Smart Money gives an interesting top-level overview of the performance of those assets across sectors. [Links: SmartMoney
] - IPO's are up to $1B in the first quarter compared to same period last year, those who know Silicon Valley well realize that is a sign of how the smarts of great entrepreneurs escape Venture Capital arbitrage, not because they benefit from it. Just give them the money and get out of the way of success is the only model that is sustainable today (Facebook & Twitter anyone?). [Links: PEHub
]
Get a grip Wallstreet, VC just as broken as education
- Wall Street is punishing a 40-year old company, HP, for missing its quarterly revenues while growing earnings. Oh please, as if quarterly revenues say anything about the viability of a long standing company. Much more worried should HP be about its largest partner Microsoft, unable to keep pace with OS innovation, phone and tablet computers that erode the growth of PC sales in a systemic fashion. If only the stock market would be a real free-market.
- Venture Capital is just as broken as our education system
. Similar characteristics: money out of line with performance, experienced arbitrage lacking, failure rewarded, little accountability, hard to fire. Time to change the package, the solution is not as hard as most people think, but it will be disruptive and radical reform.
VC cooperation, 2H2010 23 IPOs
- I respect Bill Draper the 3rd who came to Silicon Valley in 1959 to join the West Coast’s first venture capital firm. But preaching about more cooperation in Silicon Valley is promoting investment socialism, where we need the opposite: deployment of investment risk driven by anarchy, so it matches groundbreaking innovation. Out with subprime risk, in with investment merit.
- The second half of 2010 scored 23 IPOs according to VentureDeal. $2.5B in Capital, 9 deals priced at above $100M. Get the report here
.
LinkedIn IPO
- I like LinkedIn, and its IPO will soon be on the docket. They better hurry up the filing process before the public finds out that Facebook is just around the corner, ready to empty LinkedIn out. Adding Michael Moritz of Sequoia to the board may - for now - have investment bankers buy into its projected public valuation to put the company on the market. I feel sorry for the public that does not have the foresight I do, and will undoubtedly fall for LinkedIn’s highly temporal value, with subsequent prospects in our industry punished for it later on. The reason why private and transparency in the Venture business should not be mutually exclusive.
No IPOs in 2Q08, I told you so
