This is the third part in a series on the state of the venture capital industry. Read the past posts “Self-Disrupt: Venture Capital’s Lost Decade & the Path to Redemption” and “VC: The Lost Decade.”
The venture capital model has been a disappointing asset class over the last ten years despite its double-digit return success throughout the 1980s and 1990s. Venture capitalists turned the tides by consolidating excessive capital commitments into the hands of a select few firms and overinvesting in web-based, seed-stage startups. In turn, startups in the most capital-intensive sectors have been squeezed out of the critical growth capital market. Unfortunately, shifts in market forces and the development of startup communities over this same period challenge the validity of the venture capital model and threaten its ability to raise future funds on sustainable terms.
The growth of crowdfunding and startup support communities provide entrepreneurs with growth capital and connective tissue which have long been the value propositions of VCs. Further, the potential passage of carried interest tax reform may increase taxes for general partners, decrease operating profits and alter asset management compensation terms with limited partners. Read more