Fred Wilson posted a nice piece here with his thoughts, and those of one of his LP's on investing within the venture asset class. Essentially, the thread notes that the venture 10 moving year return benchmark is rapidly eroding from a current 17.3% as we will soon be dropping 1999, and adding 2009, from the calculation. Also, read the comments, they really add good flavor.
It essentially highlights Walter Wriston's quote "Capital goes where it's welcome and stays where it's well treated." Despite a few notable exits, the venture class concentrating within IT/the internet, is experiencing its second 'bubble' in one decade. To prosper, it's essential the asset class return capital with a sufficient risk adjusted premium.
Absent a technology driven paradigm shift, I think it will take an altered business model, where 'little' venture is one alternative to regain the class' lost luster. In 'little' venture, passionate entrepreneurs, doing innovative things, are staked enough capital to prove their market proposition and individual prowess. It's made clear to all parties upfront that if they don't 'cross the traction bar', additional capital won't be forthcoming. Essentially, 'no mo; no dough'. This leaves the time and capital to concentrate on the early winners where they are given the support to vie for a leadership position.
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