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Venture Capital Will Shrink

Published: 12/1/2008 12:55:22 PM

The modern venture capital business has become bloated and inefficient - more than the usual inefficiencies in the industry.

After the .com boom and bust of 1998 - 2003, established VC firms were still able to raise huge sums of money from limited partners as a result of the general liquidity bubble that had been created by the Federal Reserve and other central banks from 2003 to 2007.

These large sums of money were raised despite the terrible performance of firms during the bust.  Recent financial world events have eliminated this excess liquidity - in my view, permanently.

Going forward, I see established VC firms continuing to raise money, albeit in much lower quantities more in line with their ability to produce appropriate risk-adjusted returns.  The VC business is not broken or going away, it is just shrinking.

Cheers

Don Jones

VentureDeal

 

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Don Jones
CEO, VentureDeal

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