Commentaries

Venture capital harms your wealth

The promise was certainly seductive: Lock up your money with me for five years and I’ll give you double-digit annual returns.

For years, that was an accurate equation for venture capital. From 1981 to 1998, there were ups and downs, but the 10-year return generally hovered around 20 per cent, well above most other asset classes. That return came at a price of course. It was illiquid and there was no secondary market. And there was a further catch. Most potential investors were excluded: Venture funds were relatively modest in size, there weren’t very many of them and they were picky about whose money they’d take for their limited partners.

The dotcom boom changed all of that. Venture capitalists became business magazine stars, new funds sprouted up all over, and established firms with a decent track record were suddenly able to raise nine- and ten-figure funds.

The 20 per cent mark began to look pallid. In 1999 the U.S. venture industry was boasting five-year returns of nearly 50 percent, as a flood of IPO’s provided swift and lucrative exits. The end-to-end return, net of fees, expenses and carried interest, for the year ended March, 2000, was 310 per cent.

Q2 VC investment rebound as health overtakes IT

Eric Auchard

Jul 20, 2009 14:16 UTC

One sure place you’d expect to find green-shoots thinking would be in venture capital precincts. Figures released over the weekend show the industry staging a minor rebound during the second quarter, only not in the usual ways.

U.S. venture capital investments grew by nearly 32 percent during the second quarter to $5.27 billion, rebounding off the lowest quarterly levels in 11 years earlier this year, according to data from Dow Jones VentureSource.