By James Saft
(Reuters) – Venture capital investors put their money down with dreams of backing the next Facebook, but the reality involves high fees and much disappointment.
A new study by the Kauffman Foundation, an entrepreneurship charity and a heavy and long-time backer of venture capital, makes disturbing reading oo.gl/eAp9E, detailing 20 years of disappointment, a failure by venture capital firms to deliver and of the foundation itself to take the needed steps to protect its own interests.
Kauffman, which has $249 million in venture capital, is providing insights which, because of tight disclosure agreements, are almost impossible to obtain elsewhere.
The message is that most of the foundations, pension plans and high net worth investors who back venture capital would be better off trying their luck in public equity markets, which may make investors feel a bit less hip but the returns of which venture capital struggles to beat.
Over its 20-year experience, just 20 of Kauffman’s 100 venture funds beat a public market benchmark by more than 3 percent annually, a generally accepted target for VCs, and most of those are funds which started before 1995. Well over half – 62 of 100 – actually failed to beat public markets after fees.