- Charley Polachi is the co-founder of Boston-based executive recruitment firm Polachi, Inc. The views expressed are his own. -
We surveyed more than 1,000 venture capitalists last summer with one simple question: “Is the venture capital business broken? Yes or no?”. After 53 percent said “yes,” it got me thinking about what exactly is going on here. I reached out to 50 general partners of venture funds across the country from Silicon Valley to New York and Boston to gauge the state of the venture business.
I started the conversation by asking: “How does the venture business look on January 1, 2010, when the industry can no longer drag around the 1999 returns in a trailing 10-year average?”
The following is a compilation of the responses I received:
1. Building great companies versus building products that can be sold. Interestingly, venture capitalists on the West Coast talk more about building great companies and venture capitalists on the East Coast talked about the realities of having to manage their portfolio and build products.
2. M&A over IPO. It is very difficult after the economic meltdown for a pension fund, a fund-of-funds or an endowment to make a commitment to the “asset class” of venture capital. With less money going into the system and because it takes longer to get money out of the system, the overwhelming majority of venture capitalists I spoke to felt that M&A would be the inevitable outcome rather than an IPO.