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BATTEN INSTITUTE
v e n t u r e c a p i t a l
BRIEFING
ADVANCING KNOWLEDGE ABOUT ENTREPRENEURSHIP AND INNOVATION // FEBRUARY 2011
What Ever Happened to Venture Capital? FINANCING INNOVATION SERIES
A RESEARCH BRIEFING FROM THE UNIVERSITY OF VIRGINIAâS DARDEN SCHOOL OF BUSINESS
IN BRIEF 2000
4.64%
2010
OVER THE PAST DECADE, VENTURE CAPITAL HAS RETURNED NEGATIVE 4.64% ON AVERAGE. Source: Cambridge Associates
contributors
Sean D. Carr Director, Intellectual Capital, Batten Institute carrs@darden.virginia.edu
Malgorzata Glinska Senior Researcher, Batten Institute glinskam@darden.virginia.edu
Andrew King Research Associate, Batten Institute kinga@darden.virginia.edu
âThe future ainât what it used to be.â Lawrence Peter âYogiâ Berra, American baseball player and manager
For the first time in venture capitalâs history, ten-year average fund returns have been negative. Not since 1997 have U.S. venture capital firms returned more cash to their investors than they have dedicated to start-ups. To make matters worse, the market for initial public offerings, where venture capitalists have traditionally found the most lucrative exits, has largely evaporated, leaving venture firms over-weighted with cash-hungry companies they cannot sell. Even if current economic conditions represent a cyclical downturn, it is likely that venture capitalâone of the most vibrant (and successful) forms of venture financing ever createdâis at an inflection point. Many long-time observers believe that venture capital has become a victim of its own success, and some VCs who were present at the industryâs beginnings say it has grown too far beyond its roots. Drawing from personal interviews with the founders and principals of the largest and most successful VC firms in the world (see sidebar starting on page 4), supplemented with insights from leading academics and industry observers, this Batten Briefing will look at whatâs happened to the business of risk capital since its âgolden ageââand what this may mean for its future.