I continue to be amazed by the infectious stupidity in Venture Capital, especially since its arbitrage is responsible for minus 4% IRR over the last ten years, with corporate innovation performance debunking all of Venture Capital’s pitiful excuses during the same period. You wonder about the motivations of the people who keep hanging on to that ineffective economic model.
I am told some Limited Partners in Venture listen to a fellow called Paul Kedrosky, an economist (and fellow at the Kauffman Foundation) who has also captured the hearts and minds of hungry Venture Capitalists chasing them.
I like Paul’s Infectious Greed blog and sincerely enjoy his almost stumbled-upon observations on a broad range of subjects.
But economists are like forensic pathologists; great for finding the effect of death but inexperienced in the cause and conviction of the perpetrator. Cause establishes effect, not the other way around. Or put differently, deep hindsight rarely yields productive foresight – especially in the innovations business.
And so, a good economist is respected in the way we have to respect world-renowned forensic pathologist Henry Lee, understanding and clearly communicating of his role as a scientist and leaving the conviction of the crime up to those who can trace the events, establish motive and analyze reason.
With that in mind you may be just as surprised as I was to have an intelligent guy like Paul on his Twitter account from my analysis of why funds smaller than $250M make no sense, allegedly refer to me as “asshole”, “tourist” and “idiotic” (see screenshot) to a VC that had sent it to him. Clearly I have hit a nerve, with Paul’s counter arguments to the article lacking. The deeper I dig into Venture Capital the stronger the odd protectionist behavior proves we have not seen the bottom of that dysfunctional barrel yet.
One would expect a more appropriate and susceptible attitude of VCs and those who advise them towards self-improvement, considering the negative absolute IRRs and deplorable creation of Social Economic Value that has turned Venture Capital into the public disgrace of innovation and entrepreneurialism.
For the sake of a healthier financial system that can truly drive innovation and produce healthy returns for Limited Partners I will continue to hold those who benefit from its dysfunction responsible. With arguments.