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Venture LPs blowing in the wind

Chris Douvos, Co-Head, Private Equity, at The Investment Fund for Foundations appears to have been stung by the NVCA bug of miserable VC excuses. Which always makes me wonder, why do LPs continue to play nice with VCs and want to save GPs who do not perform? As if the breed of underperforming GPs is worth saving?

Yet according to Cesar Milan we should blame the owner for the dogs behavior, and thus we should certainly assign blame to LPs for the underperformance of GPs. Not in the least because the economic model under which Venture is deployed is economically flawed.

In his announcement email as the co-chair of the 22nd Annual Venture Capital Investing Conference, June 7-9, 2011 at the Sofitel Hotel in Redwood City Chris writes to await for a new crop of VCs to emerge and refers to winds of change in Venture and conveniently referring to miserable last 10 years in Venture as a down-cycle. Of course the proverbial down cycles are a great way to diffuse any argument against underperformance. Just wait until your child comes home with miserable grades from Harvard and simply referring to them as a 10-year down cycle.

But the most benighted part of Chris e-mail is how he defers all performance issues in Venture to GPs, blissfully forgetting that LPs hire the GPs that don’t perform. And thus expecting change in Venture without a seminal event to induce that change is foolish.

A broken system rarely gets fixed by those who created and still benefit from it (by skimming management fees), and Chris’ suggestion of synthesizing the old with the new may be wishful and self serving thinking, but hardly realistic. Chris’ words demonstrate he certainly has been drinking the NVCA kool-aid. Venture Capital needs to be remodeled from the top down, economically.

But the good news is that Chris’ wishes can come true if he is more critical of the role of LPs in the sub-priming of Venture Capital over the last twenty years. Only a rigorous financial reform can resurrect Venture.

[Links: Venture Capital Investment Conference]

P.S.: Greetings from Brittany, France.


About Georges van Hoegaerden

After my ideas had raised $14M and returned over $100M to investors in Silicon Valley I could not help but detect a systemic flaw in the way we detect, build, fund and support systems of innovation. On an entrepreneurial quest to root-cause I evolved my focus from the economics of innovation to the innovation of economics, and ended up completely rewriting the playbook of economics that must guide us all. I named my invention Renewable Economics™.

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