Did Venture Capital promote economic growth?

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Donner Lake

An article in the Tenessean plays out a very naive summary of the role of Venture Capital with regard to economic growth. Naive because not only does it demonstrate a lack of real world experience with the demi-cartel deployed by an old-boys network in the epicenter of Venture located Silicon Valley, it is factually wrong in how it works, what it has produced and what it has done to the economy.

So, here is my response to their tantalizing statement:

No, Venture Capital is supposed to promote economic growth. But subprime VC is just like subprime real estate. It makes for great press when you secure deals, and then someone else (the economy) gets left cleaning up the debris. With 20 years of subprime VC behind our belt and negative performance to boot, the false positives create a hole twice the size of false negatives that could have delivered sustainable economic growth.

It must not have sunken in to the writers of this article that the most important asset holders in the marketplace of innovation (limited partners with money, and entrepreneurs with ideas) are leaving the asset class, because either they are not getting the returns they were promised or their vision is dumbed down to subprime. For a comprehensive overview of the real risk deployed by Venture, study The State of Venture Capital.

Find the original article (not open for discussion on the site) here.

 

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About Georges van Hoegaerden

Georges is a serial entrepreneur, venture catalyst, 4x CEO, board director turned innovation economist (by fate). His ideas have raised $14M in venture capital and produced over $100M in returns. More.