In Part 1 of this post, I agreed with Jack Myers’ opinion that a hit-centric mentality continues to pervade the investment activities of many venture capitalists. This hit-centric view emphasizes the identification of a tiny number of blockbuster hits at the expense of underwriting large numbers of high-risk ventures that fail. It is a perspective that VC Peter Rip has referred to as “fund twenty, pray for two.” The view emerged gradually among a number of VCs during the bull markets of the Roaring Eighties, and became ingrained among many, if not most, early- and multi-stage VCs during the Long Boom of the 1990s.
I believe that hit-centric venture capital is the largest elephant in the room when VCs, LPs and industry analysts ask the question: is the VC model broken? (more…)
As I suggested in a previous post, I think that it might be time for us – and by ‘us’ I specifically mean VCs – to stop complaining so much about the markets. There are ways for most (though unfortunately not all) well managed venture-backed companies, even those still burning cash, to survive downturns, and VCs need to earn their carry by helping their earlier stage companies get through the current turmoil.
