My latest column for Reuters has been published. I argue that the venture capital industry in the US will be forced to shrink as institutional investors pull back from all except the most successful funds:
Everyone believes they are investing in the children of Lake Wobegon, who are all above average. But institutional investors won’t play the fool for long and the response from potential LPs is bound to get stonier for all but the most accomplished funds. So what, if anything, will save venture capital?
There will need to be fewer, smaller funds, making smaller bets with their investors’ money. Fewer exits won’t be such a problem, because fewer exits will be needed. It will be something that looks, in fact, a lot like the VC world pre-dotcom. That will be a wholly good thing, for venture capital, for investors and for entrepreneurs.
A smaller industry will have fewer hangers on who invest with the latest trend, and there will be less dumb money buoying poorly formed, unrealistic dreams.