Benchmark Capital’s Bill Gurley yesterday wrote on his blog that the VC industry is going to shrink substantially over the next several years. Specifically, he argues that large institutional investors will decrease their allocations to venture, although not abandon it entirely (due to CAPM and contrarianism). The typical reaction from readers — including many of you who sent me emails — was appreciative slobbering.
I strongly encourage you to read what Bill wrote. Go ahead, I’ll wait.
Ok, now let me tell you why I think he’s wrong. Not on describing the overall environment (he’s got it nailed), but on what the end result will be.
Specifically, I believe that the number of institutional investors cutting back on VC commitments will be small, compared to the number either maintaining or increasing their allocations. It’s easy for us to get caught up in the doings of big-name, liquidity-challenged endowments like Harvard and Yale, but they really are just a tiny drop in the overall LP bucket. In fact, all the Ivy Leaguers combined probably have less committed to venture capital than does CalPERS alone (and it recently increased its alternatives allocation)…