Hope Is Not A Strategy for Venture Capital

This post was co-authored by Ian Charles and Barry Griffiths, both of Landmark Partners.

In the wake of nearly a decade of less-than-outstanding performance, many investors are re-assessing their expectations of venture capital investments.

In the late 1980s and early 1990s, VC was viewed as a small, exotic and risky opportunity. During the tech boom of the late 1990s, VC was widely viewed as a surefire ticket to riches. Now, two stock-market crashes later, many investors are concerned about the anemic returns they have received from their VC investments over the past 10 years – Venture’s Lost Decade. Is venture capital likely to continue its recent record of underperformance?

Through its private equity secondary investing, Landmark Partners is a major investor in venture capital, so we have a compelling interest in examining venture capital’s potential performance. In a new white paper, we lay out several of our conclusions. We believe that:

  • Attaining even pre-boom multiples with current levels of commitments would require record values of exits
  • Venture capital investments are not generally portfolio diversifiers, but instead have a high beta compared to the public market
  • Simply relying on a fund manager with high-performing previous funds is not a good approach to selecting new funds
  • Selecting good venture investments requires substantial due diligence.

Some of those conclusions are widely shared, but others are not. We hope that our work is useful to other venture investors.

Barry Griffiths, VP at Landmark Partners, also contributed to this article. For a copy of the white paper, please email Ian Charles (ian.charles@landmarkpartners.com) or Barry Griffiths (barry.griffiths@landmarkpartners.com).