The “VC model is broken” story refuses to die. I just got an email from a Financial Times writer looking into the canard put forth by Sevin Rosen Funds in a letter to its LPs last month. And Bart Schachter from Blueprint Ventures stirred up some, uh, stuff with his “72 virgins” post on the peHUB yesterday.
It’s good that people are still talking about it, since the venerable NYT did such a disservice to the VC industry by simply regurgitating SRF’s spin for why its returns are in the toilet. (It would have been nice if the Times had done some actual reporting before it went to press. You’d think the paper’s editors would be a little more skeptical after the Jayson Blair and Judith Miller fiascos, but I digress.)
If you do some critical analysis of SRF’s investments, and consider the ways its peers have adapted and found success, you will quickly see that SRF’s letter to LPs is just a smokescreen. My colleague Alex Haislip blows through the smoke in this month’s Venture Capital Journal. (VCJ subscribers click here to read Alex’s story. Not a subscriber? Click here for a free trial.)
We have all known for a long time that LPs have dumped too much money on people who call themselves venture capitalists but who are in fact wannabe VCs. Those jokers will continue to take LP dollars as long as the LPs offer them, and their shoddy investments will drive down overall industry performance. But many others have adjusted and keep readjusting their strategies to outperform their slow-footed competitors. Alex offers up a laundry list in his story (Granite Global going to China in 2000, Kleiner Perkins betting on cleantech, NEA pushing into “venture growth,” and so on.)
VC is a tough business. Sevin Rosen, which has been around for 25 years, knows that as well as anyone. Instead of crabbing that the model is broken, it needs to adapt … or just call it quits.