Thursday, April 06, 2006

Venture Capital: At a Crossroads

Reuters had a nice piece on the state of the VC industry. It seems that one of the major issues with the space is that the best VC funds are seemingly always maxed-out. The best funds, like Sequoia Capital, Kleiner Perkins, and Matrix Partners earn a disproportionate proportion of the profits, while many other VC firms have struggled. This begs the question, where should an institution put their VC money?

"People have discovered that it's hard to access the top funds, so they've dipped down into lower-tier firms," said Fred Giuffrida, managing director at San Francisco's Horsley Bridge Partners, a big investor in private equity and venture capital. "They've kept some firms alive that probably shouldn't be kept alive."

Investors shuttled more than $20 billion into venture capital last year. But Giuffrida said the amount of money flowing into the space each year should probably be less than half that size -- below $10 billion -- for median returns to be attractive.

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