LPs expect to turn more towards venture in 2011

By December 23, 2010Venture Capital

I don’t see much positive news coming out of the LP community about attitudes towards venture so I was very pleased to see the chart below in a recent Preqin report.  LPs are the pension funds and insurance companies that provide most of the money to venture capital and private equity funds, and Preqin does research into their market.

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The line to look at is the third one from the top.  It  shows that the percentage of LPs who say they are attracted to venture will almost double from 2010 to 2011.

  • Investing in Venture unchanged is the definition of insanity. And so while LPs may have an unwavering interest in technology innovation, LPs without a new investment discipline in Venture will do nothing but perpetuate subprime VC, and thus erode the asset class. Negative ten year returns in Venture Capital speaks volumes, especially since only 35 of 790 US VC firms make any money. So, unless we reset the rules in the deployment of Venture (by LP mandate), Venture is poised to slide further into its subprime maelstrom. We refer to that ignorance as the delusion of positivity.

    Best,

    Georges

  • Hopefully changes are underway as the industry shrinks.

  • This is good news for those looking to raise money next year and this certainly beats the outlook from last years report. Last year, VC was at the very bottom…..with timber.

  • Hi James – you are right that the bad news here is that two thirds of LPs don’t see venture as attractive for 2011, but the fact that nearly one third do is a considerable improvement.

    I think it is hard to criticise LPs for their investment preferences – just as I don’t think VCs should be criticised for investments they don’t make. Rather it is up to us as VCs to make the case for our asset class so strong that everybody jumps on board.

  • Shrinking an industry to anything less than 35 will not make it more efficient. A fundamentally different deployment of risk is needed to tap into an 80% greenfield large corporations are able to access but VC is not. The solution to Venture is different economics.

    Best,

    Georges