Venture Capital
Venture capital access and investment models are inefficient, and they are due for their own innovation.
- PDF / 278,211 Bytes
- 12 Pages / 439.37 x 666.142 pts Page_size
- 45 Downloads / 212 Views
Venture Capital
enture Capital is Oxygen for Innovation but the Air V Can Get Thin Venture Capital investment has played a critical role in the U.S. to keep the innovation industry health and going. We have seen the impact of venture capital, its culture and proliferation over past 30 years. The VC culture has changed during this time. From its origins as a ‘value-creation’ infrastructure, Venture Capital has become a startup ‘investment vehicle’. This is especially visible when one looks into investment in the rapidly growing tech startup community. Almost 500,000 every year receive some level of investment. It is these startups that are the fountainhead of innovation. On the surface, the macro picture looks very promising (Fig. 4.1). Under the surface, however, the startups suffer from lack of process-driven investment mechanisms to unleash the full potential with such a large number of startups. As we shall see in following paragraphs, the existing system is too limiting in its geographic reach and is largely centered on the person of venture fund managers. In fact, there has been more venture capital invested through the first 6 months of 2018 in the U.S. than any six-month period in recent history. In fact, the last time Venture Capital was invested at this rate was during the 1999–2000 dot.com boom days. This may seem like the new normal. However, what goes quietly unnoticed is the fact that more capital is concentrated into fewer and larger deals, and only in a handful of locations.1 Only about 2% overall tech startups get funded, and the reality of creating actual economic growth by building new enterprises is even worse. Per NVCA data, only 1 out of 600 software startups get funded (0.17%) while the ratio for hardware startups
Sharma, Suresh. The 3rd American Dream, ISBN – 13: 978-1502436733 (Published by Create Space Independent Publishing Platform, an Amazon.com company); 2013, and 2014 (2nd Edition)
1
© Springer Nature Switzerland AG 2019 S. K. Sharma, K. E. Meyer, Industrializing Innovation-the Next Revolution, https://doi.org/10.1007/978-3-030-12430-4_4
37
38
4 Venture Capital
Fig. 4.1 VC Investments since 1980. The spikes in graph show Dot.com boom, and Today Sharma, Suresh. The 3rd American Dream, ISBN – 13: 978-1502436733 (Published by Create Space Independent Publishing Platform, an Amazon.com company); 2013, and 2014 (2nd Edition)
was frighteningly worse – only 1 out of 3600 (0.03%). And, only about 10% of these grew to attain sustainable profitable growth. This is a minuscule slice.2 Something is seriously wrong with this state-of-affairs. Startup capital is essential for early growth of potentially great ventures. Why is this capital so rarely available? And of the capital that is available, why is it wasted in such huge volumes? The lack of capital compounds the innovation logjam in our other institutions. In fact, it begs the question of how existing venture investment models with high failure rates can survive without deeper investigation into its structure and dynamics. T
Data Loading...
