Earlier this week Fred Wilson, of Union Square Ventures, wrote a great post that lays out the Venture Capital industry’s overarching “issue,” titled The Venture Capital Math Problem (thanks to Ben Chiang for forwarding). The article walks through the high level math of the venture capital industry, and explains why the pace of fundraising & investing in the industry has outgrown current market realities. The specifics of the math are debatable, as solid data is hard to come by for this industry, but there’s no doubt that the conclusion points to a significantly smaller industry (assuming you believe in free markets and efficient capital formation).
The question I have is whether Fred’s conclusion is correct… Are we really heading toward smaller fund sizes, smaller partnerships, smaller deals and smaller exits? The trend of the day seems to be a capital flight to established firms – those with proven track records are able to raise larger funds, while the younger, smaller firms are struggling to raise new capital. But it will likely take another fund cycle before we have a definitive answer here…
Any thoughts?
