New book defends venture capital — but fails to warn that the 'startup bubble' could soon pop (by Jonathanaknee)
The detailed stories of how the most iconic companies of the current era, from Apple to Facebook and Google, got financed in the first place make for a compelling read. At a variety of key points in the historic narrative, however,goes strangely silent.
It turns out that not just venture investments follow the power law — the venture industry itself does as well. As Mallaby notes,"counting venture funds raised between 1979 and 2018, the median fund narrowly underperformed the stock market index, whereas the top 5 percent of funds trounced it." Indeed, unlike their private equity counterparts, the same few venture firms outperform over and over again. But these rarefied superstar funds have been closed to new investors for years.
The venture/startup euphoria has become so pronounced that even industry stalwarts have begun to send up loud flares."The numbers just don't add up," Fred Wilson of Union Square Ventures, referring both to the early stage valuations and the amounts of capital being raised for speculative ventures with questionable business models.
Jonathan A. Knee is professor of professional practice at Columbia Business School and a senior advisor at Evercore. His most recent book isSubscribe to push notifications
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