NVCA-medium-article #

Only by returning to its roots can the VC industry thrive in the years ahead #

Though I’ve worked in venture capital for the past four years, I still identify as an outsider. Many investors seem to think venture capital began with a philosophy rooted in the belief that operators (that is,those who have been founders or early employees of a venture-backed startup) know how to build companies and can help you build yours, too. Venture pioneers like Arthur Rock were essential to the building of the companies in which they invested, but Rock wasn’t an operator (as it is thought of today) before becoming a venture capitalist. Venture capital today differs so dramatically from 50 years ago not just in the value-add services we now see at so many firms, such as a16z’s services-on-steroids portfolio, which has focused largely on industries like enterprise software, cryptocurrency, and online marketplaces. In venture capital today, we now have more than double the number of funds compared to what we had just 10 years ago, and nearly 40% of all venture funding going into one thing for each of the past 10 years: software. Source: PitchBook Considering it takes about six years to get a sense of returns, industry averages seem to be going in the wrong direction as measured by DPI (Distribution to Paid in Capital), which is a multiple that represents the limited partners’ return on their investment with a venture fund. Jim Gaither said of Genentech about the time it was getting started that “Nobody had a clue whether they could pull that off, but if they could, it’d be big.”Whatever a firm’s purpose, we need to hear these words more often in the halls of venture firms today, and by “big” it should mean something that matters to human potential and planetary health.