I think Paul really nails it. The VC industry needs to get smaller, re-evaluate what needs they are serving, and reconsider their place in the food chain. Entrepreneurship does not exist as a consequence of the venture capital business, it exists in spite of it.
Kedrosky presents himself as a contrarian, perhaps even a heretic, among VCs. “Many venture industry participants are comfortable with their industry’s size, structure and compensation model,” he writes. “At the same time, the industry has become conflated with entrepreneurship in the popular imagination as well as in policy circles, with the result being a widespread and incorrect belief that venture capital is a necessary and sufficient condition in driving growth entrepreneurship.”
Every bubble is predicated on a shift in the way that capital is allocated, going from a demand driven environment to one that is supply driven. The availability of excessive capital distorts valuation and the rush to fund all but guarantees that unsustainable businesses will be funded, which is great from an experimentation standpoint but also guarantees that the boom-and-bust cycle in tech continues unabated.
There is a lot of debate about how big the VC industry should be, but that’s a red herring because it’s not up to commentators or venture investors to determine that number but rather the LPs that provide the capital. It would be my hope that what comes out of this process is that a healthy venture capital sector emerges that creates more Apple, Cisco, Oracle, and Google companies that are able to stand the test of time and employ tens of thousands of people not just tens of tens while fundamentally bettering the foundation of our economy for everyone to benefit from.