I’m a Venture Optimist

Yet again an article in the New York Times bemoaning the demise of venture capital – this one is titled Maybe We Should Call Them Venture Pessimists.Optimism is in short supply”, “the quarterly Silicon Valley Venture Capital Confidence Index has reached its fifth consecutive quarterly low”, “there is understandable concern over the pressures on the VC business model”, and “the venture community should expect substantial structural changes to occur” are some of the snippets.

Whatever.  I’m not going to put any energy into debating the structural dynamics of the VC industry.  I’ll leave that to other people as that’s not my thing. 

Several years ago I decided to spend the rest of my professional life (I’m 43 – so let’s say 20 years) dedicated to advancing innovation in the domain of software / Internet.  I do that by being a VC – investing early in new technologies and markets that have long and broad arcs and creating market leading companies that transform the way we use this stuff.  My “job” – in its most crass form – is simple – take a box of money and turn it into a much bigger box of money.  The essence of my job is much more complex, extraordinarily challenging, and extremely satisfying.

The basic fuel for all of this is entrepreneurs.  Period.  VCs are an small piece of the overall ecosystem.  A highly visible piece, but just a piece.

So the contrarian in me is delighted by the spreading pessimism.  Fewer VCs?  Fine – that just means that the people that stay with the business believe in it, are good at it (since if they aren’t they won’t be able to raise the capital they need to participate), and all the people that become VCs to simply “manage assets and make money” will disappear over time.  Or evolve into something else that maybe someday isn’t called a VC anymore.

I think the next 20 years of innovation around software and the Internet will make the last 20 years look like child’s play.  And while the vector of negativity and pessimism continues to follow a steep upward slope, it’ll eventually crest.  In the mean time I don’t see an endpoint to the human animal’s desire to innovate.

I wake up each day delighted to be alive.  Delighted to be involved in creating new things.  Thankful that I’m an American and – in Warren Buffett’s words – drew a great ticket in the ovarian lottery.  And I’m optimistic.  Very optimistic.

  • Great post, Brad – I share your optimism, your delight in the "job" and excitement about the opportunities ahead.

  • It sounds like you've been recruited by Matthew Sobol. 😉

  • Dudu Mimran


    I never did understand why venture capital, which is a business driven by future fruits/results, is so shaken by current events such as low markets. Theoretically maybe two/three years ago would have been a better time to discuss such a future scenario but now it is just history and time to saw new seeds. Optimism creates a chance for a bright future.


  • Well said – I completely agree.

    • fred wilson was waxing about arbitrage – the reason you are somewhat imune to current events is that you are not a primary participant in this arbitrage destruction. You actually create value (theoretically) you are not trading the delta between tow value points of equal characteristic. Venture is a great place to be. Especially if you love it as you clearly do.

    • fred wilson (actually his partner to be fair) was waxing about arbitrage – the reason you are somewhat imune to current events is that you are not a primary participant in this arbitrage destruction. You actually create value (theoretically) you are not trading the delta between tow value points of equal characteristic. Venture is a great place to be. Especially if you love it as you clearly do.

  • Matt Dutremble

    With a tech scene like we have here in Boulder- the number of quality minds and the sincere desire to push technology forward, your optimism is shared and in large supply!

  • Pingback: Venture Optimism « Andrew Grumet’s Weblog()

  • Brad – i wholeheartedly agree. Go long the USA!

  • Love the optimism. Too many are wrongly bearish on America. Thanks for leading thought in the opposite (and correct) direction.

    ps. We've never met. @brjackson introduced me to your blog. I've learned a lot from poking around your archives, and love the nuggets of wisdom littered throughout.

  • Skilled and Jobless

    It's amazing how those at the top of the food chain always think things are always great, and that life is easy for everyone.

    Force layoffs at one of your "Angel Investments" due to a horrible business plan and foolish spending by the executives? Of course, it's just good business.

    VCs don't create anything but the opportunity for other people to work hard, (as long as the VC has a very good chance of profiting handsomely and excessively from the hard work of others).

  • come on. i am not a VC but this is mindless bluster. what this post actually said is that with a bit of luck some of the more 'financially engineered' folks in his industry will drop off.

    but whats wrong with working hard? whats wrong with your partner and you profiting from your hard work? whats wrong with both parties paying a collective penalty for failing? (alot actually!)

    what always amuses me is when entrepreneurs take the attitude like you do in hard times. do you think for a moment that a VC in any way benefits from layoffs, bad management and foolish spending? his work on the company likely triples, his value probably halves, and his friction increases.

  • Steve Harris

    I've been in the VC business for 30 years and I agree wholeheartedly with Brad . Those of us lucky enough to have found and prosper in this arena have truly won the "ovarian lottery." Cycles are common in the private equity arena . The VC world is only for those who look ahead and are comfortable with delayed rewards (both monetary & psychic) . Those expecting reliable, ever increasing, and immediate rewards tend to exit in times like this, as they should.
    I respect and am humbled by the entrepreneur's role in our productive and dynamic business creation mechanism. But , I also take pride in our participation as the best asset allocation and support mechanism ever developed to assist them. To "Skilled and Jobless": few of those "at the top of the food chain" (your words) think that life is easy for everyone; but the VC sector is not capable of making every venture succeed. When they don't succeed, do you think it's reasonable to blame the VC community?

  • I assume you would prefer the opportunity not to work at all?

  • Check out this video. Venture capital in 2009: http://scottdig.com/?p=444

  • Enough Kool Aid

    Brad, what exactly is your track record? Have you beat the S&P since 2000? I doubt it since acquisitions don't really pay all that well and the IPO market has been completely shut down for most of this decade.

    That IS your job as a VC to provide higher returns to your investors for higher risk. It is not to feel good about what you do every day, no one cares about that. I mean institutional money is great cause its dumb and never asks any questions, but at the end of the day all that matters is are you beating the market and providing your investors with a return that commensurates with a higher level of risk?

    • According to Wikipedia the 10 year annualized return of the S&P is -1.38% (http://en.wikipedia.org/wiki/S&P_500) and moneychip’s S&P calculator calculates 1/1/00 – 12/31/08 as CAGR of -3.31% since 1/1/00 ($1 turned into $0.61).  If this is the benchmark you are using, my track record is substantially better than that. Your assumption that acquisitions don’t really pay all that well is incorrect. On a cash on cash multiple, I can point to a number of acquisitions I’ve participated in since 2000 that returned 10x or more, including one that has returned over 50x at this point.But yes, I agree with the assertion that “my job as a VC is to provide higher returns to my investors for higher risk.”   I thought I said this in my post where I said “My “job” – in its most crass form – is simple – take a box of money and turn it into a much bigger box of money” but I guess I wasn’t explicit enough.

  • Enough Kool Aid

    Yes but what I am saying is:

    1) If you consider all your entire funds gains AND losses or look at the VC space as a whole, does VC beat the market over the last 10 and 20 years AND provide a return that would be acceptable for the risk (i.e. > 7 or 8%)? I think you will find that it doesn't.

    2) Since the IPO market has been closed for most of this decade and will continue to be closed for the forseeable future I don't expect VC to thrive in this environment.

    Wouldn't you agree that No IPO market = No VC market or at least a much much smaller one?

    • 1. I don’t really have a view on the “VC space” as a whole.  It’s well known that the aggregate performance of a “set of similar investors” is not particularly well correlated with individual investor success.  My investors are investing in the team I’m part of, not the market.  So – all they care about (and all I really care about) is our performance.2. Your assumption that the IPO market will be closed for the foreseeable future is one I have no way to validate or refute until time passes.  Furthermore – I’ve never depended on an IPO market for my investing success ever since I started investing in 1994.  Sure – IPOs have certainly contributed, but I’ve actually been very successful with M&A outcomes (and in many cases prefer them.)  I definitely do not agree that “No IPO market = No VC market.”  Whether the VC market should be smaller (or larger) is something that will resolve itself independent of any of our viewpoints.

  • RFEng

    Retirement. An interesting concept for a 43-year-old who has no monetary need for work. Looking 20 years into the future is inherently a murky process, but I would ask how your "retirement" looks different than your life today. You do work you enjoy, are around people you enjoy, nestled in some of the most beautiful places on earth. I am somewhat younger (I'm 34) but am in a similar financial and working situation to yourself, and I rather envisioned myself going to meet my maker "with my boots on". I need the work and the social interaction to feel "alive". It sounds to me like you do too. So what, then, is retirement for you?

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