Venture Capitalism “mostly sucks”

James Sperans, an executive at Morgan Stanley, told the audience here at the White Bull conference in Barcelona that venture capitalism is not quite as dead as a dodo. He said that at the same conference in 2011.

Sperans is a serial entrepreneur with he and another four execs running a private equity division at Morgan Stanley.

He said that he found out that VC was “pretty damn dead”, deader than Lehman, deader than AIG and deader than Fanny and Freddy. VC was even deader than Osama bin Laden. 

VC in 2012 s still pretty dead – deader than Neil Armstrong, Gaddafi and Heidi Klum’s Marriage.  It’s not more dead than the Euro, and not as dead as Facebook.

Big sophisticated institutional investors like venture capital again, said Sperans. But CalPERS will never invest in venture capital again.  He said VC is neither dead nor alive, it’s undead, he said, as he showed a picture of two zombies.

Cambridge Associates claims venture capital is far from dead. The 10 year pooled return in 2011 was zero, but Cambridge claims in 2012 it was up by 4.41 percent. But 90 percent of this movement was an artefact of the 10 year numbers because it no longer included the bubble burst in the year 2000. 
He said investment people don’t need a stiff drink. “We have met the enemy… and he is us”.

In May 2012, the Kauffman Foundation did a deep analysis, and discovered that VC was the triumph of hope over experience.  Twenty percent of their 100 funds beat public market equivalent by over three percent per annum. And 10 of those were pre-1995 investments.

It is possible to make money investing in VC funds by concentrating on VCs that put entrepreneurs first. It’s also important to “avoid crowds”, and where the wall of capital are gathering together.  

Morgan Stanley likes to focus on themes, and doesn’t like to overdo it by investing too much in this tech sector.  

It’s great to chat about the Greek tragedy that is Mark Zuckerberg’s hubris. There are some reasonable things to draw from the Facebook IPO. First is that early investors made a lot of money. Business models still matter, it’s good to know that gravity isn’t completely suspended.  

It’s clear from the Facebook “debacle” that IPOs matter and it’s not the money, it’s the ambition. Mark Z doesn’t care about the money per se. IPOs matter because only public tech companies can make a specific gravity of their own.  And thinking small doesn’t protect people from making mistakes. “If you’re going to make mistakes, make big mistakes,” he said. And Mark doesn’t care about the rules that investors operate by.