| Keynote Address:
2020 Vision:
Venture Investment Opportunities for the Next Ten Years
Dr. Arthur A. Boni,
Professor, Tepper School of Business, Carnegie Mellon University
When it comes to the venture capital industry, is the glass half full or half empty?
On the one hand, Carnegie Mellon's Dr. Arthur Boni told OVA members at the April lunch, industry figures as prominent as Roger McNamee of Elevation Partners have observed that "the venture capital industry has lost its way and needs to re-invent itself." With the high returns of the late-'90s Internet boom now having dropped out of the ten-year averages, the internal rate of return for the last decade of venture investments will be in the negative territory. "Some people would argue that the venture capital system has some issues, and we need to figure out how to deal with them."
At the same time, he noted, the markets have seen some self-correcting behavior. Far less money is now being pumped into the sector than before, for one thing—about $20 billion a year, down from a high of about $30 billion a few years ago. And rising investments from angel funds and public-private economic development partnerships such as those in Pennsylvania and Ohio have begun to fill the investment gap in early stage business formation as well as limit some of the risk for venture funds.
Structural changes in the market are also having their effect, he argued. Given the increasing divergence in the requirements for various investments—web 2.0 requires smaller investments while the opposite applies to medical innovations, where funding horizons are at least a decade—he wondered aloud if the same funding model should be applied to both.
Among the interesting innovations he noted in venture investing was Netscape founder Marc Andreesen's strategy of making more, smaller investments. "I call this the (more) shots on goal strategy."
Despite the need to fundamentally rethink how venture capital works in coming years, Dr. Boni concluded that the sector's future remains bright. VC funds are "three to four times as potent as corporate R&D," he said. "Historically, venture capital in anybody's definition, has been a phenomenal success in driving innovation. In the period from 1960 through 2000, we created industries-the computer industry, the software industry, the internet industry. Biotech, biomedical, medtech—these would not have existed without venture capital."
More information:
Keynote Webcast:
Click on the image below to view the entire presentation as video.
Webcast produced by Mike Sutyak, The Entrepreneurial Learning Initiative.
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