VC Continues to be Overrated; Policy Makers Beware!

For years I have been reminding people that less than 5% of firms ever take any kind of venture investment — that is one of the reasons I find the growth of business plan competitions so odd. Why prepare students for pitching to Venture Capitalists when most of them will never do it? (We’ll answer that in another post).

Well, there is a growing chorus of entrepreneurship bloggers sounding the alarm that policy makers are focusing too much on the VC model when talking about economic recovery.

Growthology (a blog out of Kauffman) and The Entrepeneurial Mind (Jeff Cornwall) have both pointed to a study by Paul Kedrosky of Kauffman: Right-Sizing the US Venture Capital Industry. From the study (p.5):

External capital is sometimes required by some private companies in their early stages, and it is good that there is a class of professional investors with enough financial resources to provide that assistance when it is needed. However, venture capital and entrepreneurship are separate phenomena, even among growth companies, and conflating the two, let alone implying that the former causes the latter, is untrue and unhelpful.

This is a short paper and well worth reading. Thanks to Kauffman and Kedrosky for putting this out there.

3 thoughts on “VC Continues to be Overrated; Policy Makers Beware!

  1. Pingback: Debunking a myth: Business Plan = Venture Funding? | Business in General

  2. This study was very interesting. I agree that automatically linking VC’s to economic growth and opportunities for entrepreneurs is problematic. But, I think policy makers are having a hard time moving away from the VC model because there is no other model presented to them. We can agree that the VC model is not very effective, but what is the alternative? How do we assist start-up entrepreneurs on a large scale?

  3. Thanks David, excellent post, I think we all need these reminders that entrepreneurship is so much broader than the narrow high-tech venture-financing edge we seem to put on it. Tim.

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