For years, critics, and even some VCs themselves, have been saying that the venture capital model isn't working. Now, the Kauffman Foundation, a supporter of entrepreneurship and a long-term ally of the VC industry, has published a report titled "We Have Met the Enemy and He is Us" adding weight to that argument. Drawing on the twenty years of the organization’s VC investing experience, it concludes that the limited partner (LP) investment model is broken and condemns LPs for supporting underperforming VC funds that often have terms that are unfavorable for them.
The report stops short of suggesting that venture capital investment be scrapped entirely and it offers suggestions on how to fix the model—among them are changing VCs’ compensation structure to pay them for their performance and measuring VC fund performance using a public market equivalent. The report also suggests shifting investments to smaller funds.
Venture capitalists, of all people, should be up to the task of fixing the venture capital model, says Lisa Suennen, a co-founder and managing member of Psilos Group, a healthcare-focused venture capital firm in an interview conducted before the release of the Kauffman report. "If a bunch of people whose job it is to help companies fix problems and grow, can’t fix their own problems, than all is lost," she quips. . .View Full Article