The bang of the VC buck

“It’s not the size of the wand, it’s the magician.”

Listening to Harvard Prof. Josh Lerner yesterday at the Quebec City Conference, one couldn’t help but think that the U.S. Venture Capital Industry is about 2 and a half years behind Canada: we declared a crisis circa 2007, and our friends to the south are getting ready to invoke that same word. Here are some good nuggets from Dr. Lerner’s presentation:

– $1 of invested VC capital has the same “innovation effectiveness” as $3-4 corporate R&D dollars

– annual VC investment dollar pace in the USA is up 10x post the NASDAQ bubble versus the 1990s

– there has been a big increase in patent filings despite the recent decline in VC investing

– Boston, New York and San Francisco continue to be the “elite” cities for U.S. venture capital investing and exits

– U.S. VCs have shown an ability to invest in companies in different cities, such as Boise, but what about China? That’s a different beast.

– success in venture investing is sticky, the same firms seem to do well over the years

– if your VC firm is in the bottom tercile in terms of industry returns, the odds are 60% in favour of your next fund being in the bottom tercile as well

– there is a positive relationship between fund sequence and IRR: the older the firm, the higher the returns generally will be

– government participation in venture capital is challenged if it is to work: gov’t dollars are often directed at well-connected people

More QCC news to come from KKR’s Henry Kravis, Thomson Reuters, etc.

MRM