With lack of "exits", venture capital less attractive to investors, says Steve Bengston, a managing director at PwC
The venture capital industry is going to get a lot smaller than anyone expected.
Speaking this morning at the SDForum’s event on investing in gaming, PwC managing director, Steve Bengston, predicted the venture industry is heading back to it’s 1997 levels; investing about $15 billion annually versus over $28 billion last year, and $105 billion in 2000.
“This year will be better than 1997, when we had a viable healthy venture capital business. However, only half of the firms and the general partners today will survive. But there’s nothing inherently problematic to this as it always was the top quartile that made all of the money anyway,” explained Bengston.
For the PwC executive and all the major investors, the question that remains is who are going to be those leading VCs.
“Venture capitalists have not been good at transferring their skills to the next generation. Today, most of the original founders are still in place but when they leave, we might see funds go to younger firms,” adds Bengston.
Another issue that plagues the venture community is the lack of returns which makes it a less attractive to large investors.
“Venture investing is a risky asset class, and investors are asking for a premium in returns of the risk. Historically, returns have been around 20 percent, now it’s more 10 to 15 percent. There are simply no exits, it’s illiquid,” said Bengston.
For entrepreneurs, a smaller venture capital industry means that the little money available for funding is now going to be much harder to get!
