Venture Capital falls off the cliff

Through all the bumps and strains in the broader economy, venture outlays kept up an almost eerily steady pace over the previous 21 months, ranging between $7.3 billion and $8 billion each quarter, from the start of 2007 to the third quarter of last year, according to the MoneyTree survey, which tracks venture-capital investments.

But in the fourth quarter, investments plunged to $5.4 billion, a drop of 26.4 percent from the prior quarter and 33.2 percent from the fourth quarter a year earlier, the MoneyTree report showed. The survey is produced by the accounting firm PricewaterhouseCoopers and the National Venture Capital Association, using Thomson Reuters research data. (Boston Globe)

I’m ready to argue is that there is a basic problem in returns demands.  Insistence on earning very high returns fast pushes investors into “elevator pitch” companies with technology that is easy to undertand for non-experts. Imagine trying to explain Visi-calcs product when it was in development stage. Or Adobe’s. Or Oracle’s product. All of these are complex, relatively new, pieces of technology that required long term investment of engineering efforts.

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