(Editor’s note: Kevin Lawton is a serial entrepreneur. This post originally appeared on his blog.)
It’s a rough time for start-ups seeking financing. Venture capital firms may have loosened the purse strings somewhat, but finding that magic formula to catch an investor’s eye is harder than ever.
This presentation (the first of two parts – the second of which will be posted here next week) is meant to assist both Limited Partners and entrepreneurs alike and has been wrought from a life in startups and studying the business of innovation.
It’s an overview of forces at work, driving sub-par returns in the Venture Capital asset class, and identifies the attributes of VC which will yield viable startups and stronger returns to LPs.
Currently, the internal rate of return across the VC industry is dismal, and will continue to be so, except for those innovative firms who adapt and pioneer the necessary new model.
If you ask entrepreneurs, they will tell you VC is broken, because it doesn’t serve their needs. And LPs know it by way of poor returns. The global financial system collapse has masked many of the secular trends in VC and technology innovation, which were destined to collide with an archaic VC industry in any case. The biggest such trend, rate of change, is unrelenting and driving radical change in the industry. Sadly, a number of VCs I’ve talked with don’t even see this.
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