Venture Capital bubble...

Discussion in 'Economics' started by PragmaticIdeals, Jul 14, 2009.


    "The problem is that although many venture capitalists have been outstanding at raising cash, they have been pretty lousy at investing it. Even after the dotcom bust, endowments, pension funds and rich families fell over one another in a rush to back funds they hoped would produce the next Google or Genentech. “Everybody and his brother jumped into the business,” says Navin Chaddha of Mayfield Fund, a big venture firm. As a result VC funds have been investing, on average, a whopping $26 billion a year in start-ups since 2004.

    But much of the money has ended up in me-too companies that will not become the shining stars venture funds so badly need. All that cash has also inflated valuations of fledgling businesses, making it harder for VC funds to turn a profit on them. Many reckon the industry needs to become substantially smaller. Fred Wilson, a venture capitalist who pens a blog on the industry, has estimated that the amount invested each year needs to fall to around $15 billion-17 billion in order to produce acceptable overall returns. Mr Kedrosky puts the figure at $12 billion."


    When the system is loaded up to its eyeballs in debt, and the government / treasury plan to fix the system is to loosen constraints on lenders and to bail out lenders in order to promote further lending....

    What happens when the system is awash in money and there are no good investment opportunities?

    Venture Capital is suffering even worse than the wider economy, and predicts what is to come for the wider economy, should the fractional reserve system continue to fluorish and be propulgated.