Home > Work > VC: An American History
1 " In the venture capital context, long-tail investing denotes a systematic approach to the deployment of risk capital into entrepreneurial ventures by intermediaries who attempt to use their domain expertise to generate large returns. In a world of perfect information and efficient markets, economic theory suggests, intermediaries should be absent. The fact that venture capitalists do exist is arguably because they are able to maintain informational advantages in the selection and governance of startup investments. Another interpretation is that they function merely as capital conduits and organizers, but do not particularly add value in terms of startup outcomes. "
― , VC: An American History
2 " Long-tail returns have always been difficult to generate, and the VC industry has sometimes been chaotic and subject to the destructive ebbs and flows of investment cycles. History shows, however, that the social benefits of venture capital have been immense. By facilitating the financing of radical new technologies, US venture capitalists have supported a large range of high-tech firms whose products, from semiconductors to recombinant insulin, telecommunications inventions, and search engines, have revolutionized the way we work, love, and produce. While technological change can often disrupt labor markets and increase wage inequality, in the long run, innovation is essential to productivity gains and economic growth. The venture capital industry has been a powerful driver of innovation, helping to sustain economic development and US competitiveness. "
3 " If one asks how exactly VCs do that they do, it is not clear that the answer today is much different from half a century ago. The dominant form of organization is still the limited partnership with an ephemeral fund life, even though this places constraints on the time scale of investment returns. Although there have been some organizational structure and strategy innovation, these have been paradoxically rare in an industry that finances radical change. "
4 " It is important to note the often ignored fact that the venture capital industry became institutionalized partly as a consequence of government policy. Lawmakers shaped the enabling environment - kick-starting regional growth in what would become Silicon Valley - by crafting policies that allowed institutional investors to increase their risk tolerance in making investment choices, changed the taxation of investment gains, and promoted more high-skilled immigration. In many ways, the US government acted as America's VC writ large by funding the basic university research that would break open the development pathways to entrepreneurial businesses. Clearly, the future of the VC industry in the United States will depend on maintaining key aspects of that amenable, enabling environment. "
5 " VENTURE CAPITAL (VC) IS LARGELY an American invention. It is a “hits” business where exceptional payoffs from a few investments in a large portfolio of startup companies compensate for the vast majority that yield mediocre returns or simply fail. "
