Bill Gurley from Benchmark wrote and article about the major changes that the Venture Capital industry is going through.
Bill’s overall proposition is that a few brilliant (endowments, foundations) investors raised their allocations to alternative assets in the early 90s from low single digits (say 5%) to high double digits (sometimes as high as 25%) and supercharged their returns. Everyone saw the results and copied them. What worked in a small way with a few investors doing it failed to scale (as always) and the alternative asset classes got overfunded and returns plummeted.
Bill makes the related point that venture capital is actually a small player in this story and the buyout business is the big player. He predicts that as this overfunding of alternative assets unwinds over the next decade, we will see dollars flowing into buyouts and venture capital decline by at least 50%.
Well….this is only really part of the story…..