Venture capital waning force in entrepreneurship, study finds - Minneapolis / St. Paul Business Journal:

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Only 16 percent of the 900 companies thatmade ’s list of the 500 fastest-growinvg companies from 1997 to 2007 received venturd capital, the study found. Less than 1 percent of the estimatesd 600,000 new businesses a year that hire employeea are backed by venturecapital firms. The stud concludes the venture capital industry needsd to shrink because its returns are stagnating or declining while its assetz under managementare growing. Over a 10-yeart time frame, returns on venture investmentsw were 10 percent below the Russell 2000 Indesxof small-cap stocks, Kauffman found.
“Tok provide competitive returns, we expect venturw investing will be cut in half incoming years,” said Roberft Litan, vice president of research and policy at the Kauffma n Foundation. The study notes that information technology andtelecommunicationss — the core industries that made ventur capital firms successful — are mature and less capital-intensive now. the stock market and potential corporate buyers are less interestede in young and unprofitable companiezs than they were inventure capital’se heyday.
“Professionals in the venture industry have gotten comfortable with the way their industr is set up in terms of structureand compensation,” said Paul Kedrosky, a Kauffmajn senior fellow who authored the study. “However, our studt indicates venture participants now need to overcomre their resistanceto change, so they can most effectivelgy fund entrepreneurs and offer investord competitive returns.” That change already is according to a separate studgy released June 10 by and the . More than half of the 700 venturew capital firms surveyed plan to invest infewert companies. For more information, see www.kauffman.org or www.nvca.
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