Yesterday’s PE Week Wire included an interview with Marty Pinchinson, a co-founder of Sherwood Partners (a.k.a. “the undertaker” for VC-backed companies). The whole interview is great, but a few quotes in particular stuck in my head:
“Everyone comes up with this cockapoo about startups. It’s not about being smart. It’s about being around long enough.“
and…
“This is what people don’t understand: decades ago, when a VC put money into a Cisco or HP and sat there and worked with them, they were managing a $2 million fund. Now, with funds the sizes they are, do VCs really have the time to work with all these companies when they don’t know which will be the winner? No.”
In the interview, Pinchinson disagrees with the idea that Venture Capital business is somehow “broken”, but the second quote feels like an indictment of sorts. If the goal of VC is to apply just enough capital to create little companies that can stick around long enough to become big companies (i.e., because they have the customer traction, revenue velocity and cost-consciousness to stay in the game) the VC business is a victim of its own success. The VC asset pool is now radically overcapitalized, making this kind of hands-on investing all-but-impossible for traditional venture firms to pursue.