As money pours in for start-ups, can funds improve results?

Executive Summary

Venture capital in the United States has matured as an industry, and with maturity comes fear of complacency. Many of its stars are reaching retirement age, and the sector faces questions about its inability to beat stock market returns, let alone match its storied performance of the 1990s, when the industry and high tech both rose to prominence. New types of investing approaches such as crowdfunding; increased vigor and coordination by “angel” investors; and greater interest in start-ups by private equity firms, hedge funds and mutual funds mean venture capitalists are facing growing competitive pressure. The industry's clubbiness has brought questions about its lack of diversity, and fears of a new tech bubble raise concerns that VCs are fueling conditions for another economic downturn. Even so, global interest in finding the next great start-up is soaring, opening up more opportunities for venture capital.

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Ante, Spencer E., “Creative Capital: Georges Doriot and the Birth of Venture Capital,” Harvard Business Review Press, 2008. A journalist examines the life and business times of Georges Doriot, making the case for him as the father of modern venture capital.

Bussgang, Jeffrey, “Mastering the VC Game: A Venture Capital Insider Reveals How to Get From Start-Up to IPO on Your Terms,” Portfolio/Penguin, 2011. An entrepreneur turned venture capitalist lays out how investing works for start-up founders.

Draper, William H., “The Startup Game: Inside the Partnership Between Venture Capitalists and Entrepreneurs,” Palgrave Macmillan, 2012. A longtime VC reflects on his family, three generations of which have been venture capitalists, and how the venture capital industry has evolved.

Rao, Arun, and Piero Scaruffi, “A History of Silicon Valley,” Omniware, 2012. An investor/entrepreneur and a researcher/writer examine the emergence of Silicon Valley from the formation of Stanford University to the present.

Saxenian, AnnaLee, “Regional Advantage: Culture and Competition in Silicon Valley and Route 128,” Harvard University Press, 1994. A University of California, Berkeley, professor who specializes in regional economics develops a novel theory for why Silicon Valley became a powerhouse for technology start-ups, displacing its East Coast predecessors.


“Kleiner Perkins and Ellen Pao: A Fortune Guide,” Fortune, March 27, 2015, A business magazine collects its major articles on a prominent Silicon Valley venture firm and on a gender discrimination lawsuit.

Burleigh, Nina, “What Silicon Valley Thinks of Women,” Newsweek, Jan. 28, 2015, News magazine takes an in-depth look at gender discrimination in Silicon Valley over the last 20 years, with extensive reporting on how VCs shy away from funding female-run companies and avoid adding women to their ranks as partners.

Griffith, Erin, and Dan Primack, “The Age of Unicorns,” Jan. 22, 2015, Fortune, The technology industry is witnessing an unprecedented rise of start-ups that are valued at more than $1 billion by their investors; some observers ask whether that means another technology-driven stock market bubble is underway. (In conjunction with this report, Fortune compiled “The Unicorn List,” a quarterly tally of unicorns,

Lacy, Sarah, and Michael Carney, “John Doerr's last stand: Can a dramatic shakeup save Kleiner Perkins?” PandoDaily, Dec. 11, 2013, John Doerr and fabled VC firm Kleiner Perkins are going through a rough period, with poor results from missed opportunities and an unrewarding shift toward clean-tech investing.

Lee, Aileen, “Welcome to the Unicorn Club,” TechCrunch, Nov. 2, 2013, A venture capitalist crunches the numbers on start-up valuations and explodes several myths about the start-up industry, in the process defining the term “unicorns.”

Moritz, Michael, “Arthur Rock, the Best Long-Ball Hitter Around,” Time, January 1984, For the first time, a venture capitalist makes the cover of Time magazine, in an article penned by a journalist who will go on to become a successful venture capitalist himself.

Reports and Studies

“MoneyTree Report for 2014,” the National Venture Capital Association and PricewaterhouseCoopers, February 2015, A trade association and a consulting firm compile the latest annual report on the state of the venture capital industry in the United States.

“2015 Tech IPO Pipeline Report,” CB Insights, A market research firm reports on the 585 privately held companies that are most likely to go public or be acquired in 2015.

“Venture Capitalists Oral History Project,” University of California at Berkeley Library, 2010, In a series of 17 interviews, members of the first generation of Silicon Valley venture capitalists, investment bankers and lawyers discuss how the industry was formed and what their business was like.

“We Have Met the Enemy … and He Is Us,” Ewing Marion Kauffman Foundation, May 2012, The investment officer at a prominent foundation dedicated to entrepreneurship uses its own investing record to detail how limited partners have let venture capitalists get away with poor performance.

The Next Step


Guynn, Jessica, “Venture capital is facing up to its diversity problem,” USA Today, Dec. 8, 2014, The venture capital industry's national trade group is forming a task force to promote diversity in the industry and publicly encourage companies to hire more women and minorities.

Hiles, Heather, “Silicon Valley Venture Capital Has a Diversity Problem,” Re/Code, March 18, 2015, Deeply rooted sexism and insulated investing among groups of white male investors mean Silicon Valley's venture capital community is less welcoming to women and minorities than it is to men, according to the black female CEO of an online personal portfolio start-up.

Woodward, Curt, “Venture capital's diversity problem isn't just bad PR—it's bad for business,” Beta Boston, March 31, 2015, Researchers from Harvard Business School say that investors are far more likely to back a male entrepreneur over a female one, and that female investors are less likely than men to receive guidance from senior mentors.

Funding Bubbles

Garofoli, Joe, “This is no bubble, but get ready for a ‘correction,’ top investment banker warns,” San Francisco Chronicle, May 6, 2015, An investment banker and former U.S. Treasury Department official says while he believes there is no bubble in venture capital funding, the tech market will likely correct “fairly sharply.”

Koh, Yoree, and Rolfe Winkler, “Venture Capitalist Sounds Alarm on Startup Investing,” The Wall Street Journal, Sept. 15, 2014, The Silicon Valley-based venture capital community is undertaking an “excessive amount of risk” by investing heavily in tech start-ups, according to Bill Gurley, a venture capitalist who backed successful start-ups such as Uber, Zillow and OpenTable.

Waters, Richard, “Dotcom history is not yet repeating itself, but it is starting to rhyme,” Financial Times, March 12, 2015, Although differences exist, industrywide venture capital investment strategies are beginning to mirror those from the Internet bubble that exploded in 2000.

Investment Returns

Chayka, Kyle, “The Hubris of Venture Capital,” Pacific Standard, April 24, 2015, In pursuit of the next “unicorn,” venture capital firms invest billions of dollars in hundreds of start-ups each year, with the expectation that only a few will bring full returns.

Mulcahy, Diane, “Venture Capitalists Get Paid Well to Lose Money,” Harvard Business Review, Aug. 5, 2014, Venture capital investors are paid well, regardless of investment performance, thanks to fee-structured business models, says the director of private equity for the Ewing Marion Kauffman Foundation.

Weisul, Kimberly, “Venture Capital Funds Start to Make Decent Money. This is News,” Inc., May 29, 2014, The average 10-year return for a venture capital fund rose from 6.9 percent in December 2012 to 9.7 percent in December 2013, according to data from the venture capital industry's national trade group.

Social Capital

Doom, Justin, “Musk Solar Strategy Used as Model for Record Investments,” Bloomberg Business, Sept. 15, 2014, The success of SolarCity, a solar energy provider backed by social venture capital firm DBL Investors, has led other firms to shift their renewable-energy investment strategies from solar panel manufacturers to solar energy suppliers.

Max, Sarah, “Venture Capital Firm Invests in Start-Ups With a Social Mission,” The New York Times, Oct. 27, 2014, The venture capital firm DBL Investors has developed a reputation for generating returns by funding companies with social agendas, including electric car manufacturer Tesla Motors and Internet radio company Pandora Media.

Wallace, Alicia, “Colorado equity fund testing waters of ‘impact’ investments,” The Denver Post, April 24, 2015, The Colorado Impact Fund, formed in 2013 by five private investors, aims to invest between $2 and $6 million in up to 20 Colorado-based start-ups with positive social and environmental goals to help them grow and remain in Colorado.


Angel Capital Association
10977 Granada Lane, Suite 103, Overland Park, KS 66211
Association that represents angel investors in the United States and provides a clearinghouse of information for angel investors and entrepreneurs, including network resources, research and webinars.

European Venture Capital Association
Bastion Tower, Place du Champ de Mars 5, B-1050 Brussels, Belgium
32 2 715 00 20
Represents European venture capitalists and private equity investors; also offers information on how European entrepreneurs can find funding.

Ewing Marion Kauffman Foundation
4801 Rockhill Road, Kansas City, MO 64110
Foundation that is dedicated to entrepreneurialism and economic development.

Global Impact Investing Network
30 Broad St., 38th Floor, New York, NY 10004
Organization that represents social impact investors and develops standards for measuring social and environmental investments.

National Venture Capital Association
25 Massachusetts Ave., N.W., Suite 730, Washington, DC 20001
Trade association for U.S. venture capital firms that also provides research on the industry.

Small Business Administration
409 3rd St., S.W., Washington, DC 20416
U.S. agency that helps Americans start and build businesses; also provides information on entrepreneurship and offers financing and advice.

The Indus Entrepreneurs (TIE)
415 Oakmead Parkway, Sunnyvale, CA 94085
International association of entrepreneurs that organizes conferences to support entrepreneurial development in 18 countries.

DOI: 10.1177/2374556815590736