Posts from Financial Services

Venture Capital Returns

This post is for everyone who thinks venture capital is an easy business. I'd like to dispel that notion.

Here are short term and long term returns for the venture capital business over the past ten years compared to the public equity markets in the US.

Venture capital returns

These numbers don't include the internet bubble of the late 90s, so they are just for the past ten years.

What jumps out at me is there are no venture capital returns in this set of numbers that break double digits. When I got into the business in the mid 80s, I was schooled that you needed to produce at least 20% annual returns net to the limited partners to stay in business.

The ten year comparisons to the public markets are also challenging. The NASDAQ Composite beats later and expansion stage funds and all the public indexes beat early and multi-stage funds.

The performance of early stage funds is particularly disappointing. You would expect early stage funds to underperform in the early years. But ten years out, you would expect to see early stage outperform multi and late stage. More risk should produce more return.

This is Cambridge Associates data so it is based on many of the leading venture capital firms and it spans tech, biotech, cleantech and other areas. I believe this is a good representation of the overall performance of the VC business in the US.

Early stage investing is hard. You lose more than you win. And when you win, you need to win big. Later stage investing is a bit easier. You can pick winners in that business more easily. But so can everyone else. Each deal is an auction and the winner pays the highest price.

So the next time you are bidding one VC against another, maybe you can feel just a bit of empathy for us. We are in a tough business, trying to make a buck to live to fight another day. Just like everyone else.

#VC & Technology

FinTech Innovation Lab: December 19th deadline

For the past two springs, a great program has run in NYC called the FinTech Innovation Lab. It's an accelerator program of a different sort. They accept a half dozen innovative financial technology companies into a twelve week program where the companies get direct access to top executives in the leading financial services companies in NYC. This program is all about validating your product or service with top customers. I have talked to entrepreneurs who have been through this program and I have heard universally that the access was incredible and the feedback was invaluable.

You don't have to be two entrepreneurs in a loft to be a good candidate for this program. You can be a two or three year old startup with a large team. What's important is the need for product market validation. If you have started a fintech company and have built a product or service and want direct access to the top customers in the market, this program may be for you.

If you want to apply for next summer, please do it before December 19th, when applications close. More details are here.

#VC & Technology

The Credit Card Expiration Blues

I am sure this has happened to everyone. My work credit card expired and I was issued a new one. Sadly, I forgot to update that info in Google checkout. And so yesterday at 6:55am, the extra 20gigs of storage I was paying Google for in Gmail went away. Emails started bouncing, even on the forwarded ones which I was actually getting. Email has been a mess for 24 hours and Gmail is still not working right for me even though I fixed the credit card and repurchased the extra 20gigs yesterday morning.

I can deal with a messed up email situation. In fact it is a blessing for me. I got so much work done yesterday that I was able to leave the office early and take a yoga class in the late afternoon.

But this credit card expiration thing is a big issue when so much of our commerce goes through stored payment credentials on web services. I must have stored payment credentials on between fifty and a hundred web services at this point. And I have a number of credit cards, a VISA and an AMEX for personal, and AMEX for several of our business entities. So this creates a lot of complexity when my credentials change.

I've blogged about this problem before and people have pointed me to various services that were built to address these issues. I've looked at many of them and have not found one that really works for me. Frankly, I think the credit card issuers should solve this problem for us. Why can't all these payment systems auto update the credentials when a new card is issued? That would save us all a lot of problems.

If the credit card industry can't fix stuff like this, new payment methods are going to come along that are easier to use and work better on the web. There is no shortage of entrepreneurs working on payments ideas. So I expect problems like this one will be a thing of the past a decade from now. The only question is who will solve these problems first.