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Venture capital copes with changing landscape- report

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January 17
7:43 AM 2014

The venture capital landscape is experiencing a shift, The Economist reported. There's the internet, for starters, which democratized both the founding and funding of startups. Starting a company today has also become so affordable that entrepreneurs can use their own bank accounts, go to friends and family and accelerators. The latest addition to this list where founders can go to for funds are crowdfunding sites which allow them to get money straight from the people, the report said.

Another shift taking place is the transparency that has taken place in startup financing. Funding exchange webasites like AngelList revealed the state of financing. For example, AngelList showed that as of December, the 24,000 accredited investors on the site were able to invest $250 million in over 1,000 startups of the 85,000 companies on the site, the report said.

A final shift that has been occurring among venture capital firms is that they are no longer viewed as superhuman. The report cites experts who say that many of these companies are really not that good than what is commonly believed. A 2012 report from the Ewing Marion Kauffman Foundation states that for over a decade venture capital has delivered poor returns.

One of the authors of the report, Diane Mulcahy, told The Economist that contrary to the common view, venture capitalists don't really take much risk. In majority of the funds, the money that comes from the pockets of the partners comprises only 1% of the overall capital. They still earn comfortably even if their investments don't give returns because of the annual fees of about 2%, the report said.

Mulcahy, however, still believes that venture capital will still play a significant although smaller role in providing startup companies with capital. However, a lot of the weaker funds won't continue to exist, the report said.

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