That’s the conclusion reached by Kevin Drum over at Mother Jones (I know, I know, but you’ll find he is a thoughtful analyst, really). He is reviewing a new report by the Kauffman Foundation:
The basic answer, I think, comes early on in the report:
Investing in venture capital in the early to mid-1990s generated strong, above-market returns, and performance by any measure was good. What has happened since?….Longtime venture investor Bill Hambrecht notes that, “When you get an above-average return in any class of assets, money floods in until it drives returns down to a normal, and I think that’s what happened.”
Yep. There’s no such thing as an asset class that consistently outperforms the market on a risk-adjusted basis. If it does, money will keep piling in until it doesn’t. But things are worse than that. According to Kauffman, VC fund returns aren’t just average, they’re lousy. This means that money should be exiting until returns go up. But that’s not happening: “Despite more than a decade of poor returns relative to publicly traded stocks, however, there appears to be only a modest retrenchment.