One of the things that you might read is that VC doesn’t return money. Over the last 15 years, the returns haven’t been good. I don’t care what you think about the current economic condition of the United States (or world). You’d have to agree with me things are generally not normal. O% interest rates and a record supply of money with low volatility in the stock market isn’t normal. It’s also not going to be the “new normal”.
My gut tells me that there is going to be some big changes in returns to markets when the Fed moves off of 0%. We could be looking at some inflation that our economy hasn’t seen since the late 1970’s. The only way to beat inflation is by investing in your own business and growing faster than it, or finding businesses that grow faster than inflation. Venture capital business grow exponentially.
Yesterday, Senator Chris Murphy of Connecticut introduced a bill to give a tax credit to angel investors. This ought to be extended to the LP’s of funds that do startup investing. If you have a gain in venture investing, you are able to avoid paying a lot of taxes.
One of the knocks on the Midwest is that we have a “Private Equity” focus. Lot of large PE funds here. Principles have been able to raise huge multibillion dollar funds. PE guys find an existing business, smooth out operations, lever it up with a lot of debt, take advantage of the cash flow and tax breaks to pay off the debt and spin it out. Accounting and finance are the core strengths of the PE guy and the Excel spread sheet is their friend.
Venture Capitalists invest in the ideas of the future. They create jobs that didn’t exist before. They enable all kinds of businesses to do things they never dreamed possible. Strategy, marketing and thinking differently than other people is their core strength. VC tries to move the world forward and change it.
Investing in PE doesn’t change the world. It’s just leveraging up the buggy whip factories.