when the supply side starts to dry up

With the rise of the mobile app economy, rumblings of a bubble are discussed widely. Enormous numbers of risk takers, some who gamble, and some who plan are entering the economy, but all of them want the success levels of the next ‘angry birds’, ‘instagram’, or ‘tap tap tap camera+’.  

As this article on the American Express blog points out, shedding tears for a VC maybe a little like shedding them for a wall street banker. They’re gonna be just fine… But American Express are more interested in the macro level conditions for entrepreneurs. Does the drop in returns indicate a market correction? Is this perhaps a diagnosis of a healthy trend in some way, say more money getting distributed to more more places of investment. Or is it troubling sign that the quality of investments being made is rapidly getting poorer? And if so, what methods will bend the curve back up? 

Cambridge Associates recently released statistics that show the poor financial performance of venture capital (VC) firms in recent years.  The consulting firm’s analysis shows that rates of return are down substantially from their double-digit annual numbers of the 1990s.  As of June 30, 2010, five-year returns to limited partners (LP) were a paltry 4.27 percent and 10-year returns were negative 4.15 percent. 

 

Because most venture capitalists are wealthy, you shouldn’t worry that poor financial returns are imposing true hardship on them.  But you should be concerned that their poor earnings are harming the ecosystem for developing high growth startup companies in the United States…

via Venture Capitalists Failure to Make Money is a Problem for Entrepreneurs : Money :: American Express OPEN Forum.

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