We Have Met the Enemy…and He is Us: Lessons from Twenty Years of the Kauffman Foundation's Investments in Venture Capital Funds and the Triumph of Hope Over Experience

52 Pages Posted: 7 May 2012

Date Written: May 2012

Abstract

Venture capital (VC) has delivered poor returns for more than a decade. VC returns haven’t significantly outperformed the public market since the late 1990s, and, since 1997, less cash has been returned to investors than has been invested in VC. Speculation among industry insiders is that the VC model is broken, despite occasional high-profile successes like Groupon, Zynga, LinkedIn, and Facebook in recent years.

The Kauffman Foundation investment team analyzed our twenty-year history of venture investing experience in nearly 100 VC funds with some of the most notable and exclusive partnership “brands” and concluded that the Limited Partner (LP) investment model is broken1. Limited Partners—foundations, endowments, and state pension fund—invest too much capital in underperforming venture capital funds on frequently mis-aligned terms. Our research suggests that investors like us succumb time and again to narrative fallacies, a well-studied behavioral finance bias.

Keywords: venture capital, investment, vc, returns

Suggested Citation

Mulcahy, Diane and Weeks, Bill and Bradley, Harold S, We Have Met the Enemy…and He is Us: Lessons from Twenty Years of the Kauffman Foundation's Investments in Venture Capital Funds and the Triumph of Hope Over Experience (May 2012). Available at SSRN: https://ssrn.com/abstract=2053258 or http://dx.doi.org/10.2139/ssrn.2053258

Diane Mulcahy (Contact Author)

Ewing Marion Kauffman Foundation ( email )

4801 Rockhill Road
Kansas City, MO 64110-2046
United States
816-932-1000 (Phone)

HOME PAGE: http://www.kauffman.org

Bill Weeks

American Century Investments ( email )

4500 Main St.
Kansas City, MO 64111
United States
816-340-3497 (Phone)

Harold S Bradley

Private Investor ( email )

No Address Available
913-219-6671 (Phone)

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