Degeneration of Future Venture Capital Performance

The this chapter suggests what venture capital performance could look like in the future. The chapter begins with a discussion of fund formation and the provision of capital by limited partners (LPs) to the venture capital ecosystem. This section stresses that LPs can contribute to the deterioration of financial performance by providing capital to suboptimal general partners (GPs), performing poor due diligence on funds, tolerating limited access to information, and so on. The chapter subsequently discusses the cost of “carried interest” and the provision of venture capital services to LPs, which are two of the most expensive components within the LP-GP arrangement. Moreover, the chapter examines the value chain-analysis, provides another historical look at venture capital performance, assesses the industry’s performance prospects in the context of a longitudinal analysis, and outlines the profiles of superior and inferior GPs.