Is Venture Capital Over?

Venture capital is investing in startup or new companies, often before they have begun operations. Decades ago, Hunter Lewis and his partner Jim Bailey recommended that Harvard and Yale make venture capital investments and before long the amount of money going into this area began rising. Today funding innovation through venture investment is considered one of the greatest strengths of the American economy relative to other economies.

On February 2, 2022, Hunter published an op-ed for the Wall Street Journal about the current state of venture capital investment. He wrote:

“This isn’t the moment to begin investing in…[venture] funds. Why? There is a tsunami of money pouring in from institutional investors because of recent sizzling returns, deal quality is lower, and funds are paying much higher prices for the deals. Additional red flags include still sky-high fees for investors and returns that are calculated by fund managers...”

Since that was written, the Refinitiv Venture Capital Index has plunged:

Is venture capital over? No. Venture wasn’t over after the stock market crashes of 2000 and 2008 although in those cases it took years for the market to recover from earlier excesses. Marginal companies may not be able to get additional financing and have to close, but others will go on to thrive. Prices will be more realistic going forward from here. The seeds will be planted for future success.