Thursday, February 12, 2009

Do Entrepreneurs need VCs or Vice Versa?

According to Josh Lerner from the Harvard Business School (via PEHub), the odds of succeeding if you're funded by a VC are actually a bit better than 1 in 5, and further, while you tend to perform better when backed by a VC the first time around, it doesn't really matter when you get funding.

As a side note, there are times I think it's unjust the level of pay finance professionals make relative to the risk and returns of the entrepreneurs they fund. On the other hand, maybe it's justifiable given the leverage they use (though shouldn't that accrue more to the actual people who hold the capital?) - and at least this study shows that in some cases they do add value. But maybe the pendulum is swinging the other way. Being an ex-finance guy with a continued keen interest in private equity, I'm not sure how I feel about that either. Despite the recent hiccups, I suspect the long term trend is that ideas will be paramount - and essentially that capitalism won't require you to have capital yourself. If you have a great idea, it'll become easier and easier to get funded - and as a corollary costs will fall.