Is Venture Capital Worth The Risk?

In “V.C.: An American History,” the Harvard Business School professor Tom Nicholas sees whaling as the first practice of what we now call venture capital: collecting large pots of money and using it to invest in young companies, while also getting involved in their management, in the hope of guiding growth and generating huge returns. Venture capitalists fill these cash pots, or funds, with money from large-scale investors—foundations, pension funds, university endowments, and other passive contributors. They take a management fee, drop a bit of their own money into the mix, and, like the whaling agents, promise expertise. They, too, make predominantly bad bets: about eighty percent of venture investments don’t pay off. Occasionally, though, there is a wild success, and, since the nineteen-seventies, such successes have transformed American business. Venture capital-backed Apple and Intel. It funded Google, Amazon, and Facebook before any of them turned a profit. In principle, venture capital is where the ordinarily conservative, cynical domain of big money touches dreamy, long-shot enterprise. In practice, it has become the distinguishing big-business engine of our time. Can it offer both returns? Read more at The New Yorker.