A few years ago Kim Lew was asked whether venture capital was in a bubble.
The very nature of venture creates bubbles and bursts.
The bottom line is that as an investor the one thing I want my venture capitalists to have is optimism. You can’t be a good venture capitalist if you don’t believe you can create something out of nothing, or the potential exists to create something out of nothing. Fundamental to their core is a sense of optimism and a little bit of master of the universe.
Making sure that they can operate in the context of the market, that they can dampen down the optimism, and there’s some arms around it to keep it from getting crazy, is important. However, the market will have bubbles by nature of who the people are and by nature of what the market is.
Do I think we are getting close to bubble territory? Things are over valued for sure. There are things that are going on, that we keep saying we are not going to do again, that are definitely happening. For sure, the venture capital market was in a bubble all the way from 1997 to 2000. It took until March 2000 for it to burst.
These bubbles can last for a while, and it’s hard for me to tell you when the bubble is going to burst. Do I think that things are overvalued, strictly based on long-term potential of some of these assets, I would say yes. But arguably not, if you think about where venture capitalists might or might be able to exit. That timing game is something venture capitalists are going to get caught up in over and over again. We, as LPs, have to be cognizant of that and size it accordingly and make sure that we are comfortable with the level of risk in our portfolios with respect to venture. The ability to navigate these cycles is tough, and it is one of the things that really differentiates a top quartile venture capitalist from an average venture capitalist who will often give back all of the good performance when the market corrects. It will play out, over and over again, in a cyclical way.
Boom and bust should be the tech industry motto.
By the way, the foundation’s namesake built 2,509 libraries between 1883 to 1929. But they were not endowed.
Nearly all of [Andrew] Carnegie’s libraries were built according to “the Carnegie formula,” which required financial commitments from the town that received the donation. Carnegie required public support rather than making endowments because, as he wrote:
“an endowed institution is liable to become the prey of a clique. The public ceases to take interest in it, or, rather, never acquires interest in it. The rule has been violated which requires the recipients to help themselves. Everything has been done for the community instead of its being only helped to help itself.”
To learn how the Carnegie Corporation of New York invests in venture capital and other asset classes, listen to Kim Lew on Capital Allocators.
Post by Marcelino Pantoja