According to the Kauffman Foundation, the VC industry is very broken. Their report "We Have Met the Enemy ... And He Is Us" is a damning analysis of Venture Capital as an asset class and the Venture Capital industry in general.
The news here isn't that the VC industry is broken. This has been actively discussed for years.
The news is who's saying it's broken.
The Kauffman Foundation has long been a close friend of the VC industry. In addition to investing many millions of dollars with VCs, Kauffman's mission of supporting entrepreneurs and high growth companies has resulted in them closely collaborating with the VC industry.
Kauffman has many reasons why the industry is broken. But the quick summary is the industry simply hasn't performed well. Only 38% of the funds Kauffman invested in over the last couple of decades beat public market small cap indexes. This is primary due to the expensive fees VC firms charge.
There's little doubt this report will have a major, negative impact on the VC industry. Institutional investors - the source of funds for VCs - were already cutting their investments in venture capital. This report will accelerate this shift.
Expect to see more VC firms closing and fewer, smaller funds raised. The report is particularly damning of funds with more than $400 million - which is going to make raising larger VC funds extremely hard.
The good news here is the rise of angels, Super Angels and crowd funding means the problems of the VC industry will have little or no impact on the vast majority of small businesses.
We'll have more on these topics in the coming weeks.