Is Venture Capital Broken?

Returns fell after the dotcom bubble burst in 2000, and now the industry average tracks the broader equity markets.  Here, Noah Smith discusses some of U Chicago Professor Steven Kaplan's research on the matter. The upshot: there's alpha to be found among the VC's, but it's really hard to be one of those positive alpha fund managers. The addition of more funds just results in lots of really bad funds with negative alpha. There's another possible reason, having to do with the rationalization and increased liquidity of the early stage tech market, but that wouldn't account for the persistently good returns of the top funds, so the alpha theory seems to have it.