VC Doesn’t Scale

VC Investment in Greentech 2005–2009

There are a lot of voices of late sounding the death knell for venture capital. The New York Times dusts this meme off every few years. One just has to have a good memory and ignore the nattering nabobs of negativity. They’re usually wrong.

Fred Wilson of Union Square Ventures has a different take. Wilson has crunched some numbers and claims that “VC doesn’t scale.”  He has determined that: “You cannot invest $25 billion per year and generate the kinds of returns investors seek from the asset class,” and that, “The number that the asset class can take on each year is around $15 billion to $17 billion. It's interesting to note that the industry raised $4.3 billion in the first quarter of 2009. That's a good thing. If we can keep it to that level, or less for a while, then we may be able to downsize and get returns back on track.”

Fred is right.

There has also been a sky is falling mentality in the greentech investment sector.  The bubble has burst, project finance money is gone forever, the end is nigh, etc.  These folks are wrong as well. 

Unsurprisingly, first quarter greentech investing was down. That makes sense if you’ve been paying attention to current events. But second quarter investment in greentech is already showing signs of a rebound and has gotten off to a roaring start with about $500 million in greentech VC invested in April alone.

Renewable energy, green and cleantech, ecologically sustainable technology and investment is at the beginning of a 20-year boom and there are going to be ups and downs along the way. Get used to it.