"It seems to me that the creation of new companies based on applied science that deliver new products that people buy is a pretty good definition of something we want in society."
Someone needs to check the data behind the author's 80/20 rule. One place to check is the work done by my former colleague, Prof. Josh Lerner, at Harvard Business School. There are other sources that track these data. In fact, the success ratios are far lower when deals are measured over time, say 5 years. Moreover, ventures for products and services launched within existing large companies do not fair much better. With few exceptions, business concepts fail on account of market fundamentals, particularly absence of demand and paying customers, and effects of direct and indirect competition. Both of these factors lead to revenue shortfalls, Revenue is the sine qua non in business. Revenue pays for everything else. Without durable and profitable revenue streams, all fall down. Next, a large share of capital that has been flooding into the venture capital funds over the past 20 years has gone to financial engineering. Likewise, risk capital going into PE funds is used mainly for roll ups and financial engineering. As in the past, the primary source of seed capital continues to be sweat equity, family and friends, and angel investors well in advance of approaches to VC funds. The success rates at this stage are low. Investments by professionally managed funds and by individuals and groups of them that end up clinging to life in the Land of the Living Dead cannot be considered successes. All in, the odds against success in venture investing are overwhelming. A positive expected ROR is generated by the one or two winners. You get the idea. The name of the game is to crank up massive amounts of assets under management, clip off the 2 percent "management fee," and hope for the best from the 20 percent interest in capital gains from the fund. This incentive structure led to an interesting period in the late 1990s to 2000, when VC fund managers flipped early stage companies into the public market, including those with no revenues and no profits, and declared victory and clipped off 20 percent of the IPO gains. I recently threw out 4 bankers boxes of S-1s from IB s who specialized in this business, e.g., Roberston & Stepherns, et al. You get the idea.
Someone needs to check the data behind the author's 80/20 rule. One place to check is the work done by my former colleague, Prof. Josh Lerner, at Harvard Business School. There are other sources that track these data. In fact, the success ratios are far lower when deals are measured over time, say 5 years. Moreover, ventures for products and services launched within existing large companies do not fair much better. With few exceptions, business concepts fail on account of market fundamentals, particularly absence of demand and paying customers, and effects of direct and indirect competition. Both of these factors lead to revenue shortfalls, Revenue is the sine qua non in business. Revenue pays for everything else. Without durable and profitable revenue streams, all fall down. Next, a large share of capital that has been flooding into the venture capital funds over the past 20 years has gone to financial engineering. Likewise, risk capital going into PE funds is used mainly for roll ups and financial engineering. As in the past, the primary source of seed capital continues to be sweat equity, family and friends, and angel investors well in advance of approaches to VC funds. The success rates at this stage are low. Investments by professionally managed funds and by individuals and groups of them that end up clinging to life in the Land of the Living Dead cannot be considered successes. All in, the odds against success in venture investing are overwhelming. A positive expected ROR is generated by the one or two winners. You get the idea. The name of the game is to crank up massive amounts of assets under management, clip off the 2 percent "management fee," and hope for the best from the 20 percent interest in capital gains from the fund. This incentive structure led to an interesting period in the late 1990s to 2000, when VC fund managers flipped early stage companies into the public market, including those with no revenues and no profits, and declared victory and clipped off 20 percent of the IPO gains. I recently threw out 4 bankers boxes of S-1s from IB s who specialized in this business, e.g., Roberston & Stepherns, et al. You get the idea.