Unintended Consequences Of Making VC Returns Public
from the bad-news dept
We’ve covered the debate over whether or not public entities that invest in VC funds should make the VC returns info public. While I have no problem with people having more information, this is one situation where the information is bound to be misinterpreted – and should only be released with a lot of educational material. The biggest problem is that the numbers look like public company type numbers, so people judge them in the same way. But, they’re not the same at all. First off, VCs are investing for the long haul, and returns over the first few years are supposed to be negative. Second, a lot of the valuations are practically made up numbers. They mean nothing because the shares aren’t liquid and there’s no real market for them. It’s just based on an agreed upon number. The other problem with such numbers is that, suddenly, people start looking at the results on a quarterly basis – which is ridiculous if you’re a VC fund or a startup company. One of the reasons to stay private is to have a longer time horizon on which you’re judged. It allows you to make longer term decisions. Tim Oren, a venture capitalist, has written up a much longer (but well worth the read) piece on some more “unintended consequences” of making this info public, suggesting that it’s going to do a lot more harm to pensioners and anyone who has their money invested by public entities. I’m not completely negative on the idea – and I hope that, with some education of both journalists and investors, a lot of these problems can be alleviated. However, as it stands, there are going to be more bad articles like the one Oren rips apart.