Does VC foster innovation? Should be, right? Wrong says this article in Spectrum.

An analysis of a decade long of IPOs on Nasqaq and NewYork stock exchange seem to be telling a different story. The analysis shows that the innovative technologies that hit the market were less VC driven. The reasons mentioned for VCs lack of a bigger role in innovation are:

  • A venture fund has a life cycle and investments in various firms are driven by the life cycle rather than the technology perse
  • VCs act as businesspeople, even when they have technical background
  • VCs cannot distinguish between smart and lucky
  • VCs synch investments to business cycles

A key challenge mentioned facing the VC Industry is :
VC investing is all too often a mechanical process of reviewing business-school checklists. The dearth of venture capitalists who can really understand fundamental research and who eagerly talk to brilliant researchers with exotic, extraordinary ideas is one of the key challenges facing the industry. Unfortunately, the average Ph.D. scientist or engineer knows little about business, and , most VCs really don’t want to talk to people like that.

I think there will be a structural changes in the VC industry where scientists who are willing to tread the path of understanding markets will become dominant players in the VC Firms. Only then , will we see innovating being driven by Venture capital.

When will such a time come ?