Call for VC change makes sense

Change.vc, “a movement” to change venture capital, was launched yesterday by European venture firm Active Venture Partners.

The survey is already starting to show significant discontent among the entrepreneurial ecosystem relating to the venture capital industry, based on a commonly used customer sentiment measurement metric.

Christopher Pommerening, founding partner of Active Venture Partners, said:  “One amazing trend is the Net Promoter Score (NPS) for Venture Capital after 24 hours of running the survey has reached a negative score of minus 50 on a scale of minus 100 to plus 100. The need for change is evident!” Net Promoter Scores measure how likely it is that a person would recommend using a service to a friend or colleague.

Change.vc, which we are a media partner of on the survey, said in a statement: “Change.vc wants to identify the main pain points of the entrepreneurial community with respect to the current VC offering through a short survey and propose changes that lead to a new generation of VCs. Let´s change VC together.”

Given how profoundly impactful venture capital has been on society the NPS result is perhaps surprising. A study published this month by Columbia’s Will Gornall and Stanford’s Ilya Strebulaev, showed that one fifth of the market capitalisation and 44% of the research and development of US publicly listed companies is by previously venture-backed businesses. These include three of the US’s five biggest companies by market capitalisation as of August 26, namely Apple, Google and Microsoft.

At the same time there are now more than 150 unicorns – private venture capital-backed companies worth more than $1bn, which points to this being one of the great moments of venture capital, where businesses with huge valuations are being created in a handful of years.

Yet there are reasons to look beyond such stellar success. Pommerening and his colleagues at Active have been making the case that VC hais broken over the years. He first met Global Corporate Venturing two years ago at the annual European conference organised by event company White Bull, where he was speaking outlining the deficiencies of the model.

Change.vc cites how returns in venture capital as an industry have been poor, though this problem is worse in Europe than in some other geographies.

It also argues that investment capital is being turned into a commodity, and cites among other things the rise of accelerators, crowdfunding and venture debt, and that many entrepreneurs refuse to work with venture capital firms, finding them arrogant and unpersonable to do business with.

While such a view is anecdotally fairly widespread among those in the startup ecosystem, it is exciting to see a group looking to try to quantify the perception that venture capital is broken, and what the main reasons are for such a belief.

This also taps in partially to one of the defining themes of Global Corporate Venturing and our other publications Global University Venturing and Global Government Venturing over the years: the idea that more recognition should be given in the process of the funding and development of innovative startups to wider players in the ecosystem beyond the mainstream financial venture capital industry, despite its core role in providing risk capital to the highest potential businesses.

It will be encouraging to see if the Change.vc movement can help improve venture capital into a more entrepreneurial friendly activity, or at least bring some more statistics to the debate.