In Bizarre Twist, LPs Praise Venture Asset Class, See Strong Future

A strange thing happened at the National Venture Capital Association conference on Thursday. Two limited partners speaking on the last panel of the day said they are very upbeat about the venture asset class.

The positive attitude marked a sharp turnaround from years past, during which limited partners — although still maintaining allocations to the asset class — did so with heavy dose of suspicion. Bill Sahlman, a Harvard Business School professor and moderator of the panel, chose the verb “sucked” to describe the last decade of venture performance.

Two LPs agreed with that depiction, but said they believe tides are turning.

“Bill’s absolutely right,” said Geoffrey Love, who leads venture investments for Wellcome Trust, a $25 billion U.K.-based endowment with has approximately 10% of its money in the asset class. “Over the last 10 years returns have sucked. We often use stronger language at our offices in London.  But I think today — if you have the courage to invest in venture capital — it’s a great time.”

Looking at previous venture cycles, it’s logical to conclude that industry fortunes will be on the upswing, said D. Brooks Zug, senior managing director at HarbourVest Partners, which has invested more than $8 billion in the asset class since the 1980s.

By Zug’s analysis, venture cycles typically last anywhere from 13 to 17 years from peak to peak. The last three peaks were 1999-2000, 1983, and 1969, he said. Based on those long cycles, the next peak will occur in three to six years, making him bullish on the asset class, Zug said.

“If you’re four years away from the next peak, you’re at a terrific time to invest,” he said. Though he is observing some heating up of pricing in later stage and growth equity deals, positive headwinds outweigh negative ones. Overall, Zug gave the venture climate a rating of 9 on a scale of 1 to 10.