The Valley of Opportunityy Rethinking Venture Capital for Long-Term Institutional Investors

Abstract

Investing in venture capital has been an unsatisfactory experience for many long-term institutional investors, as it has not performed in-line with their expectations for more than a decade. Consequently, many investors have been scaling back their venture commitments and, instead, have been focusing on alternative asset classes that offer the benefits associated with economies of scale. In this paper, however, we argue that venture capital still offers attractive opportunities for intrepid institutional investors. Indeed, we outline a mechanism by which institutional investors can bring venture-backed, capital-intensive companies to commercial scale and, in turn, assist in their success over the long term. Specifically, we identify an opportunity whereby institutional investors can leverage their experience in direct private equity and direct infrastructure so as to realize direct venture investing in creative ways. Rather than being held hostage to the ‘valley of death’ when investing in capital-intensive VC-backed companies, we explain why there may be a ‘valley of opportunity’.