HarbourVest: "there should be some Darwinism" in VC Land

Here is an interview excerpt from Red Herring. RH got some time with Kevin Delbridge of Harbourvest. Mr. Delbridge is a senior managing partner at HarbourVest, which manages $30 billion of “fund of funds” (via peHub).

RH: Will we see some venture Darwinism going on here, where the best managers are going to emerge and some firms fade?

KD: There should be some Darwinism. The problem is that it’s hard for a venture firm or even a private equity firm to go out of business. It’s hard to kill a private equity management company.

RH: So you think that there will be a consolidation of the venture industry?

KD: Sigh … I hope so, and by all means it should happen, yes.

RH: Let’s say there are 800 venture capitalists who are active today. How many do you think would be good for the industry and should be there?

KD: OK, so if there are 800 today, and let’s say the measure is money invested as opposed to following old portfolios. How many VCs should there be? Couple hundred max.

Let me say this: I think there should be a couple hundred institutionally backed venture firms. Does it mean we’re gonna get down to two hundred? No. We are not going to get down near. If we are at 600, then maybe we could go to 400 or so. Again, it’s hard to kill a venture firm.

RH: Your recipe is to find the best mangers and beat averages on good firms?

KD: That’s exactly what we’re trying to do. More often than not we make the right decision, but we are not infallible and sometimes we may invest in the best managers and things don’t go as planned. What we have to do is as soon as practical say, ‘Next time around we’re not going to invest with you again. We made a mistake and let’s figure out why we made a mistake and try to move forward.’
The VC industry is not going to go away–it is here to stay forever.

If he’s advocating 200 VC firms, let’s assume that’s on a global basis and not solely in the U.S.A. If Canada represents 3% of the global capital markets, is Harbourvest saying we should have 6 Canadian VCs across the land? In total? (How many LPs are nodding their heads right now?)

If he meant in the U.S.A., divide 200 by 12 (our proportional GDP as compared to the USA) and you wind up with 16; or assume the U.S.A. represents half of the world’s capital markets and 400 globals VC funds equals 12 here in Canada. Figures that we are already close to as it is.

MRM