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technology review September/October 2012
TR: What is the biggest issue facing
your industry right now?
I think a lot of venture capital firms are
having a tough time raising money.
Because the returns haven’t been very
good in the venture capital industry for
a long time. I think if you talk to the
investors in venture capital partner-
ships, they’ll tell you that they’re very
much on the fence on venture capital,
and if venture capital continues to put
up mediocre returns, they’re not going
to stick with it forever.
What is a mediocre return?
Anything less than three times your
money over a 10-year period.
Why is venture capital necessary to
foster technological innovation?
The reality is, venture capital has
always been a place where high-risk
ventures can get funded. I think it still
is the best kind of capital for somebody
who’s building a company that has a lot
of risk but has a lot of upside as well.
But it seems like the need for VCs is
narrowing. These days, it’s much
cheaper to get an IT company off the
ground. And there are more angel
investors who get companies running
before VCs can jump in.
There are a lot more places to go for
money, which I think is a good thing
for venture capital, because it allows
more entrepreneurs to get going. We
see more projects. There are more qual-
ity opportunities for us to invest in. At
first blush, you might think that more
capital means more competition. But I
think what more capital really means is
Some startups are getting money
through crowd-funding platforms like
Kickstarter (in which Union Square
Ventures is an investor). Is this threat-
ening to the venture capital model?
I think it’s too soon to tell. Many of
the projects that get funded on Kick-
starter aren’t really businesses. They’re
art projects, films ... things like that.
There’s a small subset of projects that
get funded [on Kickstarter] that could
turn into companies. And some of them
might actually become venture funded,
and some of them might not need
venture funding because they raised
enough money with their Kickstarter
project that they can get all the way
they need to go without it.
Could part of the problem be that
there’s actually too much money
available for entrepreneurs?
I don’t think there’s too much money
sitting around. I think there’s too much
money in too few hands. So when six
white guys in suits control two and a
half billion dollars, that’s not a good
thing. Instead of being allocated just to
one firm, it would be better if that two
and a half billion dollars was allocated
to 25 firms at $100 million each. It
would lead to more diversity or people
trying more things: data sciences,
urban sciences, transportation, energy,
materials science, and many others.
How do you fix a problem like that?
It’s a challenging problem, because
I think people who invest in venture
capital like to go into deals together,
and they like to invest in firms that
have brand names and have long track
records. That’s what leads to a concen-
tration of money in a few big-name
firms. I think it’s a little bit of how the
system is just set up.
One of my hopes is that as there are
more angel investors out there, and
the amount of money it takes to make
a company successful comes down,
entrepreneurs are going to have more
The well-known investor
behind the likes of Twitter and
Foursquare says venture capital
funds have gotten too big.
red Wilson, managing partner
at Union Square Ventures, is a
preëminent figure in venture
capital. He’s been at it for 25 years: his
first big deal was an investment in the
Web community GeoCities, which Yahoo
bought for about $3 billion in 1999. He
went on to back startups including Twit-
ter, Zynga, and Foursquare. But from his
successful perch, Wilson worries that his
industry is in trouble.
Lately VCs haven’t come close to gen-
erating the returns on their investments
that made them stars in the 1990s. It’s
even becoming questionable what value
they generate for society. IT companies
are finding it cheaper than ever to get
going now that they can rent computing
resources from providers in the “cloud.”
Meanwhile, alternative funding mecha-
nisms are proliferating. And because VCs
often shy away from technologies that
take a very long time to bear fruit, such
as many in energy or biomedicine, some
critics contend that VCs flood the world
with too much money for ideas that don’t
solve big problems.
In a recent interview in his Manhat-
tan office with Technology Review infor-
mation technology editor Rachel Metz,
Wilson offered some ideas for fixing ven-
8/8/12 2:21 PM
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