MIT VC conference highlights dangers, predicts shakeout for venture capitalists

“Does venture capital need to be reinvented?” That was the question answered Saturday by David Fialkow of General Catalyst Partners, Michael Goguen of Sequoia Capital, Paul Maeder of Highland Capital Partners and David Skok of Matrix Partners.

The four panelists for the opening of the MIT Venture Capital Conference were unanimous: It does.

“There’s way too many VC firms and way too much capital that’s gone into the system,” said Skok, a general partner at Matrix, which has offices in Boston, Silicon Valley, India and China. Skok called latecomers and followers in the VC startup game “tourist entrepreneurs.”

The top 10 venture capital firms have accounted for under 5 percent of the money invested, but they have put out 38 percent of the investor returns, he said. “There’s this very long tail of firms that have not figured out to make money,” he said.

That shouldn’t discourage entrepreneurs, said Fialkow. “It doesn’t matter,” he said. “What should matter to you is, find a big idea and go for it.”

Not everyone in the audience agreed. “I find it ironic,” GrandBanks Capital co-founder Ryan Moore said later, responding to the tenor of the morning panel. “We’re in the business of innovation, but starting new funds, that’s not a good idea. Starting new companies, that’s a great idea.”

Moore’s comments came during a later panel on exit strategies.

Right now, the best companies will be those that are conservative about raising money, said Goguen. The best VCs provide more in the way of experience and advice than they do in cash, he said.

As Sequoia has studied its past investments, an interesting trend emerged, he said. “The companies that have the most success, for us, they were the companies that took the least capital.”

Still, no matter what strategy VCs choose to take, there will be some who don’t make it through the current volatility, Maeder predicted. “There needs to be a shakeout,” he said, “and there will be a shakeout.”