Venture Capital

Professor Josh Lerner provides a summary report on the recently held HBS Centennial colloquium on venture capital.
by Josh Lerner

Date: January 9-10, 2008
Faculty Chairs: Josh Lerner, William Sahlman

Faculty Summary Report:

Colloquium: Venture Capital

What were the overall goals of the colloquium?

The VC Conference is one in a series of 14 alumni and practitioner forums Harvard Business School is hosting as part of its Centennial celebration. Through it, HBS honors the important contributions made by its graduates to the development of the VC industry, and who today are estimated to make up more than 20 percent of the world's venture capitalists.

The contributions of HBS faculty and alumni to the development and shaping of the industry cannot be over­emphasized: they included pioneering players who launched important firms and invested in some of society's most important companies. As VC increasingly becomes a worldwide phenomenon, moreover, HBS will continue to have a decisive impact on the national and international economy.

It is appropriate that the conference took place in Silicon Valley. This all but unique confluence of ideas, research, financing, and human resources has served as a matrix in which venture capital has either invented or revolutionized whole industries and changed the U.S.—and now the world—economies forever.

The conference addressed some major issues and questions:

  • What strategies are most effective in creating a top-decile firm?
  • Will those strategies also work in the face of new challenges and a global environment?
  • If not, why not, and how should the industry evolve new strategies?
  • How are opportunities for VC changing with globalization?
  • How should VC firms organize to take advantage of new opportunities in their home counties and abroad?

Those attending the Conference represented the leaders of the venture capital industry. It is our hope that listening to the speakers and panel discussions and engaging in dialogue will stimulate further discussions, generate new ideas, and nurture the community of HBS graduates and others in the VC industry worldwide.

What did your participants identify as some of the major trends or issues as they looked at the current state of the industry?

We asked participants what venture capitalists foresee as the significant upcoming strategic developments in their industry. What problems do they anticipate? They raised issues of reorganization, diversification, new sites for operation and investment, and the problems raised by the U.S. economy and policy. Among the major points of discussion:

  • The importance of right-hand tail companies.
  • Distribution of returns and the tensions between limited and general partners.
  • Human capital: where is it coming from now, and where is it going.
  • Changing the model for venture capital: a good idea.
  • Fighting the "headwinds" for venture capital expansion.

What were some of the learnings from your discussions on strategy, opportunity, human capital, regulation, and globalization?

Many in the venture capital industry have argued that it has no strategy, it just follows the crowd. Panelists believe that strategies of various kinds—to differentiate, to locate and hire in foreign countries and cultures, to build trust, even about whether to go global or not—are a necessity now that the VC industry operates in a globalized world. Among the major points discussed:

  • How venture capital firms strategize and differentiate.
  • Global strategy—a new form of herd behavior? How to scale up the partnership to the global operations level.
  • Protecting venture capital operations from legal shortcomings and corruption.

What did your participants identify as a research agenda for the coming years in this area?

This was not a major focus of the conference.

What insights or surprises did you walk away with?

  • The extent of our alumni base in the industry.
  • The keen intellectual interchange that characterizes the venture industry at its best.
  • The extent to which venture capital is increasingly being run as businesses, with associated questions of strategy and tactics coming to the forefront.

What will be published or will there be other output from the colloquium?

There is a report summarizing the conversations that has been published.