Bill Gurley pens a post on the supply of money in venture capital and how asset allocation by limited partners will reduce money in venture. Is it me or does this blog post feel like it’s a year late? It would’ve been more contextual if it was written at the end of last year when we were talking about the denominator effect and the numerator effect.
This is a very long explanation, but the punch line is that as these large institutions adjust their portfolios and potentially abandon these more aggressive strategies, the amount of overall capital committed to alternative assets will undoubtedly shrink. As this happens, the VC industry will shrink in kind. How much will it go down? It is very hard to say. It would not be surprising for many of these funds to cut their allocation in the category in half, and as a result, it shouldn’t be surprising for the VC industry to get cut in half also.