Venture capitalists grow businesses towards an exit strategy. They're not in the offer flow creation business, but they should identify deal flow to be successful. The primary job of a venture capitalist is to successfully invest profit companies they find. Consequently, deal sourcing is their job. They notice it to be so important to who and what they are, that they may not abrogate it to a third party. It is their USP (Unique Selling Proposition). Only they are able to pick winners. Consequently, the venture capital industry doesn't scale well.
Since 1984, venture capital in Utah has increased 200X from $10 million to almost $3.5 billion. State sponsored R&D has increased dramatically (USTAR, Centers of Excellence); university based entrepreneurship programs have exploded; Angel groups abound, and a cadre of service providers second and then the Valley exist.
In 1991 the venture capital industry invested approximately $2.2 billion in about 2,500 deals. In 2009 venture investment was approximately $17 billion being invested into about 2,000 deals. In the intervening years, annual venture investment varied from a low of $2.2 billion to a a lot of over $100 billion (2000). The number of true venture quality deals funded annually varied between 2,000 and 3,500 per year.
Since 2004, the "Old Economy" ruling class determined who was filling their office space, buying their big homes, and driving their expensive cars - advanced employees Top Venture Capital firms. Armed with this specific new realization, programs for government and academia exploded. Overnight homegrown advanced economic development went from a cult to the main mainstream religion.
So What is going to occur to the Venture Capitalist?
Deal creation and maturation take considerably longer than deal expansion and liquidation. The economics of the venture capital model places very restrictive time lines and activities on the venture capitalist. It has resulted in the opportunity cost of the inefficient deployment of venture capital resulting in a insufficient optimum job and new wealth creation
Recent restructuring and downsizing of the VC industry and the tight IPO, Acquisition, and Private Equity markets have created sustained pressures on the time lines and activities of the venture capitalist. Manifestations of this are seen in reduced management fees, lower or shared carried interests, fewer VC's and VC firms, and rapidly falling valuations, and very poor rates of return (negative 3% for the last 10 years).
Also, demand for venture returns had caused LPs to place more and more cash into fewer funds has evaporated with poor people returns and the recent financial melt down. The result is a huge continued migration away from early stage funds to megafunds that due to their size can only purchase later-stage or mezzanine deals. It seems "top quartile" in fund performance identifies the "top quartile of the most truly effective quartile" ;.