-
Roelof Botha said there is too much venture capital and not enough profitable companies to invest in.
-
He said the venture capital industry struggles to achieve expected returns.
-
“Investing in risky companies is a risk without return,” he said.
Not even a veteran Silicon Valley investor can make the numbers behind venture capital add up.
Sequoia Capital partner and former PayPal executive Roelof Botha appeared on two podcasts over the past week to share a contrarian view of the venture capital industry, shaped by more than two decades of investing.
“I think there’s a big problem with the venture industry. There’s too much money,” Botha said on a recent episode of the “All-In” podcast. “In my opinion, investing in venture companies is a risk without return.”
Botha said venture capital firms invest more than $150 billion in companies each year. However, even under what he called “reasonable assumptions for the return,” the math still doesn’t seem right to him.
He pointed to Figma, which had one of the hottest IPOs of the year, debuting at a valuation close to $20 billion. “It would take 40 Figmas a year for the industry to make a profit,” he said.
He reiterated his point this week on the “Uncapped with Jack Altman” podcast. “I don’t think risk is an asset class,” he said. “It doesn’t back up the numbers.”
He said that over the last 20 to 30 years, there have only been an average of 20 companies a year that ended up making exits of $1 billion or more.
Investors (and startup founders) can too often pursue quantity over quality, he said.
“There’s a lot more talent than there are really interesting ideas or interesting companies to build,” he said. “I think we’re spreading out a lot of that talent right now.”
Venture capital has had a pretty tough year so far, driven by uncertainty in the economy and markets. Exciting IPOs are few and far between compared to the salad days of 2021.
Figma was a bright spot, as were a handful of major deals, mostly AI-related, that gave some investors a chance to beat the odds.
In March, Google announced it would buy security startup Wiz for $32 billion in cash, for example. OpenAI raised another round of $40 billion. Anthropic had two rounds of financing totaling $4.5 billion.
Sequoia Capital did not immediately respond to a request for comment from Business Insider.
Read the original article on Business Insider