It is unfortunate that your cover story, "Why Smart Companies Are Saying No to Venture Capital" (August), conveys, through its title and teaser sidebars, such a negative impression of the entire venture capital profession. Careful reading of the article suggests a more accurate, albeit less sensational, description of Joel Kotkin's findings -- why some smart are saying no while other smart companies are saying yes to venture capital.

In his interviews with experienced venture capitalists, Kotkin describes what smart companies should look for in their long-term relationships with venture capitalists. As he relates, venture capital must be viewed as the business of developing businesses. The matching of objectives and the combining of expertise and experience among the partners in this very difficult process is critical to building long-term values. Most of the successful venture-backed entrepreneurs interviewed by Venture Economics Inc. have told us, "It is far more important who you get your money from, than are the specific terms of the deal." An entrepreneur who assumes that all venture capitalists are equal has not done his homework. The best advice entrepreneurs can draw from the article is to investigate potential venture capital partners with the same, or greater, thoroughness that the venture capitalists employ in examining the potential investee's company.

Venture capital is not a homogeneous profession, but rather a combination of many skills and experiences. In the critical matching of objectives and skills, some venture capitalists will be far more effective than others with different company managers and industry sectors. The venture capital industry's recent growth has produced greater diversity for entrepreneurs, and each potential venture capital relationship must be viewed for its own merits.

As in any rapidly growing industry or profession, human-resource development is a critical concern for venture capital. We often refer to venture capital as being one of the few remaining apprentice businesses. Professional venture capital, however, is still dominated by experienced veterans.

Of course, there are many new participants in various stages of the apprentice process. A substantial number of those, however, are individuals with demonstrated business management experience or proven expertise that is of value to the business-development process. Recent hiring trends show that many individuals entering the industry come from either senior management positions with large corporations or are entrepreneurs who have already been successful in building a business. These people not only have the capability to progress very rapidly through the specialized venture capital apprentice process, but they also bring their specific skills and experience to venture capital firms.

Venture capital has only recently achieved recognition as a unique discipline. As Kotkin relates, it is not an investment business. Professional venture capitalists have a luxury not available to money managers. With capital commitments locked in for 10 years, good venture capitalists can take advantage of short-term cycles to produce exceptional long-term rewards. Judging the future of the industry on the recent stock market conditions, or any short-term influences for that matter, is premature. Some great venture investments were made in the mid-1970s when "venture capital was dead."

While the entire venture capital profession should not be deified for the extraordinary successes of some of its professionals, neither should it be totally damned for the inexperience of others. Our nation desperately needs innovative entrepreneurs to lead our future economic revitalization, and they will require all the support we can give them. The negative bias toward all venture capital (an important tool for many of these entrepreneurs) that your presentation brings about is a disservice to your constituency. Kotkin's article does have the facts to lead one to reasonable conclusions, but they sure are obscured by the headlines. If you had highlighted the positives along with the negatives, I would have enjoyed congratulating you.


Editor's note: When we published "Why Smart Companies Are Saying No to Venture Capital" (August), we anticipated that the article would generate much response from both entrepreneurs and venture capitalists. The response, as reflected in the letters that follow, has shed some additional light on a very important subject. We trust that this is not the end of the discussion about the role of venture capital in building companies, and we encourage other readers to inform us of their experiences.