Your article illustrates that the venture capital industry is exhibiting many of the classic problems of hypergrowth and consolidation that the industries they fund are experiencing. Many venture capitalists have failed the companies that relied on them, just as many companies have failed the venture capitalists who invested in them. Excessive demand for capital and services has attracted some marginal players and forced some marginal investments.

The venture capital industry, just like the high-technology industry it helped spawn, will succeed for the same reasons any industry succeeds -- it provides a critically needed service. Those venture capitalists who lack the characteristics they seek in their companies (i.e., excellent management, adequate controls, superior product, etc.) will not survive the inevitable cyclical retractions and shakeouts.


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.

Published on: Nov 1, 1984