Party pooper
Venture capitalist Howard Anderson, God bless him, dictates the gold standard in his business when it comes to combustible quotes for publication.
Here's a new one: The venture capital party is really over, and it won't be revived for years. This is an unpopular point of view in a business that requires optimism and confidence the way people need air to breathe.
Anderson closed the door on his YankeeTek Ventures in Cambridge this year, as the Globe's Scott Kirsner first reported. In a storied venture capital career, Anderson cofounded Battery Ventures, went on to launch Yankee Group, and finally created YankeeTek Ventures in 2000.
That record, not to mention the fortunes he made for partners investing in young technology companies, is enviable even in a business that created a very long line of megamillionaires. But big venture investing scores have been hard to come by in recent years, and Anderson sees more of the same ahead.
''There is a tremendous self-interest to say that recent returns are an aberration, but just maybe the life cycle of this form is over," he wrote in a note the other day. ''It will be a good 20 years before that is universally recognized, but it is the same issue as excess manufacturing capacity in the auto industry."
Venture capitalists and their money promote innovation, and they are still very good at that. Investment and innovation, Anderson says, are the excess capacity. That has dramatically tamped down the value of companies venture capitalists nurse through business infancy and diminished the returns on investment portfolios.
The Anderson message: This isn't just another market cycle. Systemic change is taking place, and the eye-popping returns that make venture capital famous are history.
The performance of venture funds launched in the mid-1990s and into the current decade clearly show how returns have withered.
Anderson's numbers: The top 25 percent of funds launched in 1994 and 1997 averaged more than 50 percent annual returns. Numbers for funds launched in 2000 (18 percent loss) and 2001 (8 percent loss) make you wince.
Venture profits will return, Anderson says, but they will be muted, compared with the booming results of the good old days. And the immediate future is bleaker than that.
''I don't like it for the next five years," Anderson says. ''I hope I'm wrong, but I don't think I am. The traditional markets, enterprise software and communications, where everyone made money? Those areas are d-e-a-d."
Of course, other businesses and other parts of the world besides the United States attract venture capitalists. All kinds of life-science companies are stuffed to the gills with venture financing, and they could pay off handsomely down the road. Or not.
Other venture capitalists would dismiss the pessimism. They might say that Anderson made his bones and more money than he could spend years ago, becoming cranky after he stumbled on the way to the career finish line.
But follow the money at big Boston venture firms like Summit Partners and TA Associates. It's moving into other investing categories.
''A lot of VCs have gone into the buyout business," Anderson says. ''They don't do early-stage technology. They're buying eyeglass manufacturers, Houghton Mifflin, companies like that. That's different. Game over, start a new game."
No, the game isn't really over. But it is changing.
The Red Herring
K Capital Partners, the Boston hedge fund rattling the cages at OfficeMax Inc., keeps exchanging spitballs with company executives. K Capital, which owns 6.2 percent of OfficeMax, has nominated a director and met stiff resistance. OfficeMax calls it a distraction. K Capital says managers could use help. Stay tuned.
Steven Syre is a Globe columnist. He can be reached at syre@globe.com.
