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Venture Capital Industry In Distress

According to Peter Cohan, President of Peter S. Cohan & Associates, a third to one-half of the 882 active venture capital (VC) firms could disappear, if only because of poor returns.

Five year VC returns through 2008 were 6-percent compared to 48-percent in 2000. Under-performing firms are likely to close their doors. Meanwhile, investment in VC funds shrank 39-percent to $4.3 billion in the first quarter from $7.1 billion in the same quarter a year ago.

The venture capital business got started back in 1957 when American Research and Development (ARD) invested $70,000 in exchange for 70-percent of the now-defunct Digital Equipment Corp.

DEC was founded by MIT grad Ken Olson. It took the lead in mini computers and was a dominant information technology company through much of the 1970s and early 1980s. In 1972 ARD sold its stake for a 70,000-percent (yes, 70,000%) return!

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