Times are not good for the venture capital industry. A recent press release from the National Venture Capital Association and Cambridge Associates explained that ten year returns for investments in venture capital funds were now negative.

While the decade-long trend of poor financial returns to limited partners is the headline grabber, the venture capital industry has witnessed a number of other changes over the last decade.

At a May 2010 workshop on venture capital at the Federal Reserve Bank of Cleveland, I made a presentation outlining some of the industry trends. Rather than write about what the presentation said, I’m posting it here.

Venture capital trends presentation (PDF)

Hopefully some of you will read it and comment. I’m interested to hear what others have to say about the trends.

From Small Business Trends

Trends in Venture Capital

Are people from some countries more entrepreneurial than those from other nations? It’s an intriguing question and one that many academics have pondered.

It’s also important to public policy. If people from some countries are more entrepreneurial than those from other places, then we could restock our pool of business founders by encouraging immigration from the “entrepreneurial countries.”

Whether people from certain places are particularly entrepreneurial is difficult to measure. You can’t just claim that those who live in countries with higher rates of entrepreneurship are more entrepreneurial because the differences in rates of business creation might have nothing to do with the people themselves but merely reflect the political and economic environment in which they live.

For instance, the availability of capital, stage of economic development, and industry composition might account the high rates of entrepreneurship in some countries and not others. If that’s the case, then we won’t be able to restock our entrepreneurial talent by encouraging immigration from entrepreneurial places. When people from countries with high rates of entrepreneurship get to the U.S., they won’t be any more likely to start companies than people from countries with low rates of business creation.

One way to measure the “entrepreneurialness” of people from certain places is to look at the correlation between a country’s self-employment rate and the rate at which its immigrants to the United States work for themselves. If something about people from certain countries makes them more entrepreneurial, then their higher rates of entrepreneurship should persist when they move to another economic and political context. If, however, no correlation exists between a country’s self-employment rate and the rate at which its immigrants to the United States work for themselves, then the culture or attitudes of the people aren’t likely to be responsible for their high rate of entrepreneurship.

To see how highly immigrants’ rates of entrepreneruship correlate with entrepreneurship rates in their home countries, I looked at 63 countries for which the U.S. Census collects data on immigrant self-employment rates and the International Labor Organization gathers information on the percentage of the labor force working on its own account.

The correlation between these two sets of numbers was 0.02. That is, there was essentially no relationship between the self-employment rate of immigrants to the United States and the rate of entrepreneurship in the immigrants’ home country.

I also looked at the correlation between the the U.S. Census numbers and self-employment rates reported by the Organization of Economic Cooperation and Development (OECD) for the 29 countries on which it has data. The correlation between the two rates was only 0.18.

In short, there is little evidence that the residents of some nations are more entrepreneurial than those from other countries. At least when measured by their tendency to become entrepreneurs in more than one place.

If the rate at which immigrants to the U.S. start businesses isn’t just a simple function of how entrepreneurial a nation’s residents are, then what accounts for such different rates of self-employment among immigrant groups?

Maybe people from different countries experience very different job markets when they come to the United States. People from some countries might be more likely than those from other nations to become self-employed because they find it more difficult to get a job.

Alternatively, some immigrant groups might have high rates of self-employment in the U.S., but not back at home, because they tend to work in industries in which self-employment is very common in the U.S. but not in their home countries. Taxi drivers, for instance, might not be self-employed in other countries to the extent that they are in the U.S.

While the data don’t tell us why immigrants from some countries have high rates of self-employment in the U.S., but not in their home countries, they do tell us that restocking our pool of entrepreneurial talent can’t be done by simply favoring immigration of people from places with high rates of entrepreneurship.

From Small Business Trends

People from Entrepreneurial Places

I’ve always believed in the importance of helping young people become entrepreneurs. The innovation and energy of youth are the building blocks of small-business success. The good news is, there are more and more organizations out there helping America’s kids, teens and young adults thrive as entrepreneurs.

The Kauffman Foundation (which has funded or guided many entrepreneurship programs itself) recently took a look at some of the top efforts.

• Entrepreneurs Organization (EO) has more than 7,000 members who grow their companies by sharing their experiences and learning from each other.
• Junior Achievement started to help students with career opportunities. Junior Achievement now gives students hands-on experience in entrepreneurship through elementary, middle and high school.
• Network for Teaching Entrepreneurship (NFTE) educates low-income youth from mostly urban areas, helping them improve business, academic and life skills through entrepreneurship education and business competitions. Students get to work with real entrepreneurs and learn from their experiences.
• YSN.com, founded by my friend Jennifer Kushell, offers a ton of tools, solid advice and a strong network for young entrepreneurs.
• I’ve been involved with all of these organizations; they’ve been around for several years. But there are also some relatively new groups serving the market:
• Elliot Bisnow’s “Summit Series” began as an informal group for the world’s top young entrepreneurs. The recent Summit Series earlier this month brought together some of the world’s top CEOs, entrepreneurs, entertainers and philanthropists under 35 to hear speakers like former president Bill Clinton. Summit members get together a few times a year to share ideas on business and how it can solve the world’s problems. Members have met with world leaders and high-ranking policy makers to brainstorm ideas.
• Startup Weekend asks the question, “What if you could take an idea from concept to reality in just one weekend?” Founded by a young serial entrepreneur, the event brings startup entrepreneurs, marketing experts and others together for a weekend-long event that transforms entrepreneurs’ ideas into reality in just 54 hours. So far, over 15,000 entrepreneurs worldwide have gone through the program.
• Bridging the gap beyond high school, the new Entrepreneur U from DECA helps students and parents explore entrepreneurship education opportunities post-high school.
• ExtremeEntrepreneurship Tour (EET) is the first nationwide entrepreneurship tour aimed at students. Cofounder Michael Simmons launched his first business at 16 and now EET aims to inspire other young entrepreneurs. The tour visits small business development centers, economic development organizations and schools to introduce students to entrepreneurship and inspire them to think big.

We’re in an era of change right now and young people lead change. What’s so inspiring about these new organizations and events is that they’re grassroots efforts not just for, but by, young entrepreneurs. I have no doubt that we’ll see even more growth in organizations promoting and assisting young entrepreneurs in the years ahead.

From Small Business Trends

Who’s Inspiring Today’s Young Entrepreneurs?