Back to the Future: Adaptation and Precognition in Venture Capital

Rodney R. D'Souza, John E. Clarkin


Adaptability and effective strategy are cornerstones of most successful entrepreneurial ventures.  Arguably, organizations in the venture capital (VC) sector that provide access to capital and strategic advice to entrepreneurs should be among the most proficient at adaptability and implementing strategic change.  At the forefront of new venture creation, VC firms (VCF) advise entrepreneurs who must quickly and effectively adapt as new industries emerge and once promising ones fall out of favor.  It begs the question: do VCFs practice what they preach?

On the surface, it appears that some VCFs are better at adapting their strategies than others. The overall performance of the sector reveals that the stellar returns once produced by most VCFs are now confined to a select few.  Little is known, however, about what differentiates successful VCFs from others.  Further, how strategic processes are implemented among VCFs, and how the overall industry adapts to change is largely unexplored.

To explore VCF strategies, we focused on two vital determinants of success: adaptation to changing conditions; and an ability to predict future trends. We conducted semi-structured interviews with ten VCFs, examining their investment strategies and their views of the future.  Specifically, we examined the stage of companies in which they invest, their industry focus, and other factors that affect their fund performance. Using industry data from the 2012 National Venture Capital Association (NVCA) Yearbook, we compared interview results with findings published by the NVCA.  We found that the firms in our sample were undertaking different approaches with potentially far-reaching effects on the entrepreneurial landscape.

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