VC Outlook: Chrysalis’ Karleski Urges Back-To-Basics In 2012

As 2011 comes to a close, we asked several venture capital investors to reflect on the past year and give us their outlook for 2012. Kicking off our series is Koleman Karleski, managing director of Chrysalis Ventures.

Karleski talks about the survival of the fittest that characterized 2011, and how the venture industry must think back to its origins as it moves forward.

Looking back, how would you characterize 2011? I view it as a Darwinian year–only the strong survived. Only the young companies with great teams and sustainable business models and aggressive growth strategies made it through 2011. The same is true for fund managers. If you’re not continuing to produce exits and attractive returns, you’re not raising a new fund.

What is the most important issue that the venture capital industry faces in 2012? In a word, liquidity. Venture firms have been investing capital at a much faster pace than they’re raising it, and obviously that cannot be sustained. More successful company exits are needed in terms of trade sales and IPOs.

What impact, if any, will the more-difficult fund-raising environment have on the industry in 2012? Fewer venture managers will survive and raise new capital, and those that do survive will have less capital to invest. As a corollary to that, fewer companies will get funded.

What is your New Year’s wish for the venture capital industry in 2012? My wish for the industry is to remember from whence we came. Venture historically has been about investing modest amounts of capital to help tenacious entrepreneurs create enduring, profit-driven enterprises. Over the past two decades, fund sizes have increased dramatically; bets on intellectual property have replaced a focus on profits. That has resulted in lower returns. Hopefully, as an industry we’ll learn our lesson of the past two decades and get back to basics.

–Interview by Brian Gormley