A Second(ary) Chance for Venture Capital

There's plenty of fretting in Silicon Valley and beyond over the venture capital industry, how broken it has become, and what needs to be done about it. Proposed solutions abound, with some favoring a government bailout, others saying the ranks of venture capitalists need to be slashed dramatically, and some proposing the creation of a market where equity in startups is bought or sold like shares of publicly traded companies. Each has its merits and weaknesses.

But in my view, what's needed is a fundamental rethink in the way startups get backing. VCs need to take a fresh look at when they invest, and for how long. VCs and other investors that have expertise in early-stage companies ought to invest at the outset for a few years, but then sell to companies that specialize in—and have more to offer—more mature companies. To understand why this approach makes sense, consider the shortcomings of the existing model.