An IEEE study shows the excesses of venture capital in the late 1990s actually stifled innovation.

The image, taken from the IEEE Spectrum story, shows what a venture capitalist should be doing, looking for ideas. In fact, as the study indicated, most 1990s' VCs replaced that light bulb with a dollar sign.

It's something I strongly suspected at the time. It's one reason I called my newsletter a-clue.com, because I saw so many Clueless people drawing such fat checks and directing such big funds toward the cliff.

But it is nice to get some confirmation.

In the study by Bart Stuck & Michael Weingarten, over 1300 public offerings over 10 years were analyzed, and scored 1-5 for innovation, with 1 being very innovative and 5 being me-too.

The study's conclusion is poignant. "Based on our experience, we believe that VCs really aren't the risk takers they're often made out to be."

Here's what I think really happened.

Venture capital is supposed to be "mad money." That is, it's money you don't mind losing. It's like a rich person's lottery play. If you lose you hope you did some good, and if you win maybe you endow a new wing for the hospital.

In the 1990s, however, venture capital drew investment capital. This is money you expect a return on. Promises were made, by people raising the money, that those who invested would get a return, even a spectacular one.

And some investments did draw a spectacular return. But for every spectacular return, you're supposed to get a few modest winners, and a lot of garbage. You're supposed to, if you're really doing venture investing.

Obviously these people were not doing that. In their own words, they were looking to get higher returns by getting ahead of the investing game.

That's a fool's game. And now we have proof.

What should be done about this? The main thing is that venture funds should stop promising returns, especially big returns. Take only mad money. Then, when you have mad money, open your minds to what is possible and make it happen.

Give me a call when you're ready to go.