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Contrary to popular belief, the venture capital industry is not a necessary condition in driving high-growth entrepreneurship, according to Right-Sizing the U.S. Venture Capital Industry, a new study by the Ewing Marion Kauffman Foundation. While venture capital will continue to be crucial to some forms of high-growth companies, the report concludes that the sector’s size must be reduced to be viable. The venture industry has seen stagnating and declining returns coupled with rapid expansion in venture capital assets under management in recent years.

"The venture industry needs to shrink its way to becoming an economic force once again," said Robert E. Litan, vice president of Research and Policy at the Kauffman Foundation. “To provide competitive returns, we expect venture investing will be cut in half in coming years. At the same time, lowering valuations and improving overall exit multiples should help resuscitate the industry.”

While the venture industry is known for backing icons such as Google, Genentech, Home Depot, Microsoft and