Here's a great blog post (Getting Venture Capital Back on Track) explaining why the returns in VC have been lagging most other asset classes over the past decade. One of the major reasons traces back to the more onerous regulations surrounding IPOs after passing Sarbanes-Oxley, which increased the financial disclosure rules that public companies had to follow. Dealing with private companies and IPOs in both banking and PE, I've come to discover that just complying with Sarbanes-Oxley can cost companies over $1mm each year. That's why the new JOBS Act (Jumpstart Our Business Startups) should hopefully help reduce this burden, since it will give startups five years to completely comply with Sarbanes-Oxley. With all the news about Groupon and the accounting mistakes they are making after just going public recently, I think this will be very helpful for other startups looking to go public since they will have a bit more leeway in their financial disclosures.
I also found it pretty surprising that the VC industry as a whole only returned 2.6% to their investors in 2011. However, it's also important to realize that there are ~25-30 VC firms that represent 80% of the industry's profit and the rest of the firms tend to be much smaller and either break even or lose money. So entrepreneurs it's important to try and make sure that the investors you decide to partner with are hopefully one of the more respectable VCs that are generating the strong returns for investors. Not all VC capital should be treated the same, since the value, reputation and connections they bring to the table are just as essential.