Comment by solatic
1 day ago
> make on average
This completely misses the boat on venture capital, which is almost by definition the riskiest of all risky bets. Any smart LP throwing $X into a fund has a portfolio valued, at the very least, at 100 if not 1000 times X. It is simply the way to expose the high-risk portion of the portfolio to that level of risk at the size of the investment needed. Being high-risk, probably it will return nothing. But it might not.
It is the average that matters in the end. How much new money flows into VC per year? Some number of $1e9 - hundreds perhaps? What happens to it?
If its all a folly and the money is burnt, it cannot last. But otherwise, these VCs investing at what looks like crazy valuations can't all be idiots.
EV is not a reasonable metric here. When the ventures are 99+% likely to fail, and individual funds don't invest into more than a few handfuls of companies, you don't have enough variance to promise that fund returns will approach some kind of average. As long as at least one VC fund produces the kind of returns necessary to attract that level of investment at that level of risk, then what matters is not some kind of an average but the managing partners' reputations and networks.
> it cannot last
It cannot last because VC managing partners are human and are subject to human frailties, greed and pride among them. If most actively traded funds cannot succeed at producing sustained above-market returns over time (i.e. making active stock market picks, compared to index funds), then what else other than hubris could suggest an ability to pick unproven startups, sustainably, over time?