Venture Capitalists are much less ambitious than their private equity siblings

https://summation.net/2019/01/21/venture-capitalists-are-much-less-ambitious-than-their-private-equity-siblings/

by telotortium • 7 years ago

73 4 7 years ago

growtofill• 7 years ago

So they take less risk so the startups they fund can take more. No surprises here?

robterrin• 7 years ago

This article is well reasoned. I have heard VC's lament that they are constrained by the business model, and one of the world's foremost academics studying PE/VC believes the model is broken. Limited partners (LP's) have a required rate of return based on actuarial statistics that pension funds must meet, spending goals for foundations or building plans of endowments. All problems stem from having to hit their investors' goals while investing in uncertainty (different than risk, which is what private equity does).

There is one more point I would add to the list. VC's seek high volatility experiments because the power law approach to investing means their wins have to be massive rather than just double or triple their money. VC's themselves use a portfolio to dampen volatility. Peter Thiel is on record that most VC's think about it all wrong and should just admit to making huge bets.

Rob Hayes, of First Round Capital, once said that VC's sell a product (money) to customers (entrepreneurs). This would make LPs their suppliers. If so, then having a family office, or other patient capital, back your fund would be a huge advantage.

Retzus• 7 years ago

This is a good read https://www.amazon.com/Buyout-America-Private-Destroying-Ame...

pge• 7 years ago

While some of this is overstated, directionally it is on point, but he ignores one very important factor: the customers. The LPs that provide most of the capital to the VCs (pension funds and endowments) expect and want a certain product (2/20 funds run as partnerships, where each investment is attributed to one of the partners). Business models that deviate from this are not received well.

Venture Capitalists are much less ambitious than their private equity siblings

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