[ramphastidae]

It is nearly impossible to do so given the private nature of these numbers but having worked in the industry extensively I can tell you the returns are generally atrocious and that no one invests in VCs to be fiscally responsible in the traditional sense.

Investors who put money in VC are generally so wealthy that by the time they are ready to invest in VC they have exhausted all other standard investment opportunities like stocks, private investments in mature companies, personal trusts and real estate and are simply looking for anything with a higher chance of return than a bond.

I’d estimate 90 out of 100 times the VC burns entirely through the money, 9 out of those 100 break even, and 1 out of 100 is profitable. 0.1 generate a return of something like Apple or Google.

That 0.1 in a 100 chance is good enough for the investors as they don’t feel any pain when it’s lost.

That’s why VCs have no interest in sustainable but mid-size businesses, only 100x opportunities. Their public marketing will push that it is because they are visionaries, the reality is that they have no interest or expertise in building mid-size businesses and the returns are so awful for their ‘visionary’ picks that without that 100x investment working out their funds would consistently be total losses.

[ackbar03]

Are you for real? This makes vc bros seem like the greatest con there is then. I'm sure the people running these vc's are making decent money from collecting fees on these random bets

[TuringNYC]

Two Thoughts:

1. Consistent High Performers vs Everyone Else: As with colleges, grad schools, starting salaries, hedge funds, and a host of other things -- it would be good to have a top-20 "typical" return and an aggregate "typical" return.

2. Returns are only one aspect, returns correlation is another. Even post-fee returns at s&p500 rates would be awesome if they are uncorrelated to the rest of the portfolio.

[nautilus12]

Translation: Its set aside money for the purpose of gambling. If they roll a 7 then thats all the better, but its not critical cash flow.

[lizhang]

Could you elaborate on what it means to have "exhausted all other standard investment opportunities like stocks, private investments in mature companies, personal trusts and real estate"? Is this due to some tax/estate laws?

[bradstewart]

Generally it's more about allocation and diversification. You can only put so much money in "standard investments".

When you already have a few hundred million in stocks, bonds, etc, the marginal benefit to putting another few million into the bond market is completely irrelevant--it's a rounding error in the overall portfolio. But putting those few million into a venture capital fund has the potential to generate a noticeable return.

It can also insulate you against structural shifts in markets. If WeWork were to fundamentally change the global real estate market, or some new battery startup fundamentally changes the energy landscape, investors in the incumbents can be left with significantly devalued portfolios.

Having a piece of anything/everything that might become the "next be thing" is a hedge against that.

[edoceo]

It means they are already well diversified in all the traditional "safe" plays. "Exhausted" is maybe not the right word. Once you've got significant capital in the standard five ways then VC is your high-risk sixth play.