[marketingfool]

In the article it says 80 percent of the investments fail. If you can have that risk, I genuinely don't see the problem.

Heck for my personal angel investments I use 95 percent will fail. Yes it's risky, but the entire point was to find something that returns in the hundreds of percents rather than 7%.

The math works out.

I only worry about evil businesses getting this VC money or uneducated people making bad decisions on investments.

[virgilp]

Thousands of percents, right? If your 5% successes do not return at least 20x, you're globally in the red.

[pedrosorio]

7% is the usual figure quoted for annualized stock market returns, so I guess that’s what they mean: xyz% annualized.

[nothrabannosir]

Parent was referring to the “hundreds” part, not the 7. If 5% of your bets win, but only pay off in the hundreds %, you’re going bankrupt. You need at least 2000% return, amortised over the winners, to break even. More to beat that 7%.

[vidarh]

Yes, but the point being that 7% is an annualized number; if the hundreds of percent is also referring to annualized returns, then it makes sense.

[jiveturkey]

> In the article it says 80 percent of the investments fail

No, the article claims that if 80% fail (but define failure: zero return? 1x?), the other 20% must return 30x in order for the fund as a whole to return 20%. Then it goes on to say that the average fund over 2 decades only broke even. This means that the successful 20% aren't returning the requisite 30x.

> the entire point was to find something that returns in the hundreds of percents rather than 7%.

Right, and if you don't find that something, the fund doesn't work. Funds aren't finding those somethings.

>> A chastening study by the Ewing Marion Kauffman Foundation in 2012 found that the average venture-capital fund in the previous two decades, far from delivering its promised returns, had scarcely broken even.

The paper cited is here: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2053258

VC are selling to LPs the same thing that VC-funded startups are selling to their employees.

> I only worry about evil businesses getting this VC money

And not about the other point they make in the article? :

>> if your rivals are growing wildly at an early stage, and with good hookups, you’re obliged to play the game in order to keep up.

VC is forcing companies that would otherwise be viable bootstrapped businesses, to fail. Then the VC-backed companies fail as well, and everyone is the poorer for it.

[dehrmann]

> uneducated people making bad decisions on investments

Generally, you have to be an accredited investor to invest in a VC fund, and funds aren't really allowed to advertise, so it's not easily available to most people. The post-2008 JOBS Act made it easier to regular investors to angel-invest, but I haven't heard tons of popping up from it yet.

I'm more worried about pension funds investing in PE and VC.

[ones_and_zeros]

Genuinely curious how this works for an angel investor if the failure rate is 95%. How many companies do you have to invest in in order to spread the risk of that 95%?

[LatteLazy]

Most angle investors are either about to lose their shirt, or very lucky or very smart (it's hard to tell the difference between those last two). They usually can only do a few deals before they're spent out. Then they wait to either get 100 times their money or nothing.

They're sort of like guys buying lottery tickets, except the ticket costs more than most houses.

Vc Funds are plying the same game but on an industrial scale. So they get more average returns. Maybe better on average but maybe not for their investors as fees eat into that.

An angle with very deep pockets is probably more like a mini VC fund than an angle. They'll hire people to find and vet investments and maybe pool capital to spread costs and risks.

[onion2k]

Angel investors are not VC funds. They can approach risk very differently. They don't really need to spread the risk or mitigate it if they don't want to. No one is auditing their investments (besides the tax man). The angel investors I spoke to when I was running my last startup really didn't need to make a profit. They wanted to make a profit because that meant success for a business they thought should exist (and would use in their other businesses in my case), but if they didn't they've only lost some money that they could afford to lose.

[ones_and_zeros]

I get that but, how much money do angel investors have? How long before the 95% failure rate drains their capital?

You'd need at least 20 investments to even think about maybe beating that 95% failure rate, that seems like a very high number of investments for one person to find, evaluate, fund and wait before the 95% catches up to you.

[learc83]

You don't need 20 before it's more likely than not that you get a success. And I'm doubtful that the majority of angel investors actual have a net positive return.