| I think it's a bit short sighted to say that the high risk high reward model is superior to this model. While that may be true in a theoretical sense, you have to take into account market conditions and competition. As an analogy, you can have an investment thesis that vending machines with bottled sugary water have extremely high ROI... but you are missing the elephant in the room which is you'd have to compete against Coke and Pepsi's infrastructure and brand. Similarly, if you are raising a fund and want to play the high risk, high reward game, you need to consider what the market conditions are. First, it's definitely not an even playing field. Connections and brand mean a whole lot. The leading VCs have all the best deals coming to them and have a bunch of management consultants in the backroom trained to spot large market opportunities. The volume of deals and strong connections allows them to pick and choose the best opportunities, and everyone else is left with scraping the bottom of the barrel. Second, there's only around 15-30 billion dollar companies created per year in the US, and there's probably 30-100x the amount of incubators or venture firms. It's just a limited market overall. That's the game. In a theoretical sense, yes high risk, high reward opportunities have better ROI, but only if you are at the top of the game. So I'd hesitate to say that this is an objectively inferior model because for some investor's positions, this strategy would probably yield a much higher return. Its probably better to compare the two models like Residential and Commercial asset types (a quick google search to show the comparisons: https://www.fortunebuilders.com/commercial-vs-residential-re...) |