[nl]

> But in fact that author is going about this all wrong. It doesn't really matter if VC outperforms. The point of VC or hedge funds or any other alternative investments isn't too outperform the market on a risk adjusted basis (though that would be nice), but to provide a uncorrelated return stream.

This is correct, but it's pretty clear the the author isn't viewing angle investment in mere economic terms (which is an extremely sensible thing to do).

From the post: "When you invest in a startup, the money directly goes to the economy to build up a business, to create jobs and to actually contribute to the trickle down economy."

[chii]

> From the post: "When you invest in a startup, the money directly goes to the economy to build up a business, to create jobs and to actually contribute to the trickle down economy."

and this is completely wrong.

The money public investors pay to exiting shareholders do play a major role in the economy - it enables the early, IPO/angel investors to exit, and allows them to convert capital locked in the established startups to new startups, without waiting to "cash-out" using the company's profits (which may be years away).

In other words, the public markets makes capital movement much more efficient. It lets high risk takers take on bigger risks (for the corresponding potential return), without taking up the required time.

It's a misconception that many people have, that investing in the public markets is less useful to the economy than direct investment. Both play a critical role, and without one or the other, the capital markets will be _way_ less efficient.

[ponker]

In the aggregate this may be true but the public markets don’t need any given investors. There are hundreds of thriving startups that simply would not exist today if ten people who did invest had chosen not to invest. No public company is that dependent on investors especially if they don’t need to make another offering.

[nl]

> The money public investors pay to exiting shareholders do play a major role in the economy - it enables the early, IPO/angel investors to exit, and allows them to convert capital locked in the established startups to new startups, without waiting to "cash-out" using the company's profits (which may be years away).

Sure, this is true. But there aren't any early investors in Exxon (for example) cashing out this way.

[chii]

> But there aren't any early investors in Exxon (for example) cashing out this way.

The process is continuous, until the day Exxon dies or closes shop. The chain of "cashing out" needs to be maintained for the chain to even exist in the first place.

If there were no "secondary" investors, then the only way for an initial investor to reap their returns is via the profits generated, which can be many many years away.

But these "secondary" investors are in the same position - they may want to only invest for a set interval of time. So they have to "cash out" by selling to "tertiary" investors. And so on.

And as a company becomes more mature, their expected returns are more certain, and also lower (i.e., lower risk). So the tertiary investors are people who don't want to take high risks, and want a steady stream of income.

The problem i have with a lot of people's misconception is that they think that buying/selling shares are useless activities, and does not benefit the overall economy.

[WJW]

I have been thinking about this a lot. The difference in preferences between classes of investors can be be huge. Pension funds and the like have massive amounts of capital and a constant demand for cashflows but relative low manpower, so they are looking for very stable investments. Angel investors are almost the opposite as they have much more "labor" available relative to their capital, so they are looking for speculative stocks where they can contribute knowledge and connections to make a difference. There is a whole spectrum of investors between these two and it makes sense for stocks to slowly migrate to being owned by the "boring" end as the underlying company matures.