| > The economy is such a complex model of every interaction that I find it disingenuous to base the assumption that market rate == usefulness on pure theory. I agree, but I think this is also generally true. It really is true that a garbage worker is generally less valuable on a societal level than a software engineer (in terms of work output - they might be far more valuable for other things which are just as important!) > We were lucky to get injected with millions of dollars of capital while he works for a utility company. He is useful for thousands of people. My lines of code have not been used by anyone yet and possibly will never be. Look, that's true of a lot of software that gets written. There is a lot of waste. For sure if you look back and see that lots of code written was never used, that code in particular wasn't better for society than something more concrete. But I look at it like with science. Lots of scientists are conducting research that won't ever pan out, doing experiments that end up going nowhere, etc. Was that value-less for society? I don't think so. If we could know ahead of time what would work and what wouldn't, then of course that wouldn't be valuable. But throwing out 100 bad ideas and ending up with a lightbulb is still worth it for society, and the markets react as such. In your case - the reason VCs even have that money is because in the long run, given enough bets, they make money back, which for the most part translates into "they created enough value." Even if individual bets ended up not mattering. > The principles are correct; is it possible that they are correct because they are fundamental, and not the actual reality where politics come into play? Oh for sure there's a lot of distortions, both for good and ill. No argument there. I just think that for the most part things are correct and adhere to the economic theory, and outliers are relatively rare. As opposed to > I am glad that at least on some level, one can find a software engineer in a poorly managed country making less than a garbageman in a well managed one. So, somewhere in the world there exists a garbageman that provides more value to society than a software engineer. Ahah, funny but true. This btw is itself the result of regulations - if people were free to e.g. change countries as much as they wanted, fairly rapidly wage gaps like this would disappear, which would be good for the world IMO. At least economically speaking. |
The VCs get the money from their limited partners. As a rule the VCs don't have meaningful skin in the game. They invest other people's money and get paid a percentage of the money they invest. They don't reinvest their winnings either, that money goes back to the LPs!
Most VCs are also pretty bad at their jobs. They're totally undifferentiated, are not able to recognize great startups, and don't have much to offer to founders. You wouldn't expect an industry with those characteristics to do very well. VC investment is much riskier than investment in some boring 60/40 stock bond portfolio, so venture as an industry has a high hurdle to clear if they want to deliver superior risk adjusted returns.
How many venture bets in the past 15 years have produced companies that will become the next Google or Microsoft or Apple or Facebook? Zero. It's those winners that make the venture business work on paper, and when they don't show up for a decade the entire industry is in the red.
You can postulate that venture must be profitable because otherwise how could it possibly exist. But if nobody is investing their own money (not the VCs, not the LPs, not the startup founders) you're not going to get an efficient market.