[snisarenko]

I think we would see less poor VC investments if there was a practical way to short or bet against these investments.

Currently the only punishment a bad VC gets, is that they still collect their fees, and get the wag of the finger from the rich people who gave them money.

[dpflan]

So a derivatives market for betting an investment's success? Would that be effectively, a market for the (private) investment's stock?

[snisarenko]

Yeah, I guess something like that.

Other approach is for LPs to reject any percentage based management fees.

I think a skin in the game payout structure for VCs would be better.

- VC has to commit x% (5%)? of their net worth into the fund

- VC gets bonus payouts only on individual investments that are net profitable (something like 3% of the net profit from the invested LP money)

- Could also be augmented with a Flat Yearly Salary/Fee to cover basic operations (not a percentage based fee)

If I was an LP thats how I would do it. No way would I agree to a flat percentage mangement fee.

[smartbettor]

I'm not sure if you know but all of this has been tried or is currently how it works.

To begin with, most GP's have north of 5% of their net worth in the Funds or they're leveraged and borrowing against their homes etc. Partners usually are paying 30ish of their take home into funds.

Individual investments on a single deal are called an "American Waterfall" Vs a "European Waterfall," which is the whole fund. Each incentivization structure provides remarkably different issues. neither is perfect. BOth are prevalent in the market today.

Flat cost structure funds exist as well. Also, remember all fees are just added to the costs the fund needs to return. So VCs are incentivized to keep them low, they many don't do this.