[couradical]

They also argue that this poses a long-term potential problem for VC as well. Eventually an institutional investor wants their money back. Eventually they have to settle up and see who the Amazons are vs. the Pets.com. That forces businesses to transition towards exit in some fashion, if they move to IPO, this shift forces them to make a shift (to become profitable) which will kill some.

I don't see how that's a controversial point, but it's a distinction that a lot of people who aren't in tech, or around startups don't get.

[beat]

I think the professional institutional investors who run pensions and what not are fundamentally different from some Grandma investing her life savings in a "hot stock". Venture capital is just another diversification checkmark for such big funds.

A VC once told me that he thinks most venture funds don't really stand a chance of making money at all. The reason they have money to invest is because there's such a surplus of cash from institutional investors who need the "venture capital" checkbox. The lower-end VCs don't get the best deals and have to settle for leftovers, so their chances of getting lucky in a get-lucky business are that much lower.

At any rate, no honestly run pension fund is actually putting its capital at significant risk by tossing a few tenths of a percent at a collection of VC funds.

[wmf]

I don't think we need to worry about VCs robbing their investors. Both sides of that transaction are pretty smart people who can take care of their own interests.

As for the startups, I think your comparison of Amazon and Pets.com is astute. For each of these companies, are we looking at an unprofitable early stage of a company that will eventually become profitable (e.g. Amazon, probably Uber) or are we looking at a company that can probably never become profitable? The former seems fine even if it causes some temporary disruption, but the latter is just waste.