[7Figures2Commas]

> The goal is to get a return on investment...

This is a simplistic, overly idealistic understanding of venture capital that is unfortunately constantly repeated but rarely rebutted.

The goal in venture capital is to be able to continue to raise funds. On a $500 million fund, a venture firm locks in $100 million in management fees over the life of the fund (assuming the standard 2% annual management fee and 10 year fund life) regardless of performance. Not a bad deal.

But it gets better. Because of the nature of venture investments, it's all but impossible to declare a fund a winner or a loser a few years into a fund. But a firm won't wait 10 years to raise its next fund. It's going to raise its next fund not more than a few years in, and in a hot market like this one, that fund is likely to be bigger, so the firm gets to lock in another 10 years of management fees on an even bigger pile of money.

Carried interest (your "return on investment") is icing on the cake for venture capitalists. Because most LPs are muppets who will continue buying the same inferior product, the real imperative for a venture firm is to make sure its funds are not total dogs. Given historical venture capital returns, that basically equates to not blowing up your fund.

[jcdavis]

Not only that, but fund lives are getting longer. This article says the median time life is now 14 years: http://www.institutionalinvestor.com/Article.aspx?ArticleID=...

[jacquesm]

Cynical but spot on.