Why is there so much money in venture capital? (hedge fund, trading, invest)

[Avondalist]

There's a somewhat famous report from the Kauffman Foundation, which promotes entrepreneurship, about the poor returns from venture capital.

https://www.kauffman.org/entrepreneu...-and-he-is-us/

I remember reading this report years ago and thinking it presaged a pullback. Instead more VC money flowed than ever, especially during the pandemic.

Full disclosure: I have worked for a number of startups and have seen how the sausage is made. It's not pretty; a lot of investors are taken for a ride.

I always hear the standard explanation that investors just need one of twenty businesses or so to achieve stratospheric growth to cover all of their losses from the nineteen other companies that went nowhere. However it seems a lot of investors put money into companies that have no chance whatsoever, from my perspective. Cleantech, hardtech, healthtech, sharing economy, most biotech, etc are all doomed. If I were a VC I would only invest in SaaS businesses, just to limit the blast radius of losses.

However looking at the Kauffman report, the industry wide returns aren't great. There's a flaw in the argument above because even if you invest in the next Google, its gains will only net you a mediocre return when balanced with your losses.

Why do investors bother with VC? Why not stick to private equity, where you buy businesses that already exist rather than speculative ventures, or real estate, or just index funds?

I have to think it's mostly about status. VC is considered the sexiest finance sector, and successful VCs are held to be visionaries. I honestly think professional VCs are trading returns for social status.

This is also why I think professional investors are very rarely more informed than the general public, and are just playing a variation of the stock picking game with insufficient info and no clear edge.

[euro123]

"So much"? Compare it to a single hedge fund, Blackrock who owns like half the world and keeps going and going:



https://www.youtube.com/watch?v=1n4zkdfKUAE


VCs are seeking unrealistic returns so the poor track record isn't shocking, but over the years their investment approaches could've gotten more conservative, my best fr. from childhood for example secured around 3M in euros in funding in Germany for a 'doctor appointment' app for android or something like that. But VCs will usually fund bizarre things like in vitro meat, ai scifi robots, space ships and one God knows what.

[leastprime]

May be, the losses are tax deductible and gains deferred or tax advantaged.
Sometimes, may be the investors can look like a "genius" ?
I got a good handful of companies that I bought, and now I a "genius" at being an owner stupid idiot fool of a$$es The only stuff that I get from them is a feeding the a$$es by dollar cost averaging on dips and seeing a continued piles of $hit.
My a$$es are not tax loss deductible.
It my way of buying a lottery.
It's excess retirement funds that I don't count anyway
YMMV