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Here's the problem: most VC firms understand that 9/10 investments will fizzle out or make modest returns. 1/10 is the unicorn, the 100x. Everything depends on

Here's the problem: most VC firms understand that 9/10 investments will fizzle out or make modest returns. 1/10 is the unicorn, the 100x. Everything depends on finding the unicorn and growing it like a weed, so every investment has to be treated like a unicorn - grow fast grow large NOW NOW NOW - whether it's actually beneficial for the company or not. There's so much money sloshing around in the valley that when stupid apps that make no money like Yo or Yik Yak get enough attention, there is inevitably ONE investor who will think "what the hell, if I throw in 10k it could end up becoming the next Instagram or snapchat." As long as people keep joining, more investors will pile in, then the VCs, then Titans like Google will hopefully have their eyes on a shiny new acquisition. The focus on huge fast returns when they seem to be happening all around you inevitably crowds out investments in companies that can create modest growth from real profit, and it makes investing in "slow" companies downright unfashionable. To inverse the old Wall Street expression: "Nobody ever got rich from buying Big Blue."

x5n1 11y ago
Unicorns are rarer than 1/10 and 30% of investments generally pay off, according to research, with some positive results.
- rm_-rf_slash 11y ago
  Ok so my numbers aren't exact but you are right, the aggregate return of VC investments tend to be positive. Same with the stock market. However, VCs are in more of a position to influence the growth of their investments. There is nonstop hype for companies that make zero profit because of the hope that it will enable bigger funding rounds, a buyout, or an IPO. The only difference between overhyped no-profit startups and a Ponzi scheme is that the latter knows the investment is a bust, while the former isn't sure.
  - twblalock 11y ago
    Actually, there are quite a few other differences, including the fact that Ponzi schemes are intentionally fraudulent, and the fact that the many of the "overhyped" startups actually do have a chance at succeeding, which is proved by the fact that some do succeed.
- chris_va 11y ago
  Anecdotally, I would say 30% positive, 30% total loss, and 30-40% somewhere in between. Fund returns will definitely be biased towards the top 1-10%, like in any lottery system.
- bduerst 11y ago
  Which usually isn't good enough for high-risk investors in VC firms. Marginal returns on 30% of investments is likely worse than marginal returns on an index fund.

x5n1 11y ago

Unicorns are rarer than 1/10 and 30% of investments generally pay off, according to research, with some positive results.

rm_-rf_slash 11y ago
Ok so my numbers aren't exact but you are right, the aggregate return of VC investments tend to be positive. Same with the stock market. However, VCs are in more of a position to influence the growth of their investments. There is nonstop hype for companies that make zero profit because of the hope that it will enable bigger funding rounds, a buyout, or an IPO. The only difference between overhyped no-profit startups and a Ponzi scheme is that the latter knows the investment is a bust, while the former isn't sure.
- twblalock 11y ago
  Actually, there are quite a few other differences, including the fact that Ponzi schemes are intentionally fraudulent, and the fact that the many of the "overhyped" startups actually do have a chance at succeeding, which is proved by the fact that some do succeed.
chris_va 11y ago
Anecdotally, I would say 30% positive, 30% total loss, and 30-40% somewhere in between. Fund returns will definitely be biased towards the top 1-10%, like in any lottery system.
bduerst 11y ago
Which usually isn't good enough for high-risk investors in VC firms. Marginal returns on 30% of investments is likely worse than marginal returns on an index fund.