>Will proliferating seed companies start looking like micro sub-prime mortgage traders? I question the analogy. Seed funding might become a fad investment, but

>Will proliferating seed companies start looking like micro sub-prime mortgage traders? I question the analogy. Seed funding might become a fad investment, but it will surely be less volatile than the subprime mortgage sector. Subprime mortgage originators and buyers backed their assets (the mortgages) by a large amount of debt. So, if their assumptions were only a small bit off (say defaults were 5.0% instead of 4.0%) the debt holders could demand a large amount of new collateral, more than the companies had on hand, forcing them into bankruptcy. Most venture funds have little or no debt. If they overestimate their return by 25%, that means that they will earn 25% less than expected. They will not, however, go bankrupt.