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A somewhat tangential meme is making the rounds of the VC bloggers at the moment which might be applicable to the point of this article: the current VC model is
by evgen 17y ago
A somewhat tangential meme is making the rounds of the VC bloggers at the moment which might be applicable to the point of this article: the current VC model is mostly broken because VC firms make too much money on the carry, so they raise huge funds (using past history during the 'fat' years to justify them to LPs) and this increases the pressure to deliver invest in larger chunks and aim for unrealistic returns on these large investments.
If a firm's GPs expect a seven-figure base of compensation they are going to want to raise 200-500MM depending on the size of the firm, which is difficult to effectively distribute in chunks of less than 10MM.
- rizzn 17y agoThis is where it gets above my head and into John's wheelhouse, but for the sake of humoring a VC newb like me ... ... why couldn't these lower cost deals scale out? Couldn't they make more investments at lower initial valuations rather than less investments at unrealistic valuations? Maybe it's because I live in this world nearly 24/7, but I can look at the press and the presentation of everything I get pitched by the PR flacks on a daily basis and make a snap judgement on at least 80% of what I see as to whether or not it's going to last or make money. I'm not 100% right, but I'm right a lot more than I'm wrong. If I'm just a pundit, a guy who blabs for a living (who, btw, isn't very expensive to employ), why can't more folks like me be employed by these VC firms to scale up these low cost investments? Is there something completely wrong-headed about what I'm asking that I just don't get?