
Good post with some financial data on VC & Angel investments (tough business) - mattculbreth
http://dondodge.typepad.com/the_next_big_thing/2007/03/venture_capital.html
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imp
I had no idea the returns for investors was so low. There has to be more to
the story other than a bunch of people chasing the next Google or Microsoft.
If I remember correctly, pg said they started yc because it was fun and sort
of like a real-life hack. Maybe other investors feel the same way. Or maybe
they enjoy getting involved with the latest and greatest technology companies.
If I had tons of cash, this type of investing would be a lot more fun than
watching my money slowly grow in an indexed mutual fund.

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pg
I think most people who invest in startups do it in the hope of actually
making money. And while the average return may be negative, the best investors
make a lot. You just have to be honest with yourself about whether you're a
good investor.

At YC what drives us to make money is not wanting to be bad at what we do. If
all the startups we fund fail, then we look bad, and we are the kind of people
who really hate to look bad. That's arguably one of the unseen benefits of YC:
if someone takes funding from us, they put themselves in a position where if
they fail, we fail. YC is so public that we work much harder to make sure
companies succeed than we would if we cared only about the returns.

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python_kiss
They lose money because they forget the most basic principle of any business:
moneymaking.

It seems so obvious; but everybody on Web 2.0 seems to think that exit
strategies mean they don't need a business plan. The bottom line is that a
business is not a business if it does not make money. By that metric, almost
all internet startups, even the ones funded by VCs, are just "hobbies".

Exit strategies are great. But that does not give us the excuse to ignore the
basic economics of this business.

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acgourley
I somehow doubt VC's forget money making.

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pg
Believe it or not, some may. Several top-tier VCs have told me (truthfully or
not) that some lower-grade VCs know their funds are never likely to make
money, and they're just doing it for the fat management fees.

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acgourley
Thats pretty amazing actually. It sounds like these lower-grade VC's could
only be so cynical due to past experience, but if that is the case, who is
putting them at the helm of large funds again and again?

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nostrademons
Second-tier university endowments and pension funds, the ones trying to catch
Harvard & Amherst in endowment performance. They know that if the fund
performs well, they look like a genius, yet if it fails, the poor college
students and retirees are left holding the bag.

The whole economy has a huge moral hazard problem. There's a reason why John
Nash won a Nobel Prize.

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mattculbreth
"I remember my father-in-law telling me about the virtues of a balanced
investment portfolio. I told him that my portfolio is balanced. I have risky
investments balanced by outrageously risky investments.".

I guess that's cool if you're in our shoes, but boy it seems a bit risky when
you're running other people's (the limited partners) money.

