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Investment opportunities (which VC firms get the money, what deal flow they have, what investment opportunities the VC has) are most certainly not fungible. So I think it's helpful to think of the deal flow in reverse - even though "someone else can take the Saudi money", that "someone else" most likely does not represent exactly the same investment opportunity to the LPs.

FWIW - I do think your assessment of oil is correct (since oil and money are both fungible). But for venture capital, one side of the investment (startup talent, VC skill and network, etc.) are not fungible.

(elaborated a bit more in a twitter rant: https://twitter.com/ericjang11/status/1054115724996694016)




The distinction you're making matters at the level of individuals. If you're a person choosing a startup to dedicate years of your life to, the choice you make has major consequences for you.

At the level of a huge wealth fund, those details are noise that gets canceled out because the more promise a startup has the more capital dollars are chasing it, so the buy in price is proportional to the value. Arguing that investments aren't fungible is essentially arguing that the efficient market hypothesis is wrong. (Which it can be, but not in a way that seems particularly relevant here.)


Fungibility can hardly be true for the venture capital ecosystem. Many people who wanted to invest in Facebook, Snap, Uber, etc. could not do so.

Founders of highly successful startups (or at least those on a promising growth trajectory) are in practice sensitive to which VCs participate in each round (and I suspect in the next few years they will start to pay attention to LPs as well). The "buy-in" price that you mention is not efficient because some people cannot participate no matter how much they are willing to pay.

Similarly, imagine if Uber wanted to hire a top Computer Vision researcher, and they could not. This hiring situation might not even get noticed by a LP, but an LP would surely notice if a VC was not able to invest their money in the next Uber / Facebook.


> Fungibility can hardly be true for the venture capital ecosystem. Many people who wanted to invest in Facebook, Snap, Uber, etc. could not do so.

Many people who want to invest in Amazon right now cannot do so, because the shares are very expensive. That doesn't mean they're not fungible, it only means the existing owners won't sell for what you're willing to pay.

> The "buy-in" price that you mention is not efficient because some people cannot participate no matter how much they are willing to pay.

If you went to Zuckerberg in 2004 and offered to buy in for the equivalent of Facebook's 2018 valuation, would he really have turned you away?

Early stage startups are sensitive to who invests because early investors typically get seats on the board. The problem with the Saudis was not that they would use their board seats to ruin your company.

> Similarly, imagine if Uber wanted to hire a top Computer Vision researcher, and they could not. This hiring situation might not even get noticed by a LP, but an LP would surely notice if a VC was not able to invest their money in the next Uber / Facebook.

The thing about "the next Uber / Facebook" is that nobody knows who they are yet. And the number of startups who could be them is huge, even though most of them won't. Not being able to invest in a random startup that might become the next Facebook is hardly an issue when there are a hundred more that you can.


I'm a bit confused by the wording, but I think you're trying to say that to a sovereign wealth fund, investment opportunities are essentially fungible because they're allocating their money over a large portfolio. So if one of the big VCs or tech companies won't take their money, another will and in a diversified portfolio that's good enough.


> So if one of the big VCs or tech companies won't take their money, another will and in a diversified portfolio that's good enough.

Right, except that we're talking about smaller companies rather than larger ones, so it's even worse because there are more of them.

Restricting who can own a large publicly traded company which is a part of the major index funds would be... impractical.

Which actually brings up another point. Even if you're selective in who you sell a stake to, what happens when they sell their stake to someone else? Or they themselves get bought out or merge with someone?


I'd guess that you could be required to sign a contract when you buy a stake that says that if you want to sell it or get bought out or merge, they also have to sign the contract. It's not realistic, but I don't see any reason why it couldn't happen.




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