VC is a job like any other, it takes time and work/effort etc to produce output, it's also a job where you can improve with skill and experience. Just like writing code takes effort and skill, why would you spend 10 years writing code full-time for "free"?
Just like no one would edit books full-time for free, or write code full-time for free, or teach kids full-time for free, VC's wouldn't screen companies, interview founders, carry out significant due diligence processes for free either. Because they need to eat, need health-care, need money for rent/mortgages etc, just like every other professional.
It's just another job, and most people in VC are not rich, they are just earning a salary and get no carry/% of profits of the fund.
Raise money for the fund's operations with a separate investment product, and take no 2% management fee. Instead take 40% of the upside: this is _efficient_ if you think the upside will be huge.
In fact if you were certain of the huge upside, people would borrow the operating costs for the VC rather than selling equity in the fund. Most VCs in practice live off the 2% quite nicely, and pray for a big hit, but _the big hit is a bonus not the point of the fund_
The point of the fund is the 2%. The once-in-a-blue moon hit is just that.
And let me point out. The YC "big hit rate" is about 1 per 200 investments. Ballpark; you'd need to ask them the current stat.
So a fund that makes 100 investments, on those numbers, has a 50/50 chance of a big hit. 50 investments, a 25% chance.
To reliably get a big hit you either need to massively alter the odds of success for your portfolio companies, or kiss an awful lot of frogs hoping to hit the occasional prince.
VC is _extremely hard_ because it bakes in tech risk and projections about future society into a financial product called startup equity. The big hits are staggering - the best investments ever made by human beings at any point in history I would guess - but reliable prediction of those big hits is impossible.
Nearly every unicorn has a stack of 70 rejection emails. The special factor is intangible and invisible.
If it even exists.
I think Paul Graham explained all of this quite clearly in Black Swan Farming. It's slightly "between the lines" but he knows exactly what business he is in: spread betting and tipping the table as far as possible in his favour!
Generally speaking these people can retire any time they want. Not necessarily with the all the padding and status markers they'd prefer to have. But the bottom line is -- by the time they hit partner level, they definitely have enough in the bank so that they no longer have to show up at the office --- and they certainly don't need to be be anybody's employee in order to physically sustain themselves.
So in the most fundamental sense -- it absolutely is not a "job like any other".
Ok, I'm guessing you've never worked for a VC company.
Sure, IF you're a partner and IF you've been a partner for the duration of a fund (10 years) then you're probably "rich", supposing the fund was successful.
However, most employees at VC companies are not partners, they are filled with associates, vps, support staff, receptionists, personal assistants, event planners, accountants, para-legals, lawyers, etc. None of whom are rich.
In fact the average employee at Google or Netflix probably earns more than the non-partner people at a VC firm. You earn less in VC than you would do going to Netflix and being a Senior Software Engineer. The only exception is if you're very, very lucky and get a partner position at a successful fund (and last for the duration of an investing cycle - 10 years.
You're railing against things I simply didn't say.
Of course these vast majority of people at these companies are regular staff. But I was clearly referring to the folks at partner level, not the employees. It's right there, in plain English. And I certainly didn't say anything about being "rich" in SV terms.
No, it's not; or at least not supposed to. That's what communism is (regular plebs of the working class deciding how to allocate resources with no skin in the game).
It's funny that I heard a VC the other day claiming the US is turning into the Soviet Union...
So... where's the magic pixie in this story? If VC is not a job -- and remember most of the junior people in funds, it's like their first job in finance -- then what is it?
It’s a job but not like any regular jobs. In most regular jobs, you are given a set of requirements/tasks, you do them 9-5 and go home. VC decides who gets money and as a result what kinda of jobs there will be out there. Luckily, VC is only a part of the financing sector.
The problem, in my opinion, is the lack of skin in the game in many of these funds. If the alpha is the 2% of funds managed, then the investments are a side show and as a result VC are just a plunder of these funds and a misallocation of resources in the economy. (Hence my comparison with communism).
VC is a job like any other, it takes time and work/effort etc to produce output, it's also a job where you can improve with skill and experience. Just like writing code takes effort and skill, why would you spend 10 years writing code full-time for "free"?
Just like no one would edit books full-time for free, or write code full-time for free, or teach kids full-time for free, VC's wouldn't screen companies, interview founders, carry out significant due diligence processes for free either. Because they need to eat, need health-care, need money for rent/mortgages etc, just like every other professional.
It's just another job, and most people in VC are not rich, they are just earning a salary and get no carry/% of profits of the fund.