This is the key takeaway:
> While VC dollars are a significant source of capital for facilitating new business creation, the total capital deployed is remarkably small.
And oddly it gets a disproportional amount of media coverage:
> While VC dollars are a significant source of capital for facilitating new business creation, the total capital deployed is remarkably small.
And oddly it gets a disproportional amount of media coverage:
>These companies now comprise 38% of all employees, 57% of the total U.S. market capitalization, and account for 82% of all R&D spend — a proxy for further innovation growth — in the United States.
So it seems like it does a disproportionate amount of stuff.
The vast majority of investments in this world are safe and boring. People like to get excited/infuriated about the risky, semi-shady, gritty startups that ran the gauntlet and the VCs that were clairvoyant (read: lucky?) enough to get in at the ground level.
You can make a compelling story out of a startup/VC success replete with heroes to emulate, lessons to learn, anecdotes of how close the company came to imploding. It's hard to make a story out of the ebb and flow of pension/institutional fund AUM.
Quoted from the hbr article above:
" 2013 annual industry performance data from Cambridge Associates shows that venture capital continues to underperform the S&P 500, NASDAQ and Russell 2000."
Why institutional investors throw money at VC instead of much better options?
When you invest in market indexes, your gains are relatively capped. There's more volatility in venture capital, but that's the idea - some years you're in the dumps, other times you're investing in Dropbox, AirBnb and Uber, at the same time.
It fits the narrative that if you have the right idea you will be rich with help of the already rich people. It is the American dream were some one bets on you and you get to be the best.
I like documentaries like http://www.indiegamethemovie.com/ were you see how much effort it requires to bring an idea to live. And even that they have chosen successful games, the bast majority never sell a copy, still looks more realistic than the VC stories.
I know two people that made successful games for Steam and iOS. And it required in one case years of development after getting home, in the other to invest the money of their company in the game. And in the end they are not rich, but they got good money out of it.
1. Invent revolutionary product
2. Get VC money
3. Unicorn
It is a story with more impact.