Ask HN: Do VC funds come from questionable sources?

3 points·xstartup··3 comments

I read somewhere that historically market has outperformed VC funds. But lower returns have not stopped VC partners from contributing to these funds. Why? Does it come from questionable sources which can't find its way into the market? Does it offer anonymity or something?

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The investors in VC funds are called Limited Partners (LPs), as opposed to General Partners (GPs). LPs raise money from high-net worth individuals (HNWIs), funds of funds, etc.

Maybe what you read had some qualifier attached to it like across all VC funds "on average". With funds, the outliers are everything like with successful startups. Deal flow varies greatly by VC. A similar comment, and one that holds up, is that most startup accelerators have 0 "successful" exits.

Brad Feld's book Venture Deals [1] is a great reference if you want to learn a bit more from multiple perspectives.

[1]: https://www.amazon.com/Venture-Deals-Smarter-Lawyer-Capitali...

A lot of sovereign funds could be called "Questionable" since those are funds directly under the control of the Government.

Many High Net Worth Individuals set up investing trusts overseas to mask their real income and these funds are usually run by investment professionals who "place" these funds.

So, yes it is tough to check the provenance of a funds LPs all the way back to the source. But if you stick to tried and tested sources - ex-founders, Pension Funds, State Funds, College Endowments, Hedge Funds, and suchlike, you're more likely than not - taking funds from a responsible source.

Of course, that is not always the case with ALL VCs.

Pranay

Upside. LPs are willing to invest a small portion of their portfolio into an asset class that has lower average returns, but potential for great upside.

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