Does their return trail s&p 500? I guess there are some of them that are successful and some that aren't, but to be honest I've only heard about vc as people who on average have a very very high return. Now, it is very possible that's just survivor bias, but I would need to search for some data
Most of the funds, even the big ones, trail the overall market, and even the successful ones have difficulty maintaining a long track record of success.
The reason for the big pension funds and endowments to invest in VC is that it’s a bit counter cyclical. Also it’s a tiny pimple on the side of the PE sector overall.
You can see how marginal it is in the financial sector by going to an LP meeting — the big institutionals send kids — first year analysts — to attend because it isn’t that important.
The S&P 500 is a list of the largest and most profitable public companies. It's hard to do better than the most successful businesses. Most other indices and hedge funds don't outperform the S&P 500. Most private equity shops don't. Most real estate investors don't. So it shouldn't come as a surprise that venture capital doesn't.
Most startups don't get big. How many startups founded in the past decade have become hugely profitable? It's not that many. A handful out of the 500k or so funded startups. Meanwhile the S&P keeps chugging along at 8% annually.
It's hard to do better than the most successful businesses is not a statement that makes sense from the investor's perspective.
The price of an investment is based on the expected profitability of a company, an investment in a barely profitable company, if priced correctly, should yield returns at least equal to good companies like Apple, Google, and Microsoft, as the investment would be discounted to compensate for the poor expected future earnings of the company you are investing in.
That's getting into perfectly-spherical-cow territory, though. Investors aren't logical and neither are founders, and there's a real chance that an investor-fair deal isn't going to get any bites. The BATNA for most founders who don't secure funding is "go get a job that pays a lot of money"; while most VC investment is lopsided in the investor's favor through other means (equity preferences etc.), not landing deals makes your fund's LPs ask why they're letting you hold their bag of cash.
Most of the smallish funds do not publish any data. They are sales people who are selling the idea of "higher risk higher return". The sales is their alpha not the investments.
