Pondering why today there are not many exits over $100M is Fred Wilson at AVC. Fred confuses downside money-in with risk, as a Venture investor he should know the timing and size of money-in relative to the upside trajectory identifies risk.
Round sizes do not indicate risk, as you can see from my blog (“The economy is not the problem”) where I use Vinod’s quantification of the deflation of risk with the same money-in. And deflated risk equals deflated returns, hence the reason why subprime VC can only return subprime PE returns.
The challenge for VCs is to not look at innovation like deals (or a commoditization of down-side risk), but treat them individually and each with their unique risk and funding requirements. But that assumes a GP who can assess upside risk (rather than money-in, downside) correctly and we are in short supply of GPs who can do that.
The problem with innovation remains its arbitrage, not the lack of ideas that can produce great returns.
[Links: AVC]
