As different as foresight and hindsight are. Same asset-management bucket, completely different risk profiles, and then some. Billionaire investor Vinod Khosla referenced my stance on his Twitter account.
Even though venture capital and private equity are considered part of the private equity asset class of alternative investments, both investments in private company stock, the risk profile between venture capital and private equity could not be more different.
Simply put: venture capital is investing before the chasm (Geoffrey Moore’s book “Crossing the chasm”), while private equity is investing after the chasm.
More specifically, venture capital invests in unprecedented foresight, while private equity invests in an extrapolation of hindsight. Venture capital deploys risk to the determined pursuit of upside. Private equity deploys risk measured to protect downside. Venture capital pursues deep and narrow risk, and private equity pursues shallow and wide risk.
It is precisely for the confounding of risk profiles between venture capital and private equity conveniently lumped together in the same asset-class distribution and risk strategy that venture capital has turned predominantly subprime, with its investments today resembling private equity intake criteria unable to yield (on the whole) consistent outlier venture returns it should produce given the massive greenfield available to technology innovation.
As explained in my and the first-ever The State of Venture Capital, confounding risk profiles devastates groundbreaking innovation. Little has changed for the better since.
Groundbreaking innovation, even if it rears its beautifully “ugly” non-conform head, is now met with numbing intake criteria of micro private equity arbitrage on Sand Hill Road and inevitably tagged as false negatives in the reverb of collusion deployed by financiers fancying themselves to be called venture capitalists.
The systematic dumbing down of the deployment of risk profiles, induced by a system of finance in violation of the most elementary principles of freedom, is precisely why no venture capitalist could see the opportunity for Tesla as early and as rewarding as it should have.
