Pretending to be a VC is easy; producing returns to yield renewable value to humanity is not. Outliers cannot be found with a fishing net of subprime risk, regardless of the size of the net.
Too many do, Silicon Valley is full of nitwits (quote by my former boss Larry Ellison) who destroy the thesis that determines what can be discovered (Einstein). Innovation arbitrage deployed by people with an ability to raise money from their old-school network and yet lack the alignment of foresight with outliers needed to produce venture style returns.
All in all, of about 800 only a handful of venture firms produce repeatable monolithic venture style returns to their limited partners, the remaining 99% or so are wannabe venture investors dragging human intelligence of both entrepreneurs and innocent consumers down into a treacherous and degenerative abyss of advertising clicks, yielding the weakening of socioeconomic value to humanity to boot. Innovation that is not.
The inability to spot outlier risk subsequently spawned new schemes of risk escapism for many to try their luck on with capital efficiency, outsourcing, collusion, stacked and parallel funds, diversification networks, incubators, crowdfunding, shark tanks, ICOs and most recently gigantic funds. Forgetting blissfully, nothing finds an outlier but the pursuit of prime risk, not the avoidance of it. Even a massive fund will not produce venture style returns if it does not pursue outliers who change the world for the better. Risk must determine distribution, not the other way around. The confounding of consequence and cause in the business of investing in innovation remains astounding.
Being a real venture capitalist requires you to understand what constitutes an outlier with the propensity to establish a higher and better normalization of evolutionary truth. Access to money alone will not make you a great VC; the foresight to break the norm does. Hence many will fail, but not until, with other people’s money in tow, they have destroyed the business of innovation with the many false positives and false negatives of their subprime arbitrage.
So, pretending to be a VC is easy; producing returns that yield renewable value to humanity is not. Outliers cannot be caught in a fishing net of subprime risk. Precisely the reason why no VC could see the value of Tesla until the entrepreneur had personally assumed all the risk and its growing success showed up in the rearview mirror of their gasoline cars. Venture capital was and is sound asleep at the wheel of innovative destruction.
