You think venture capitals are successful?

The truth is 85% of VCs underperform the stock market. And 50% of them downright lose money.

The crypto market is forcing retail investors to act like VCs. How will this turn out for most people? 

Many don’t realize that early stage VC is a tough business. 95% of startups fail. Most of the rest 5% are getting by and nowhere near unicorn status. If you invest in 100 startups and one of them becomes a unicorn, you lucked out.

We’ve had over a decade of bull market. We’ve had the internet boom, the FAANG, the Uber and the Airbnb… You’d think with all that excitement of world-changing tech, venture capital would be collecting money left and right.

But after all said and done, VCs on average still underperform Nasdaq.

Keep in mind the “average” is already greatly helped by the 5% VCs that are actually killing it. The majority of VCs are duds.

How come VCs are still driving Tesla and living in 3-story SF mansion then?

They get 2% annual fee on the funds they manage. If you manage $200 million, you make $4 million a year rain or shine. A fund is locked for 10 years. By year 6, you raise a new fund for another 10 years.

So even if your funds lose money, you get $4 million a year for 20 years and retire happily 🤗

If you’re a retail investor and want to act like a VC with your own money, remember nobody’s paying you 2% a year.

(Like this so far? I write about ideas on investment, macro and human potential. Subscribe to my newsletter for updates.

Tokenization has made it easier than ever for retail to invest in early stage companies and projects. These are very exciting and you feel like you’re investing in world-changing stuff that will grow exponentially.

The industry will, yes. But 99% of the projects are going to fail. You’d probably do better throw money in a Nasdaq ETF, compared to buying the tokens of 10 high-potential crypto projects with a shitty MVP, already at $300 million valuation, but is “going to moon soon”.

Or at least, put money in the tokens that are already showing obvious traction and network effect. i.e. If they were a traditional company, they would be mature enough for an IPO. There’re less than a handful of those in crypto right now. You already know what they are.

BTW, check out this post on how to make better judgments than most people, in investment and life.

A bunch of people are going to write back telling me how their bag is going to make it, unlike other “shitcoins”.

One of those people is a genius. The rest are delusional. It takes enormous self awareness to recognize which one you yourself are. When in doubt, err on the latter.  

1 Comment

  1. I participated in launch of 2 venture funds in the frontier markets and I totally agree with your article. Personally, I now invest in S&P and other retail stock. Absolutely love it!