2017-10-04 —

We like to think that entrepreneurship is a game that anyone with a good idea can win, like anyone, if they're good enough, can play in the NFL or the Major Leagues. But the reality, according to Ross Baird, an experienced VC himself, is very different. In the actual world, hundreds of millions of dollars go to $1,500 countertop ovens and $699 internet-connected juicers, while people building worthy and useful products get left by the wayside. VCs fund products that solve problems they understand, it's often said. And, being largely white, male, and elite-educated themselves, they fund people of the same backgrounds.


Though the VC industry has many successes to its name, from Facebook to Amazon, its track record as a whole isn't that great. In 2012, the Kauffman Foundation, which focuses on entrepreneurship, analyzed nearly 100 VC funds it had invested in over a 20-year period. After accounting for fees and "carry" (the share of profits taken by investment managers), it found that only 20 produced returns higher than 3% annually. VCs are typically incentivized to raise bigger funds (because they make more money) and to invest in companies that they can quickly flip. That leads to short-termism of a kind that favors investment patterns (like the current craze for very expensive kitchen equipment) rather than longer-term projects that actually solve problems.

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