The crux of your arguement is that the same returns can be derived using different set of probabilities and different kind of companies which probably won't achieve hyper growth but still are profitable and nice bet.

VC constraints:

1. VC has to get out within a specific timeframe, let's say 10 years and return all money to the LPs.

So VC can't afford to wait indenfinately collecting narrow streams of money.

That leaves you with very limited opportunities.

2. The number of companies they can deal with is small. There is a cost per transaction (funding), fewer transactions you make, better you do. But some transactions are must for VC math to work.

Banks also used to make only big loans in past. Micro lending is a recent thing. Algorithmic underwriting which doesn't even require manually looking at the balance sheet is based on heavy data collection, KPIs made feasable by technology advancement like big data processing etc..

3. VC can't fund anything which doesn't match their investment thesis. The LPs often start fund with a specific mission, for example, "advancement of AI for humanity". The VC partners often are veterans in specific industry and their resources are often useless in other industries.

This further reduces the number of companies they can fund.

4. You seem to assume all VC are chasing returns, well no! If our mission is "AI advancement". It's much better, if we've 2-3 focused winner companies in this niche. Fewer companies achieve better leverage, industry penetration, economies of scale and ofcourse, too big to fail.

5. Most of those small profitable companies are not able to keep stable revenue for 3years+.

One of the most misunderstood thing about VC, is that VC money wants maximum returns.

No! VC is a quest for control over new monopolies with enough holding, VC can influence and install their own management.

Money is cheap for them.

Imagine if you are an engineer and you own the largest semiconductor company. It's established fact that the old monopolies die and new disrupters emerge as new monopolies. You can't change this!

What you can do is control new disrupters by purchasing equity in them.

You do this by starting a VC fund and putting money derived from your semiconductor business in the fund. You can liquidate some of your holding it's not too hard.

Your VC funds thesis then becomes, "semiconductor advancement".

Then GPs will not chase the startups which have nothing to do with the semiconductor as their main focus.

If you don't do this, you watch your semiconductor empire dying. If don't even have stakes in new semiconductor disrupter monopoly, how do you maintain your dominance in this industry? That has a price, so absolute returns do not matter.

When a VC funded company dies, LPs do not cry. They cheer because another potential disrupter died trying, this can explain why some VCs are downright bad as they want you to fail.

Secondly, some VC funds have LPs who get their money from industry underdogs and really are after a disrupter who can unseat the current #1. So, they might be more helpful.

VCs are after potential disrupters.

Now if they want to kill the potential disrupter or help it grow that depends on the people who's money is at stake. No one is really going to share their motives upfront.