For why the low average returns, here's my guess:

(1)
The golden rule is, he who has the gold makes
the rules. Well, the people with the gold
are the limited partners, heavily pension funds
and university endowments. At these limited
partner organizations, the people making the
decisions are in the tradition of banking and
finance MBAs. They are not particularly technical
or entrepreneurial.
So, they like to look at usual accounting
data and otherwise think much like bankers.
For them, venture capital is a small 'asset class'
for which the limited partners do not want
to make exceptions. So, the limited partners
have the venture partners on short leashes,
that is, constrained. For the
information technology venture partners
(biotech may be quite different), apparently
the main constraints
are, the venture partners will invest only
in the 'themes' they presented to the limited
partners and then only based on near surrogates
for accounting measures. The main surrogates
are the parts of 'traction' -- for a Series A,
usage, 'monetizable' in a large 'space',
significant and growing rapidly.

With this guessing about rules,
one issue is 'bubbles': Without some
constraints, the venture partners may be
able to blow bubbles. Then we could hear
again "Never be between a VC and the door
when the lockup period is over.". Likely
then the limited partners could be losers
when a bubble bursts. So the limited
partners want to hold down on bubbles.

(2) The limited partners like to see
venture partners of a certain kind.
So, if look at the Web sites of the
venture firms, apparently someone
up there doesn't like venture partners
to hold Ph.D. degrees, not even in
STEM fields. Instead, the 'vanilla'
background of a venture partner is
an Ivy League non-technical Bachelor's,
a Harvard or Stanford MBA, a few years
in management consulting, and some time
in a successful start up in a non-technical
slot, say, sales, marketing, or business
development. There is an assumption:
The 'technology' is just routine
practical computing.

My view is, with this setup, no wonder
on average venture capital is doing
poorly on return on investment. I
wouldn't know what the heck to do to
make money in that situation. It appears
that the smarter venture partners want
(A) to get a lot of publicity so that they
can see the best deals early on, (B) do
a lot of pressing of the flesh, especially
in Silicon Valley, Boston, and maybe NYC,
to hear about the best deals early on,
and then (C) get in the best deals. So, e.g., they
want to recognize and get in on the next
Facebook when it has 1 million users
and is growing at 10% a week or some such.

To me this approach throws out the baby
and drinks the bathwater. Uh, the big
advantage is the technology! We should
push the technology forward and exploit
the technology for more powerful, valuable
solutions. But the venture partners do not
want to have to try to evaluate technology
and, really, want to assume that all the
technology is just routine software. Or,
usage significant and growing rapidly in
a big space is terrific; if there is also
some really advanced technology, then
maybe that is not too bad!

I don't see it; I don't see any hope.
To me the key is to concentrate on
more and more powerful technology,
in a military aviation analogy, to
"push the envelope" on altitude,
speed, rate of climb, turning rate,
etc. So, in that famous one word
answer, what we want is "more".

My guess is that what we need to do
for a 'project'
is to pick a 'big' problem, that is,
one where the first good or a much
better solution will seen as a
'must have' by, say, 1+ billion people
(or a few people each willing to spend
a lot of money). Then use the most
powerful technology we can to get the
most valuable solution we can for this
big problem. But that's not what
venture partners want to do if only
because they want nothing to do
with trying to evaluate advanced
technology.

Yes, projects of the kind I believe
are needed arrive in the e-mail
in boxes of the venture partners
far too rarely. But, when they do
arrive, the venture partners do
not see another Facebook and ignore
the contact. The solution is (A)
more projects of the kind that are
needed and (B) venture partners
paying careful attention to such
projects.

To get more projects of the kind I
believe are needed will require
work all the way back in the
'high technology supply chain'.
How to do that? The US did that
in a big hurry once Sputnik went
up, on TV, in middle schools,
in high schools, in summer programs,
in colleges, in the best research
universities, with lots of grant money
in STEM fields, and, during the Cold
War and the Space Race, a product of
that supply chain in two weeks going
on seven interviews and getting five
offers, each for an annual salary
six times what a new, high end Camaro
cost. It can be done. At the very
least, venture capital will have to
reach out and encourage much more in
advanced technology. Then venture
capital will have to learn to
evaluate such projects.

In the meanwhile, venture capital
will look for new ways for teenage
girls to gossip and look for boys!