But, but, but, here's what you are missing, where
you are going wrong: The VCs have "deep domain
expertise". And we do know this because nearly all
their Web sites say that they do! We're talking
deep, deep, way down deep domain expertise!

They got this expertise by long and hard study and
work in the STEM fields? Oh no! Instead their path
was much better, from being an English literature,
history, or foreign policy major, maybe an
MBA (I used to be an MBA prof), reading 1000
executive summaries, 200 foil decks, with the rules
of no more than 10 foils per deck with just a few simple words per foil with 30 point fonts, listening to 5
elevator pitches a day on their phone messaging, and
from an earlier career in business development!

Now don't you see why they have such deep domain
expertise? Deep, deep here!

Aaron Sorkin could
think of a better way of saying it,
maybe -- Deep. I've been watching
Silicon Valley since before the Bubble,
and I've never seen anything so deep. Brutal. Brutally deep. Excruciatingly brutal. As at, say

http://flash.sonypictures.com/video/movies/thesocialnetwork/...

So, what's going on? Hmm, .... Maybe we should, say,
"follow the money"? What money? Well, they get their
2 and 20%. To do that they have to have some
investments that do obey the laws of physics
and become successful companies, have some good
exits from those companies, and, thus,
make money for their limited partners (LPs)?

Not necessarily! Maybe they don't know much about
physics or the STEM fields, but maybe they do have
some domain expertise, that is, in making money.

How, then, while trying to violate the laws of physics?

Well, in short, please some other people. Or find some
even bigger fools and separate them from their money!

The bigger fools? Would you assume that the portfolio
managers at the major institutional investors were
better qualified in the STEM fields and building
actual successful companies than the VCs? I wouldn't!

Instead these limited partners (LPs), following their
herd, the Wildebeest are not all completely wrong, you
understand, put a small fraction of their funds into
the alternate investment asset class, i.e., VC.

This asset class is making money? Not much on
average! Or see

http://www.avc.com/a_vc/2013/02/venture-capital-returns.html...

Still, the LPs invest! Why? They don't want
to miss out on the next Google. Besides, who
can be sure what technology will do in the future?
Besides, that's what all the other portfolio
managers of the state pension funds and university
endowments are doing, so just fit into that herd,
match the returns they get, and tell any critics
that the fund is doing what all the other funds
are doing. Besides, the money invested with the
VCs is just a small fraction of what the LPs
have in their portfolios.

So, if the LPs are happy, then for 10 years or so the
VCs get their 2%. Then for the exits, there might be
an IPO with, from the 2000 bubble "Never be between
a VC and the door when the lock up period is over".
Or there might be an M&A when the CEO of a big, old,
but now slowly shrinking company UGE buys a start-up,
in an all stock deal, to make the stockholders of the
big company UGE feel better for a while, long enough
for the UGE CEO to get a nice bonus and golden
parachute from his BoD. Or, do an M&A for about
$2 million per software developer of the start-up,
that is, do an acqui hire. Or do an M&A with another
company in their portfolio following the rule that
combining two, money losing, sick companies can use
the law of synergy that the sum is greater than the parts
to make one healthy company. In such cases, the
VC gets 20%.

VC starts to sound like a good gig, all without any
role for the STEM fields or the laws of physics.
Or, the deep domain expertise is the bigger fool
theory and "follow the money"?