Because when you're A16Z and take a 3% management fee, regardless of profits, you don't need venture capital to be strictly speaking profitable.

You need your particular brand of venture capital to be perceived to be profitable. If you have $4.2 billion under management during a year, you took $126 million in non-performance based fees that year. A16Z could make a ton of risky investments, collect fees, and die out in 7 years (2009 + 7 = 2016)—it really doesn't matter to its partners. They banked their fees.

Mutual funds aren't necessarily more performant than buying index funds. Many forms of investment aren't. You're not appreciating how a smart manager can use time and a fee structure to enrich himself handsomely without actually delivering results for investors.

Venture capital wouldn't exist if it wasn't profitable, sure, but Sandhill Road? That's an artifact of how venture capital is done and taken advantage of by real human beings, not of how profitable it is.

You'd be surprised at what people continue to invest in because it's fashionable, "other people's money," or because they're so thirsty for appearance of yield after an unprecedented era of rock-bottom interest rates. Despite the evidence that some alternative asset classes may not be worth the considerable fees. Most hedge funds fall squarely into this category [1]. There's also the ongoing scandal involving the U.S.'s biggest pension funds and their inability to figure out what fees they are actually paying to private equity, and hence whether the returns are worth it.

[1] http://fortune.com/2015/05/19/hedge-funds-mediocrity/ [2] http://www.nakedcapitalism.com/2015/08/calpers-private-equit...

That's not strictly true. As long as interest rates are kept so low, there will be vast amounts of capital looking for any kind of return possible. The guys running the VC firms always make money as they get their 2/20 cut and people too rich to care will always invest in new funds. The sector as a whole is almost certainly not more profitable than a simple index tracker for the FTSE100 or similar.

Well, it's profitable for the general partners. Whether it's a good deal for the LPs is another issue entirely.

LPs decide whether to invest based on the information available. This is useful information.