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Comment by cycrutchfield | Hacker News Reader

If those investors had put their money into the S&P500 instead, they would have had a better return on their investment.

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True, and the risk here would probably make this a "bad investment" in reality.

There’s no reason on earth why anyone would consider having their money returned plus a mil a “bad investment,” even if they are a VC looking for 100x unicorn returns.

The reason is called opportunity cost.

I would. The whole point of a risky investment like that would be to get a better return. 10% per year is something I can get almost risk free, if I'm starting with $2MM.

Tell me about this 10% per year risk free investment? Owning S&P historically has returned 8% annual, by no means is risk free.

Real estate. There are plenty of multi-unit dwellings in the country with a 10% IRR. If you have a few million cash to buy one, you'll get 10% a year on the rent fairly risk free, depending on the market.

Family for 30 years in rental property business.

Anything which involves rent is by far not risk free. Very cycle driven, heavy on litigation and management has to be perfect to make returns.

I’ve been doing real estate for about 25 years and haven’t seen much risk at all. Biggest risks have been vacancy and maintenance. Vacancy is solved by setting the right rent and maintenance is a 10% reserve fund.

Also I said “almost risk free”. :)

I don’t know what country you are talking about, but in many places there was a huge decline in real estate prices one decade ago. That would seem a big risk...

Real estate is also illiquid. Would you prefer 10% IRR in property, or 8% IRR in the public market? I would personally pick the second.

Use some moderate leverage I guess, i.e. 130% of capital.

Risk-adjusted return

there's also opportunity cost which you're missing. Average VC can invest limited number of startups. Instead of buffer They could invest some other startup which eventually exit with 100x

Only in this specific timeline. On average over a longer timeframe that is more representative of the market, they definitely would not have.

The average yearly S&P returns is 9.8%, to reach 40% in 4 years you'd need 8.7% yearly returns.

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