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Comment by goatgate | Hacker News Reader

But these companies are funded by VCs. The cause is more a function of wealth inequality. The ultra-wealthy have so much money that they only need 1/100 to be a gusher. If there wasn't so much capital consolidated in the hands of so few, this model wouldn't work as you need an ungodly amount of money to sustain 99 failures. Investments should be more constrained by real balance sheets and the needs of real people. There is a ton of waste on this billionaire's roulette wheel.

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> The cause is more a function of wealth inequality. The ultra-wealthy have so much money that they only need 1/100 to be a gusher.

It has nothing to do with wealth inequality. Whether you're pooling $100 from a million people, or $20 million from 5, the economics of venture capital are the same. Wealth inequality has nothing to do with this.

The purpose of venture capital (for investors) is diversification. It is an uncorrelated, positive (hopefully) return stream. Investors want to combine uncorrelated return streams as much as possible, due to the AM-GM inequality. The geometric mean of a series with a given arithmetic mean is higher when that series is less volatile.

It does have a relationship to wealth inequality. On the one hand you have money seeking returns and getting caught up in zero and negative sum games while doing so. On the other you have a lack of small investors with lower risk tolerance. Both of these are results of wealth inequality.

> On the one hand you have money seeking returns and getting caught up in zero and negative sum games while doing so.

This happens to retail investors all the time.

> On the other you have a lack of small investors with lower risk tolerance. Both of these are results of wealth inequality.

Citation needed. Retail investors buy all kinds of risky shit. You can do all of these same things with retail investors money. You don't need any wealth inequality whatsoever to explain venture capital.

Are you referring to investors in penny stocks? I was thinking more in terms of seed investors and self-funding entrepreneurs; of which there is a real dearth at present.

No. You are right that non-wealthy people do not make angel investments in startups (usually). However, they could make a small investment in a fund that does so. Right now, such funds do not exist, primarily for regulatory reasons.

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