> VC pouring money in LLM infra is legitimately crazy to me.
VC business model is throwing money at the wall and seeing what sticks. They love congratulating themselves on how smart they are but at the end of the day their overall returns trail S&P 500. They are salespeople and their job is to sell themselves to private capital on how smart and connected they are.
Does their return trail s&p 500? I guess there are some of them that are successful and some that aren't, but to be honest I've only heard about vc as people who on average have a very very high return. Now, it is very possible that's just survivor bias, but I would need to search for some data
Most of the funds, even the big ones, trail the overall market, and even the successful ones have difficulty maintaining a long track record of success.
The reason for the big pension funds and endowments to invest in VC is that it’s a bit counter cyclical. Also it’s a tiny pimple on the side of the PE sector overall.
You can see how marginal it is in the financial sector by going to an LP meeting — the big institutionals send kids — first year analysts — to attend because it isn’t that important.
The S&P 500 is a list of the largest and most profitable public companies. It's hard to do better than the most successful businesses. Most other indices and hedge funds don't outperform the S&P 500. Most private equity shops don't. Most real estate investors don't. So it shouldn't come as a surprise that venture capital doesn't.
Most startups don't get big. How many startups founded in the past decade have become hugely profitable? It's not that many. A handful out of the 500k or so funded startups. Meanwhile the S&P keeps chugging along at 8% annually.
It's hard to do better than the most successful businesses is not a statement that makes sense from the investor's perspective.
The price of an investment is based on the expected profitability of a company, an investment in a barely profitable company, if priced correctly, should yield returns at least equal to good companies like Apple, Google, and Microsoft, as the investment would be discounted to compensate for the poor expected future earnings of the company you are investing in.
That's getting into perfectly-spherical-cow territory, though. Investors aren't logical and neither are founders, and there's a real chance that an investor-fair deal isn't going to get any bites. The BATNA for most founders who don't secure funding is "go get a job that pays a lot of money"; while most VC investment is lopsided in the investor's favor through other means (equity preferences etc.), not landing deals makes your fund's LPs ask why they're letting you hold their bag of cash.
Most of the smallish funds do not publish any data. They are sales people who are selling the idea of "higher risk higher return". The sales is their alpha not the investments.
People allocating capital in VC funds are trying to diversify a very large portfolio, not just picking a high IRR asset. VC is very uncorrelated to S&P 500 performance as most of the best VC vintages were during public market downturns.
That's only half of it. They also have to justify their jobs. Anyone can manage a 60/40 portfolio with index funds, but pensions are complicated, so they need complicated investments.
I think they don't even trail S&P 500 - with all the dirty tricks up their sleeves they roll losses over and over. Bottom will fall off at some point when hype train stops rolling, but so far it was good years as we have hype after hype.
I am waiting what will be next one after AI, because quantum computing feels like too hard to become a hype, the same with space ventures, there is some upward trend going on there but still space is too hard.
> AI is a long term trend, next is more products on top of AI. Just like the internet.
This is legitimately just the same damn hype train the tech sector is constantly attempting to create. Now AI is the next internet. Before that it was the metaverse. Before that it was NFTs. Before that it was cryptocurrency. Before that it was quantum. Before that it was VR. Before that it was AR.
None of those were the revolutions postured by techno-fetishistic CEOs. Most stick around in some capacity, like VR and AR, and the argument can be made that those have a future. Blockchains certainly have a future as it's a highly useful technology, even if the financial vehicle made by it is utterly useless. The metaverse is Dead on Arrival because nobody ever wanted it in the first damn place, apart from the speculators betting money on it.
> Blockchains certainly have a future as it's a highly useful technology
No trolling here; I promise. Are you saying that blockchain is already "highly useful technology", or that we will in the future? From my perspective, it is a very cool technology concept that has yet to demonstrate any major commercial value. I also seriously doubt it will be commercially valuable ever; it has already existed for more than 10 years without any killer app (ignoring shitcoins).
> This is legitimately just the same damn hype train the tech sector is constantly attempting to create. Now AI is the next internet. Before that it was the metaverse. Before that it was NFTs. Before that it was cryptocurrency. Before that it was quantum. Before that it was VR. Before that it was AR.
Neither of those things you listed were mainstream trends. If you can not distinguish between fads and major trends that is your problem.
Internet, Mobile, Cloud and now AI are technology trends with mainstream buy in from the biggest companies in the world.
> If you can not distinguish between fads and major trends that is your problem.
You're distinguishing based on hindsight. It's mainstream if it succeeds and if it doesn't, it was a fad. How much did Zuckerburg put into Facebook's metaverse projects? I believe it was $46 billion. Then there was Decentraland too, those were as mainstream as it got. You had tons of internet-famous people cashing in for hundreds of thousands of dollars just for selling their original copies of reddit memes. How is that not at least somewhat mainstream?
I have zero doubt whatsoever that after the AI bubble lets go, I'll be having this same damn conversation with someone else and they'll be saying AI was a fad. That's my entire point.
Only zuck was metaverse obsessed. Decentraland I've never heard of it, so it was not mainstream at all. NFTs were never mainstream. All of your examples are bad.
AI has buy in from the entire tech sector. Just like the cloud, mobile and internet did.
VC business model is throwing money at the wall and seeing what sticks. They love congratulating themselves on how smart they are but at the end of the day their overall returns trail S&P 500. They are salespeople and their job is to sell themselves to private capital on how smart and connected they are.