At least that's what David Siegel thinks. While certainly not a huge name in the industry, the guy seemingly has some good firsthand experience-- and isn't afraid to disparage the model of venture capital as a whole.
I believe venture capital is broken, both for LPs and entrepreneurs. While the venture-capital landscape is changing, the sales narrative remains the same: We are the smart, experienced, (generally tall, good-looking, white, male) entrepreneurs-turned-investors who can beat the market through exclusive access and careful selection of early-stage companies ("We invest in teams, not ideas"), brilliant board work, and our networks of contacts.
It isn't a novel idea, claiming that VC returns are typically below average. We all know of Bridgewater, or Pershing Square, or Greenlight's above-average returns, and just as well we understand that those firms are abnormal performers. The same goes for VC/PE-- a majority of firms mirror their benchmark, perhaps over- or under-performing up to a few hundred bps on occasion, but very few make it to Blackstone or Andreesen-Horowitz levels. Now, I'm not saying that this is indicative of a poorly-managed fund; I'm sure there will be someone who brings attention to the "true" purpose of these alternative investment vehicles, mainly bringing stable returns across various market cycles. However, Siegel raises the point that at almost all levels, venture capital has no value-add.
Extensive professional networks? Board room expertise? Operational wizardry? According to Siegel, these elements have minimal impact on the success of a company.
After several years of study, I now believe that if there had never been a single venture capitalist (professional early-stage investor), the world would be about the same as it is today, only the logos would be different. In other words, it's market demand that creates companies, not board meetings, brilliant plans, and road maps.
Siegel includes links to many interesting articles and studies to back up his claims; there are a lot of psychological fallacies that he cites as reasons for the misappropriation, or illusion of, success. I'd recommend checking out the rest of the article during some downtime, but it makes me wonder-- how much more of a gamble is picking a successful VC fund versus, say, a HF or PE-firm? Are you putting yourself at an inherent disadvantage, or is Siegel just full of crap?