So the question I have is, who are these LP's and why are they demanding funds go into "sexy" ideas?
I mean it probably depends on the LP and what is their vision. Not all apples are red, come in many varieties and some for cider others for pies. Am I wrong?
The person you're responding to has a very sharp view of the profession. imo it's more nuanced, but not very complicated. In Capitalism, capital flows, that's how it works, capital should be deployed. Larges pools of capital are typically put to work (this in itself is nuanced). The "put to work" is various types of deployment of the capital. The simplest way to look at this is risk. Lets take pension funds because we know they invest in VC firms as LPs. Here* you can find an example of the breakdown of the investments made by this very large pension fund. You'll note most of it is very boring, and the positions held related to venture are tiny, they would need a crazy outsized swing from a VC firm to move any needles. Given all that, it traditionally* has made no sense to bet "down there" (early stage) - mostly because the expertise are not there, and they don't have the time to learn tech/product. Fee's are the cost of capital deployment at the early stages, and from what I've been told talking to folks who work at pension funds, they're happy to see VCs take swing.
but.. it really depends heavily on the LP base of the firm, and what the firm raised it's fund on, it's incredibly difficult to generalize. The funds I'm involved around as an LP... in my opinion they can get as "sexy" as they like because I buy their thesis, then it's just: get the capital deployed!!!!
Most of this is all a standard deviation game, not much more than that.
https://www.otpp.com/en-ca/investments/our-advantage/our-per... https://www.hellokoru.com/
I can't understand one thing: why are pension funds so fond of risky capital investments? What's the problem with allocating that money into shares of a bunch of old, stable companies and getting a small but steady income? I can understand if a few people with lots of disposable money are looking for some suspense and thrills, using venture capital like others use a casino. But what's the point for pension funds, which face significant problems if they lose the managed money in a risky venture?
A better way to look at it is: if pension funds are not fond of risky investments, then what am I seeing?
These LPs at mega funds are typically partners/associates at pension funds or endowments that can write the 8-9figure checks. They are not super sophisticated and they typically do not stay at their jobs long enough to see the cash on cash returns 15 years later. Nor are they incentivized to care either. These guys are salaried employees with MBAs and get annual bonuses based on IRR (paper gains). Hence the priority is generating IRR , which in this case is very likely as Ilya will raise a few more rounds. Of course, Lps are getting smarter and are increasingly making more demands. But there is just so much capital to allocate for these mega funds, inevitable that some ideas are half baked.