Those who complain about the high salaries paid to x or y never seem to grasp that the Baumol Effect means people are not paid for what they do, but for what else they could be doing.
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Just realized the huge management fees charged by VC firms are an instance of the Baumol Effect. Good VCs could start their own startups if they wanted to, thus have to be paid enough not to.
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Strongly disagree. VC's have very strong monopolistic positions, with legal restrictions on competition, that give them disproportionate profits. If IPO'ing were cheap and able to do for a small startup, VC's would lose profits immediately.
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well the rise of the
#STO security token offering will surely level the playing field and companies like$CHX@OwnMarket will experience rapid increases in users and#equity offerings. - Show replies
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Also not huge. "Good VCs" align the interests of their LPs and startups, thus keep their funds small and fees minimal
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Why don’t they get paid with a higher carry then?
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much simpler explanation is fees are anchored to pe fees by lp expectation.
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This is assuming a perfect market. In reality, my guess is that given LP’s only invest a percentage of their corpus and historically they’ve gotten acceptable returns, they don’t ask too many questions. And given amounts are huge, trust can’t be won as easily as new startups.
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Not sure I agree. Most compensation for a founder is deferred. The equivalent for a VC is carry, not management fee.
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Strictly speaking this is true, but I think for someone poised between the two choices, the immediateness of a big VC salary would result in something more like a multiplication than a type error
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False equivalence. Baumol effect is a cost disease. What you describe is closer to 'price gouging'. If a start-up could ensure allocative efficiency or greater returns than a coercive monopoly/ rentier-cartel, the VC would've done the start-up
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