I’m not sure it’s obvious that current VCs fund all the potentially top companies. If you look into the history of many of the biggest wins, many of them nearly failed multiple times and could have easily shut down if a key funder didn’t exist (e.g. Airbnb and YC).
I think a better approximation is an efficient market, in which the risk-adjusted returns of VC at the margin are equal to the market. This means that the probability of funding a winner for a marginal VC is whatever it would take for their returns to equal the market.
Then also becoming a VC, to a first order, has no effect on the cost of capital (which is fixed to the market), so no effect on the number of startups formed. So you’re right that additional VCs aren’t helpful, but it’s for a different reason.
To a second order, there probably are benefits, depending on how skilled you are. The market for startups doesn’t seem very efficient and requires specialised knowledge to access. If you develop the VC skill-set, you can reduce transaction costs and make the market for startups more efficient, which enables more to be created.
Moreover, the more money that gets invested rather than consumed, the lower the cost of capital in the economy, which lets more companies get created.
The second order benefits probably diminish as more skilled VCs enter, so that’s another sense in which extra VCs are less useful than those we already have.
This is a huge digression, but:
I’m not sure it’s obvious that current VCs fund all the potentially top companies. If you look into the history of many of the biggest wins, many of them nearly failed multiple times and could have easily shut down if a key funder didn’t exist (e.g. Airbnb and YC).
I think a better approximation is an efficient market, in which the risk-adjusted returns of VC at the margin are equal to the market. This means that the probability of funding a winner for a marginal VC is whatever it would take for their returns to equal the market.
Then also becoming a VC, to a first order, has no effect on the cost of capital (which is fixed to the market), so no effect on the number of startups formed. So you’re right that additional VCs aren’t helpful, but it’s for a different reason.
To a second order, there probably are benefits, depending on how skilled you are. The market for startups doesn’t seem very efficient and requires specialised knowledge to access. If you develop the VC skill-set, you can reduce transaction costs and make the market for startups more efficient, which enables more to be created.
Moreover, the more money that gets invested rather than consumed, the lower the cost of capital in the economy, which lets more companies get created.
The second order benefits probably diminish as more skilled VCs enter, so that’s another sense in which extra VCs are less useful than those we already have.