Too much money in venture

A significant decline in venture capital market activity in the U.S. reflects a level of investment that remains too high, despite being comparable to pre-pandemic figures. The venture capital landscape shows that returns are heavily driven by a small number of successful companies, leading to a perception that generating returns is easier than it actually is. The math suggests that to achieve a standard 12% return based on typical investment amounts, a massive liquidity requirement must be met, necessitating the consistent creation of multiple highly valued companies each year. This scale of company creation is unrealistic, implying that expected returns may not be achievable, resulting in 'return-free risk' for venture capital investors. Additionally, the motivation for entrepreneurs does not hinge on economic conditions like interest rates, highlighting that the fundamental drivers of company formation remain complex and unrelated to venture funding environments.