I don't think you can look at a subset of capital expenditures and then conclude "capital is misallocated."
You would have to look at all the businesses funded and see where the money is going. Also I would caution you about falling into the trap of confusing "valuation" with "capital". SnapChat might have had a $16B valuation but really only "allocated" a bit more than a billion dollars.
If you subscribe to the 'too much money is idle' point of view like continuations does, then you should be very bullish on the startup eco-system growing for all kinds of businesses, and that gives the capital a chance to be allocated to something useful, like another Watsi.
If you see a large amount of money (as in 100+ of billion) flow in and significantly substandard returns then it was misallocated. The VC industry has seen substandard returns over the last 20+ years. So, it's not a good allocation of money.
PS: Some people get rich at Vegas, that does not mean gambling is a good investment.
I don't disagree but would like to understand your metric, "substandard returns" suggests you have a metric in mind, how do you arrive at the 'standard' ?
Risk adjusted ROI. The bond market is the classic example, if you look at the class of bonds paying 10% vs 2%. If your risks where in line with the 10% bonds, but the payouts where inline with the 2% bonds it's a low ROI investment.
Now, looking ahead you don't know what the risks are. But, you can examine the ROI for 1990 investments and you can see which 2010 investments have already failed.
Ok, fair enough, but today's Risk Adjusted ROI is quite low. And comparing returns from a couple of decades in the past with current returns seems unhelpful to me.
My point is that your standard has to be for your choices of the capital today versus historical returns. So if you compute for expected value of a million dollars sitting in a bond fund today, versus sitting in a basket of startups, are the returns less in the latter case?
You can't compare things to today’s bond market, because you don't know what the risks are. It's all historical data vs. other historical data.
As to solid returns today, regulated public utilities companies have ok returns and low risks. It's not zero risks and the upside is limited, but many people consider them the benchmark for low to moderate risk investments. (Though you still need due diligence as leverage can still kill them.)
Effectively zero risk investments on the other hand have a huge price premium.
PS: The 2/20 aka 2% management fee and 20% performance is the real killer. Huge VC funds are a great way for VC's to get rich so they are all about selling them. There are also a few back channels to do insider deals.
But we used to have a large number of $20-$40 million-per-year companies where people had decent jobs and worked. When that becomes a marque of a schmuck then we have a problem.
I think some of these overvalued... frankly, Pet Rock companies aid and abet this. Don't get me wrong, WE are the problem here but the effects are not good.
I read this that you have a preference for a number of mid-cap companies which employ modest numbers of people at "decent" jobs. (decent in quotes because as a subjective description it's hard to pin down what a given individual considers decent and another individual doesn't).
The current economy supports a large number of those. And they provide steady employment for a large number of people. But often times in this forum (HN) companies providing jobs which are considered "CRUD" are not held in high esteem and so you don't hear about them. So perceptions can be biased as well.
I worry more about non-allocation when you can't get credit from banks and you companies sit on giant hordes of cash. That slows the economy down and makes it hard for new experiemental companies to get going.
You would have to look at all the businesses funded and see where the money is going. Also I would caution you about falling into the trap of confusing "valuation" with "capital". SnapChat might have had a $16B valuation but really only "allocated" a bit more than a billion dollars.
If you subscribe to the 'too much money is idle' point of view like continuations does, then you should be very bullish on the startup eco-system growing for all kinds of businesses, and that gives the capital a chance to be allocated to something useful, like another Watsi.