That's for the carry. If the market crashes and their investments fail, their carry income will be zero anyway.
VC's do get paid even if they don't invest via their management fee. It's certainly enough for them to live comfortably on while investing the fund over a ten year cycle.
But, to your point, there's another dynamic here: if they don't invest (and thus have no carry), they will be less likely to be able to raise future funds.
Just saying that it's not as simple as saying there's a conflict of interest. VC's do have a fiduciary duty to their investors and their income is tied, at least in part, to their ability to make money. Even if they lose all of the money, there is no direct cost except for possibly a quite substantial lost of reputation.
The risk to entrepreneurs is not symmetrical. No guaranteed salary is available to entrepreneurs. Even if a portfolio company fails, VC's still receive a management fee.
This system works surprisingly well, except when VC's are stupid or screw entrepreneurs. It's actually pretty amazing that it works at all, since really the middlemen hold most of the power as the distributors, but not originators, of the capital.
VC's do get paid even if they don't invest via their management fee. It's certainly enough for them to live comfortably on while investing the fund over a ten year cycle.
But, to your point, there's another dynamic here: if they don't invest (and thus have no carry), they will be less likely to be able to raise future funds.
Just saying that it's not as simple as saying there's a conflict of interest. VC's do have a fiduciary duty to their investors and their income is tied, at least in part, to their ability to make money. Even if they lose all of the money, there is no direct cost except for possibly a quite substantial lost of reputation.
The risk to entrepreneurs is not symmetrical. No guaranteed salary is available to entrepreneurs. Even if a portfolio company fails, VC's still receive a management fee.
This system works surprisingly well, except when VC's are stupid or screw entrepreneurs. It's actually pretty amazing that it works at all, since really the middlemen hold most of the power as the distributors, but not originators, of the capital.