Great innovations come from a higher normalization of evolutionary truth that spawns a new rendition of truth upstream that subsequently obliterates the regurgitation of prior downstream suboptimizations.
Hence the job of a successful venture capitalist lies in the pursuit of prime risk derived from a timely opportunity of risk with a profile deep-and-narrow, rather than the shallow-and-wide risk profile as in private equity.
Not necessarily always more risk, but merely a different composition of risk. A risk correlated to an alignment of evolutionary foresight that breaks the norm, rather than the risk that conforms to, and sub-optimizes the norm.
When venture capitalists with a lack of foresight start deflating and delaying their risk of an unprecedented outlier of innovation, only entrepreneurs that meet a venture capitalist’s self-induced subprime risk-profile will stick around. The theory, in such cases, negatively influencing what innovation can be discovered, in the words of Albert Einstein.
From a response I gave About Venture Capital Trusts in Reuters’ PE Hub, published August 26th, 2011.