NB – I have been unfairly general with the term “hedge fund” and “banker” in this piece and I hate myself a little bit (just a little bit) for doing that.  Sorry in advance.  

It’s fashionable these days to hate on bankers. And at the same time it’s glamorous to be a venture capitalist. Which is weird because these businesses are extremely similar. For instance, I was amused by the recent ranting of a venture capitalist on Twitter who was criticizing the “usurious” fees that banks charge borrowers.  He was arguing that it’s unfair for banks to charge high fees to lend money. I thought to myself:

Well, isn’t this rich.  A bank is an entity that lends money for a fee.  And a venture capital fund is an entity that lends money for a really high fee.

There really isn’t much difference in the business model there except that venture capitalists actually charge more onerous fees than banks do.  Remember, a venture capitalist extracts the most expensive thing an entrepreneur can have – their ownership. Of course, the reason an entrepreneur goes to a VC in the first place is because a bank usually won’t lend to this high risk borrower. VC’s know this and so they charge a premium on their loans. Of course, extracting equity isn’t technically a “loan”, but make no mistake, equity or debt, they are lending money for a fee and expecting a positive rate of return just like banks do.

That’s all well and good. I am not your biased or politicized spectator of lending. I come at all of this from an operational perspective and I know that lending is a vital function in the economy. Banks serve an important purpose in the economy as do venture capitalists. But there is a strange association of goodness with venture capitalists that you won’t find with hedge funds and bankers despite the fact that they’re often engaged in the same business.