Also, if every dollar has one chance to multiply and you take one tenth of the fund and immediately double it at the beginning of its lifetime, that is an outstanding outcome. Just because you can't reinvest the money in that fund does not mean it is lost, it is simply paid out to investors right away.

Anybody who has taken a finance course knows the simple principle that a dollar today is worth more than a dollar tomorrow. It is NEVER better to make a return of equal percentage later in a fund than early. Instead of having $50 million to invest in the original fund in the same companies as before, you now have $100 million to invest in the same companies as before. The fallacy in your logic is that you are hung up on the required return for that single fund.

The only way what you are saying is valid is if by investing that $50 million in Instagram, they missed out on the opportunity to invest in another company that at some point in the future would have returned more. In a window of about two months, I highly doubt that's the case. Again, once you have doubled your money and gotten it back, you can invest it anywhere you like, including the same companies you may have before. But now you have twice as much money. There is nothing magical about that fund that makes its investments more special than another.

I fully understand that. What I am explaining to you is that the idea of a VC fund is to create a return by investing money in a portfolio of companies which overall, should create a positive return. There is absolutely no way of knowing going in what the fund will return. If I figure that out of ten investments one will create a positive return great enough to pay for nine others, that does not mean that I am hoping or expecting that each of the ten will return me 10x. Keep in mind that those nine losers are completely independent of each other. If five win and five lose, all the better. If five win and three break even and two lose, that's even better.

If I invest $100 into 10 different stocks, and I figure that nine of the ten are going to be losses, then I hope that one of the ten will return me at least $1000, or 10x my original investment. That's very different than saying that any of the ten that returns me less than 10x is a disappointment. On the contrary, if one happens to return me 10x over the lifetime of my portfolio and another returns me 2x, then I am even better off than I anticipated.