On occasion, I hear people imply that VCs take too big a cut in a venture transaction.  While this cut can come in the form of participation and liquidity preference, at the end of the day some perceive the share of potential returns apportioned to VCs to be too big - implying an unfairness inherent to the transaction.

While I understand that different people will place different values on the contributions of a venture capitalist (capital and beyond), it's important to understand that the VC's cut is allocated by market dynamics - a two sided market. 

1. Market For Investment Capital: This is the market between venture capitalists and the institutions that provide them capital. 
2. Market For Investments: This is the market between venture capital investors and startups.

As I will discuss in my upcoming posts, these markets are inter-related.