Do venture capitalists get paid very well to lose other people’s money? That is the thesis of a piece by Diane Mulchay, director of private equity at the Kaufmann Foundation. Along with misaligned fee structures and the limited downside risk, the core of her critique is particularly brutal: despite a claimed expertise to recognize and reward new ideas, the venture capital industry itself doesn’t innovate.

Indeed, it feels that — similar to many industries exploited by the same startup firms that venture capital promotes — change is being done to the venture industry, not by it. The forces are primarily external: a significant decrease in the amount of money necessary to bring a product to market (driven by lower infrastructure and marketing costs) and a proliferation of channels from which to raise money (seed funds, super angels and crowdfunding for early-stage firms, and large private investment firms for late-stage companies). The industry response has often been for venture capitalists to try to outdo each other with confessionals, perks, and promises to always be an entrepreneur’s BFF.  Indeed, one of the best commentaries about the industry may be that there is almost no venture capitalist who does not actively distance themselves from traditional venture capital.

Mulchay’s thesis is based on her longer 2012 analysis at Kaufmann of the historical performance of venture capital as an asset class. And she does not criticize the venture firms themselves so much as she points the finger back at the Limited Partners (LPs) like Kaufmann who provide 99% of venture firm money: “Our research suggests that investors like us succumb time and time again to narrative fallacies, a well-studied behavioral finance bias,” she writes, “the most significant misalignment occurs because LPs don’t pay VCs to do what they say they will — generate returns that exceed the public market.”

The idea that venture capital funds would be better deployed in a small-cap common stock fund would mean that a lot of very smart and well-trained people are wasting their time. So not surprisingly, who disagrees? Why, venture capitalists.  Their argument is, generally speaking, that Kaufman’s data is distorted by the bubbled exuberance of the late 90s, and that a historical analysis is not sufficient to predict the future. And that future, to their eye, looks so bright they have to wear Warby Parkers.

The most succinct presentation of this view might be the work of Mark Suster, whose presentation It’s Morning in Venture Capital points to that bright future (despite the retro 80s title). Suster argues that technology has vastly increased market size and opportunity, that network effects mean market leaders will reap the vast majority of profits, and that to scale these enterprises will require capital and expertise — the two core skills of venture capital firms.

Yet one can agree with Suster’s optimism and still believe in Mulchay’s thesis. With the proliferation of financing sources, venture capital is increasingly stuck in the uncomfortable position of serving as an intermediary between the capital of LPs and the labor of entrepreneurs. Suster notes that venture firms need to provide increased value to their portfolio companies, but venture proponents are largely silent on the alignment with LPs. The evolution of the venture industry — important for all sorts of reasons — is likely to require better alignment of both capital and labor, and a recognition of LP monies lost as well as entrepreneurial gains.