Item — HN Reader

Costs (due diligence, fund raising, overpriced salaries, legal) would make a VC like this unprofitable.

Banks are the solution for institutional small-scale low-risk finance, via debt. Retail/commercial bankers are excessively conservative in some ways now (due to regulations); the traditional "small town bank" which originated and held loans to small businesses, property finance, etc. within a specific community was a much better option. Banks have a low cost of capital (from deposits), and should have minimal marginal overhead making each loan. By having "community membership" as one of the metrics for giving a loan (i.e. you've lived in this town for 20 years, and have been a customer, are known to be able to run a certain kind of business, ....), due diligence costs for making a reasonable new loan are a lot lower than for a VC.

Angels (who effectively use sweat equity to cover their own overhead) are the other.

The thing you are missing is that each series A deal a traditional VC does has a 50-100% the invested capital cost in overhead, opportunity cost, etc. At that point, shooting for 3x returns becomes a lot less appealing, especially over 10 years.

1) The overheard issue is something they can fix, they simply don't have any incentives to. Limited partners will have to crack down before we see any change.

2) Are there really many banks ready to fund a technology startup's series A? Even if its a business model with a high chance of a 5x return?

Banks as they exist today are a non option for most business financing. This is sad, and a big change from the peak of us civilization (18xx to maybe 1969)

Specialist banks like svb and square can use debt to let you stretch an angel round (equipment financing, maybe invoices on enterprise sales, maybe an a to b bridge loan) but are not a replacement for equity risk capital in seed or series a.