I've invested in several startups, as an employee exercising options, and also as an investor. Unless you have a lot of money to spread around, you're better off investing in the stock market.
I've invested in several private equity funds, and many times those funds negotiate things that are far more lucrative than equity, such as temporary or permanent revenue splits, convertible notes which may be partially paid off before converting into extremely large positions in the companies, you name it. In this structure, I realize from experience, that it is not possible to compare the fund's performance to the stock market, as every limited partner has their own unique exposure to investments that all perform differently.
I've seen the headlines that match what you said, the S&P returns more than picking various startups to invest in most of the time, and that many funds also mirror that, in reality I think all discussion about this is inaccurate, because there are additional variables to account for. Maybe actual equity will underperform just picking S&P equity. But so much more is actually happening which will never show up on a cap table or comparison of valuation growth or any mandated disclosure.
Top ones like to turn people away just for the headline that they turned someone valuable away, so they somewhat also rely on relationships and schmoozing to get in.
In reality though, so many people are all talk about their ability to actually move any money, that $1mm will get you in everywhere. You know the saying: money talks, bullshit walks.
Note: there are other regulatory gatekeeping tiers above accredited investor, but they are all self-certifications too which means you can just say you have $5mm or $10mm in net worth, etc.
