Yes, if I'm taking 100% of the risk on the investment, then the VC is essentially providing a loan and should be entitled to no more return than the appropriate amount of interest for that loan. Also they should be regulated as a lender with the appropriate controls to ensure solvency should they face issues with loan failures.
Capitalism is very much tied to democracy. A robust democracy often does things the capitalist class doesn't like, and the capitalist class is willing to pay to mitigate this. Not sure how you can separate the two so easily
I wish those student lawyers the best. The RIAA typically gets the best justice money can buy. If they can win this suit, they'll have long careers ahead of them.