[w1ntermute]

Groupon, Twitter (Zuck: "they drove a clown car into a gold mine and fell in"), and Zynga also got lucky quite a bit, and then suddenly they weren't getting lucky very much at all.

And actually, no, DHH wrote about Groupon and Zynga as well: https://signalvnoise.com/posts/3221-and-then-the-music-stopp...

As for making money in venture, most venture funds lose money, so it clearly doesn't work that well for most investors. As an asset class, VC has failed to consistently deliver returns. Of course, the bottom 95% doesn't get plastered on magazine covers or fêted by the Twitterati, so most people don't know about them.

Of course, this is all wonderful for the consumers - we get VC-subsidized rides and meals. It's just not that great of a deal for the LPs.

[pb]

Again, if you had invested in the three companies that he calls out in that post (on the day he posted), you would have made good money. If you shorted the companies he was calling out, you would have lost big. So there is indeed signal in the noise :)

Also, I agree that most venture funds, like most startups, are poor investments. If you can't tell which are which, you're going to lose money.

[w1ntermute]

Sure, diversification is fundamental to modern portfolio theory, and the long run returns for a diversified fund tend to be positive. And the stock pickers who outperform aren't necessarily anything more than statistical outliers (http://longbets.org/362/). Just because the eventual outcomes diverge doesn't mean that there must have been a discernable signal in the noise indicating that.

Given how many top venture funds simply invest partners' and partners' friends' capital at this point, most institutional LPs would be best off avoiding venture. The same goes for quant funds - Renaissance Technologies' Medallion Fund has only contained prop money for years.