[whoisnnamdi]

Leo - as other folks have noted it is a major assumption to think that VCs are good at calculating the expected values of companies in which they make investments. The fundamental randomness is so high here that any ranking a VC made would likely be garbage - the sample size of investments is not nearly high enough to come to a precise viewpoint on expected value of one good deals vs another. As an analogy, if this was a regression the standard errors would be massive, so much so that each investment would not be statistically significantly different from one another in terms of expected return. I think it’s plausible that they’d be able to distinguish best from absolute worst, but best from slightly less good? No way.

I think a more realistic “model” of a VCs behavior is one of thresholding - set the bar somewhere and invest in any company that seems to be above that quality bar, with some stochasticity as to which deals you actually win in the end.

[lpolovets]

Hey Namdi!

> it is a major assumption to think that VCs are good at calculating the expected values of companies in which they make investments.

It's not quite the same as proving VCs can calculate expected values well, but VC is one of the few asset classes with persistence of returns -- meaning having a top quartile fund is correlated with the next fund also being top quartile. In most investment classes, being top quartile across funds is basically uncorrelated. So good VCs tend to be reliably good and not good just because of pure chance.

Source: https://www.morganstanley.com/im/publication/insights/articl... (p 51)

> The fundamental randomness is so high here that any ranking a VC made would likely be garbage

A ranking doesn't have to be perfect, just better than random. E.g. let's say you give me a bunch of companies and ask me to rank them, and I put 60% of the actual top 1% and 40% of the next 1% into my top 1%. I'm making mistakes, but that's still pretty good. As long as I'm directionally right on average, I should do well on the investing side.

[texasbigdata]

Go backwards. How many IPOs have not had VC backing? Obviously maybe they grow slower, or maybe IPO bound tech firms are oversubscribed so it’s only an individual VCs prediction ability that’s wrong not the asset class as a whole, but still.