12 ms·

> This gives an interesting glimpse into the prognostication abilities of supposedly brilliant VC's. The question isn't whether VCs are brilliant according to

> This gives an interesting glimpse into the prognostication abilities of supposedly brilliant VC's. The question isn't whether VCs are brilliant according to some absolute metric. The question is whether they deploy capital better than random chance. The numbers show that top ten VCs consistently do.

fweespeech 11y ago
> The question isn't whether VCs are brilliant according to some absolute metric. The question is whether they deploy capital better than random chance. The numbers show that top ten VCs consistently do. Does it? If you have enough gamblers in a high stake casino where the house hasn't stacked the deck, some of them will seem to consistently win in comparison to the other players. Similarly, a very small percentage of VCs and other active investors consistently beat the market. A percentage so small I'm not sure anyone can statistically say they are doing so through skill. Similarly, your argument is the top 10 are consistent. Yes. And the top 10 aren't a statistically significant sample in a market of thousands of investors.
- coffeemug 11y ago
  This analysis breaks down if the top ten outperform the market after you've started watching them. If that's the case (which for top ten VCs it is), the math suggests it isn't a "million quarters" situation.
  - msellout 11y ago
    That would need to hold for substantially all of the "top" outperforming our expectation of a naive person with the same deal-flow.
  - tremguy 11y ago
    This.
  - fweespeech 11y ago
    > This analysis breaks down if the top ten outperform the market after you've started watching them. If that's the case (which for top ten VCs it is), the math suggests it isn't a "million quarters" situation. Actually, it doesn't. The top 10 VCs aren't static and unchanging.
Androider 11y ago
Take 1000 people, have each predict a coin flip 10 times. The top 10 players will have predicted way better than random chance would have you believe. Why several of them are even 10 for 10, they must have special prediction powers! ;) Grow the player base, increase the number of predictions, you'll end up with some real super-stars who just go on winning. They'll probably write books and lecture about their techniques. Right up until the moment they lose. Kind of like hedge fund managers.
- coryl 11y ago
  Enough time and volume should eventually show whose truly good (statistically).
  - deleted 11y ago
    [deleted]
  - Joof 11y ago
    Flip 1000 pennies and calculate the results enough times and you'll get a gausian curve. Some results will consistantly flip heads the majority of the time. It's harder to model with VC's because they are measured in rewards that get exponentially better with success (money) and are self-reinforcing (better deals from recognition). My guess is that they figured out how to eliminate the absolutely horrible ones and got lucky enough times to have the best deals come to them.
- maaku 11y ago
  Explain Berkshire Hathaway for me then, please.
  - refurb 11y ago
    Berkshire doesn't just buy stock. It buys a controlling interest and influences the way the company is run.
    - mahyarm 11y ago
sinatra 11y ago
Well, there's also a self-fulfilling aspect when it comes to top ten VCs doing consistently well. Entrepreneurs and startups that are somewhat successful / proven can pick any VCs they want. And they pick the well respected (ie, historically successful) VCs.
- sly010 11y ago
  Especially if top 10 is defined as "doing well" :)
sl8r 11y ago
Something I've often wondered about his how much of the top 10 VC performance advantage is due to deal availability. Top firms are offered the best deals (every startup wants to be funded by them), which means that they might be able to achieve better returns without being "better" than other VC firms in terms of, say, investing acumen or operational advice. It could be that 0% of top VC returns are explained by this; I'm curious, though.
- coffeemug 11y ago
  > Something I've often wondered about his how much of the top 10 VC performance advantage is due to deal availability. My guess is, most of it.
guelo 11y ago
Is there enough public visibility into the top ten's deals to know that this is true?
sliverstorm 11y ago
Of course "better than random" is only worth something if the odds are decent, for example if random chance tends to yield $0 (no loss no gain).
chongli 11y ago
Texas sharpshooter fallacy[0]. The specific problem with your argument is that you didn't set forth a hypothesis that would predict which VCs would be successful before they'd all started investing their money. [0] https://en.wikipedia.org/wiki/Texas_sharpshooter_fallacy https://en.wikipedia.org/wiki/Texas_sharpshooter_fallacy
- maurits 11y ago
  Don't think that applies, the rules or criteria for economic succes are set. Perhaps the comparison should be against the index.
  - notahacker 11y ago
    The point is that there's a relatively large number of VCs, a relatively wide distribution of returns and the pool of established VCs is skewed by those that don't enjoy early successes tending to be replaced with new VCs, irrespective of whether that was down to them being unluckier or less skilled than those which remain. If you have enough people flipping coins you're bound to end up with some people who appear to have significant skill in consistently flipping heads in your pool of coin flippers. (Especially if the pool tends to replace people who don't flip heads in their first couple of tries with new entrants) It's arguably the Texas sharpshooter fallacy because we define "top VCs" after the fact by looking at their past returns, rather than identifying the "most talented VCs" from a very early stage. Perhaps identifying the "crack shot" from a blindfolded firing squad would be a better analogy.
    - maurits 11y ago
      Sure, all true, thanks.
ronlkah 11y ago
A November 2015 Cambridge Associates study: "The widely held belief that 90% of venture industry performance is generated by just the top ten firms is a catchy but unsupported claim" http://www.cambridgeassociates.com/our-insights/research/venture-capital-disrupts-itself-breaking-the-concentration-curse/ http://www.cambridgeassociates.com/our-insights/research/ven...

fweespeech 11y ago

> The question isn't whether VCs are brilliant according to some absolute metric. The question is whether they deploy capital better than random chance. The numbers show that top ten VCs consistently do. Does it? If you have enough gamblers in a high stake casino where the house hasn't stacked the deck, some of them will seem to consistently win in comparison to the other players. Similarly, a very small percentage of VCs and other active investors consistently beat the market. A percentage so small I'm not sure anyone can statistically say they are doing so through skill. Similarly, your argument is the top 10 are consistent. Yes. And the top 10 aren't a statistically significant sample in a market of thousands of investors.

coffeemug 11y ago
This analysis breaks down if the top ten outperform the market after you've started watching them. If that's the case (which for top ten VCs it is), the math suggests it isn't a "million quarters" situation.
- msellout 11y ago
  That would need to hold for substantially all of the "top" outperforming our expectation of a naive person with the same deal-flow.
- tremguy 11y ago
  This.
- fweespeech 11y ago
  > This analysis breaks down if the top ten outperform the market after you've started watching them. If that's the case (which for top ten VCs it is), the math suggests it isn't a "million quarters" situation. Actually, it doesn't. The top 10 VCs aren't static and unchanging.

Androider 11y ago

Take 1000 people, have each predict a coin flip 10 times. The top 10 players will have predicted way better than random chance would have you believe. Why several of them are even 10 for 10, they must have special prediction powers! ;) Grow the player base, increase the number of predictions, you'll end up with some real super-stars who just go on winning. They'll probably write books and lecture about their techniques. Right up until the moment they lose. Kind of like hedge fund managers.

coryl 11y ago
Enough time and volume should eventually show whose truly good (statistically).
- deleted 11y ago
  [deleted]
- Joof 11y ago
  Flip 1000 pennies and calculate the results enough times and you'll get a gausian curve. Some results will consistantly flip heads the majority of the time. It's harder to model with VC's because they are measured in rewards that get exponentially better with success (money) and are self-reinforcing (better deals from recognition). My guess is that they figured out how to eliminate the absolutely horrible ones and got lucky enough times to have the best deals come to them.
maaku 11y ago
Explain Berkshire Hathaway for me then, please.
- refurb 11y ago
  Berkshire doesn't just buy stock. It buys a controlling interest and influences the way the company is run.
  - mahyarm 11y ago

sinatra 11y ago

Well, there's also a self-fulfilling aspect when it comes to top ten VCs doing consistently well. Entrepreneurs and startups that are somewhat successful / proven can pick any VCs they want. And they pick the well respected (ie, historically successful) VCs.

sly010 11y ago
Especially if top 10 is defined as "doing well" :)

sl8r 11y ago

Something I've often wondered about his how much of the top 10 VC performance advantage is due to deal availability. Top firms are offered the best deals (every startup wants to be funded by them), which means that they might be able to achieve better returns without being "better" than other VC firms in terms of, say, investing acumen or operational advice. It could be that 0% of top VC returns are explained by this; I'm curious, though.

coffeemug 11y ago
> Something I've often wondered about his how much of the top 10 VC performance advantage is due to deal availability. My guess is, most of it.

guelo 11y ago

Is there enough public visibility into the top ten's deals to know that this is true?

sliverstorm 11y ago

Of course "better than random" is only worth something if the odds are decent, for example if random chance tends to yield $0 (no loss no gain).

chongli 11y ago

Texas sharpshooter fallacy[0]. The specific problem with your argument is that you didn't set forth a hypothesis that would predict which VCs would be successful before they'd all started investing their money. [0] https://en.wikipedia.org/wiki/Texas_sharpshooter_fallacy https://en.wikipedia.org/wiki/Texas_sharpshooter_fallacy

maurits 11y ago
Don't think that applies, the rules or criteria for economic succes are set. Perhaps the comparison should be against the index.
- notahacker 11y ago
  The point is that there's a relatively large number of VCs, a relatively wide distribution of returns and the pool of established VCs is skewed by those that don't enjoy early successes tending to be replaced with new VCs, irrespective of whether that was down to them being unluckier or less skilled than those which remain. If you have enough people flipping coins you're bound to end up with some people who appear to have significant skill in consistently flipping heads in your pool of coin flippers. (Especially if the pool tends to replace people who don't flip heads in their first couple of tries with new entrants) It's arguably the Texas sharpshooter fallacy because we define "top VCs" after the fact by looking at their past returns, rather than identifying the "most talented VCs" from a very early stage. Perhaps identifying the "crack shot" from a blindfolded firing squad would be a better analogy.
  - maurits 11y ago
    Sure, all true, thanks.

ronlkah 11y ago

A November 2015 Cambridge Associates study: "The widely held belief that 90% of venture industry performance is generated by just the top ten firms is a catchy but unsupported claim" http://www.cambridgeassociates.com/our-insights/research/venture-capital-disrupts-itself-breaking-the-concentration-curse/ http://www.cambridgeassociates.com/our-insights/research/ven...