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I've heard many VCs say this. It's one of the few examples of Marc demonstrating complacence, wrongheadedness and herdlike thinking in this interview. But it d
by vonnik 9y ago
I've heard many VCs say this. It's one of the few examples of Marc demonstrating complacence, wrongheadedness and herdlike thinking in this interview.
But it does point to an underlying truth: the VC market has not found a good filter for startup quality beyond human curation. Irony, anyone? They haven't managed to gather the data and apply the algorithms yet, so they let themselves rely on a primarily inbound model that depends on the VCs building a reputation and network, promoting themselves in the media, and then waiting for founders to come to them through the filter of the Silicon Valley milieu.
While there ought to be a better way, there are also obstacles to collecting perfect data in a fast-changing private market. Ideas gestate quietly, startups are founded in stealth, most of the data is self-reported, and therefore spotty and unreliable.
That said, I do think there's a lot of potential to gather data and analyze it to make predictions about startup quality. Some investors have already done that, based on their many interactions over decades. And those solutions, of course, will remain private for some time. The smartest actors in the market have little interest in improving how the rest of the market makes decisions.
- bcherny 9y agoQuantitative traders have trouble teasing signals out of data. And there is so much data in the public markets: stock prices, volume, interest (and the rest of Bloomberg data), Twitter sentiment, satellite data. The private markets have so much less data, so the best indicators are who the founding team is, how big the market it, and other obvious stuff like that. There are some quantitative VCs in Menlo, SF, and NY, but I wouldn't hold my breath. VC is probably speculation, but let's wait for VCs to show consistent back to back returns on funds and we'll find out. For hedge funds, it hasn't panned out so well - not sure it'll be different for Anyone Else.
- vonnik 9y agoActually, it's worked out quite well for some hedge funds. Renaissance Technologies is a quant-driven HF, and it's one of the largest and most successful in the world. The only quantitative VCs worth anything will be the ones who have been operation for many years and who apply the algorithms to the data they have collected during that time, on all the startups they interacted with and invested in. They hold enormous private data stores about those private companies. I think the real problem is that the best and most famous VCs, like Marc, don't need the algorithms to get access to many of the best deals. They're already overwhelmed with companies good enough to merit a meeting. And maybe they feel as though their funds are doing good enough. But for funds willing to leverage their private data, there's an edge to be had.
- bcherny 9y agoRenaissance is always cited in these conversations, but as you noted, isn't representative of the thousands of quant shops out there. That, and I hear their quant edge is disappearing with competition and they are relying more on HFT over the last decade. Quant VCs just started appearing in the last few years, and it's not clear there is an edge there. As I said, my opinion is it's not likely.
- vonnik 9y agoUnlike the stock market, experienced VCs should be applying quantitative techniques to private data they've collected. That's one way to keep their edge. You don't seem to appreciate the distinction. Of course most public-market quants will see their edge fade if their competition has access to the same data. That doesn't refute the initial success of those techniques.
- bcherny 9y agoBoth public and private have access to prop data. Public has more data, since the companies they're covering are bigger and so produce more data.
- jondubois 9y agoYes, I think the real reason why VCs don't like meeting people outside of their networks is that it makes them uncomfortable. Meeting new people all the time is exhausting and destabilizing. People like consistency and a feeling that the world is a small place full of familiar faces. I think that the herd mentality makes sense for small VCs who don't really know what they're doing and don't have any vision but it's disappointing to see it in these big guys too. They are the trendsetters after all. That mentality is exactly why the rich get richer and the poor get poorer. Also it is sacrificing technology/innovation for sales/marketing/networking.
- ig1 9y agoI think you misunderstand what is meant by networks. VCs constantly meet new people but generally it's people recommended by their current network or sourced by outbound research rather than people who cold email.