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The article has uncovered sources that claim the algorithm makes the ultimate decision and other sources that claim it doesn’t. If it does make the ultimate de

The article has uncovered sources that claim the algorithm makes the ultimate decision and other sources that claim it doesn’t. If it does make the ultimate decision and not just for political reasons then this is very interesting. Having input data that is sufficiently informative is important on a number of levels. Firstly this means that it is possible to pick winners on the basis of other VCs etc Secondly it means one doesn’t have to be personally concerned with the story if others can vet it for you. If the machine doesn’t make the ultimate decision then — as others point out — it’s just old fashioned screens and checklists with a new interface.

aaavl2821 8y ago
If the main input is quality of other VCs, then at some point a VC has to decide to invest based on fundamentals rather than what other investors are doing. a group of "fundamental" investors with good track records then would dictate what the rest of the market invests in. you sort of see this dynamic play out in reality. YC is an example: they invest early, before other investors often, so they cant rely on other investors as a signal. they've done well though, so many investors follow them. there are more follow-on investors than successful "fundamental" investors, so there's often a valuation step up when follow on investors join that benefits the fundamental investors same thing plays out in biotech. theres been a massive influx of capital into biotech VC, but not a big increase in the number of funded startups. most startups that go on to raise money are seeded in house by a handful of VCs. these VCs then fund the series a. they get big step-ups for series b and beyond deals and capture nice returns im working on a more rigorous analysis to understand whether these anecdata are true in reality
- inputcoffee 8y ago
  I agree with your description of he dynamic at play. It raises two questions: 1. Is the money that the startup attracts responsible for its success? In other words if a mediocre company goes through Y Combinator and then attracts a $55 million round, is it more likely to succeed than a great company that does not? (Let’s day the mediocre company doesn’t squander the cash wastefully but slowly looks for the product market fit) 2. Are there fundamentals that can be distinguished from an “observer effect.” Suppose everyone believes that a company coming out of Stanford is more likely to succeed than one coming out of (say) Babson. Does believing it make it true because the company attracts more money in each round? These two thoughts are variations on a theme of the role of signaling in picking out fundamentals. Edit: I should also point out that GV might also use “true” fundamentals like search results, trends, etc

aaavl2821 8y ago

If the main input is quality of other VCs, then at some point a VC has to decide to invest based on fundamentals rather than what other investors are doing. a group of "fundamental" investors with good track records then would dictate what the rest of the market invests in. you sort of see this dynamic play out in reality. YC is an example: they invest early, before other investors often, so they cant rely on other investors as a signal. they've done well though, so many investors follow them. there are more follow-on investors than successful "fundamental" investors, so there's often a valuation step up when follow on investors join that benefits the fundamental investors same thing plays out in biotech. theres been a massive influx of capital into biotech VC, but not a big increase in the number of funded startups. most startups that go on to raise money are seeded in house by a handful of VCs. these VCs then fund the series a. they get big step-ups for series b and beyond deals and capture nice returns im working on a more rigorous analysis to understand whether these anecdata are true in reality

inputcoffee 8y ago
I agree with your description of he dynamic at play. It raises two questions: 1. Is the money that the startup attracts responsible for its success? In other words if a mediocre company goes through Y Combinator and then attracts a $55 million round, is it more likely to succeed than a great company that does not? (Let’s day the mediocre company doesn’t squander the cash wastefully but slowly looks for the product market fit) 2. Are there fundamentals that can be distinguished from an “observer effect.” Suppose everyone believes that a company coming out of Stanford is more likely to succeed than one coming out of (say) Babson. Does believing it make it true because the company attracts more money in each round? These two thoughts are variations on a theme of the role of signaling in picking out fundamentals. Edit: I should also point out that GV might also use “true” fundamentals like search results, trends, etc