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I'm dreaming, but it would be nice to see some numbers. What would Union Square's performance have been if they just invested a max of once in each company? Tw

by breck 7y ago

I'm dreaming, but it would be nice to see some numbers. What would Union Square's performance have been if they just invested a max of once in each company? Twice? Instead of this N times strategy? I wonder the same about YC. I think the strategy he's talk about is simply called Dollar Cost Averaging (https://en.wikipedia.org/wiki/Dollar_cost_averaging https://en.wikipedia.org/wiki/Dollar_cost_averaging) in the public markets. I do it. It works and because there's data available it's easy to see. I haven't seen anyone put out numbers yet on how important it is in angel/seed/VC investing. My back of the envelope guess is that unless you follow this strategy (doubling down on your winners 3-5 times before liquidity) it's not worth it to do early stage investing, but I'm not sure. Would love to see some data. Edit: Actually, looking up DCA its meaning is a bit more specific than I realized and not quite a strategy that I follow. I meant more about doubling down on your (expected) winners particularly when their price falls irrationally. Half-baked analogy.

PeterisP 7y ago
I believe that I've read an analysis of something just like what you ask from Fred/AVC some years ago, so perhaps it's worth looking at the archive. I don't recall the exact details, but it was roughly that each of the successive stages got (obviously) a much lower rate of return, but since the successive stages were much larger and much less risky, most of the actual money returned came after the initial stage. However, perhaps it's worth thinking more about what does it mean to 'worth to do early stage investing' - if you would just do early stage financing, then you'd have much lower returns but also much smaller fund size. Is getting a higher rate of return the top priority, or is it better to get more total return by leveraging more money despite a lower relative rate?
xorfish 7y ago
> I meant more about doubling down on your (expected) winners particularly when their price falls irrationally You can't really know if the price fell irrationally. Maybe its just you misinterpreting the available data. The data is pretty clear, holding cash in case the market drops costs you more than a possible crash. "Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves" This is an iconic quote that captures that sentiment.
- breck 7y ago
  I agree that it’s a worse strategy if you hold capital back. I was looking for a comparable in public equities where you keep buying more of the same thing, doubling down on the bets you know and like. I guess in private markets you are limited by the available supply. In Public markets you are limited by your capital. For me when I get more capital I will deploy generally in things I already own, which has the affect of lowering average price if the price has fallen(that’s why I made a mistake calling this DCA).
  - xorfish 7y ago
    I mean today it is very easy to hold the whole market, so why take on idiosyncratic risk that doesn't have a positive expected return when you can just the whole market and maybe some factor premiums? The price you bought it is irrelevant, all that matters is the current value of the security. If you have capital, it is always the best decision to put it in the market as soon as possible.
    - whatshisface 7y ago
      Still, whole-market investing should not be regarded as riskless. It takes ten to thirty years before it goes from "usually a good idea" to "virtually always a good idea."
    - breck 7y ago
      For passive investing that’s the Way to go. But I am an active investor And put time into helping my companies whether big or small. I like to have a thesis And invest on that. I also would be willing to underperform a Certain percentage if it Was in service of companies that I think are building a better world. Though FWIW have beaten vfinx easily past 5 years.
      - benibela 7y ago
        During the last years one could easily have outperformed it with spxl

by breck 7y ago

PeterisP 7y ago

I believe that I've read an analysis of something just like what you ask from Fred/AVC some years ago, so perhaps it's worth looking at the archive. I don't recall the exact details, but it was roughly that each of the successive stages got (obviously) a much lower rate of return, but since the successive stages were much larger and much less risky, most of the actual money returned came after the initial stage. However, perhaps it's worth thinking more about what does it mean to 'worth to do early stage investing' - if you would just do early stage financing, then you'd have much lower returns but also much smaller fund size. Is getting a higher rate of return the top priority, or is it better to get more total return by leveraging more money despite a lower relative rate?

xorfish 7y ago

> I meant more about doubling down on your (expected) winners particularly when their price falls irrationally You can't really know if the price fell irrationally. Maybe its just you misinterpreting the available data. The data is pretty clear, holding cash in case the market drops costs you more than a possible crash. "Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves" This is an iconic quote that captures that sentiment.

breck 7y ago
I agree that it’s a worse strategy if you hold capital back. I was looking for a comparable in public equities where you keep buying more of the same thing, doubling down on the bets you know and like. I guess in private markets you are limited by the available supply. In Public markets you are limited by your capital. For me when I get more capital I will deploy generally in things I already own, which has the affect of lowering average price if the price has fallen(that’s why I made a mistake calling this DCA).
- xorfish 7y ago
  I mean today it is very easy to hold the whole market, so why take on idiosyncratic risk that doesn't have a positive expected return when you can just the whole market and maybe some factor premiums? The price you bought it is irrelevant, all that matters is the current value of the security. If you have capital, it is always the best decision to put it in the market as soon as possible.
  - whatshisface 7y ago
    Still, whole-market investing should not be regarded as riskless. It takes ten to thirty years before it goes from "usually a good idea" to "virtually always a good idea."
  - breck 7y ago
    For passive investing that’s the Way to go. But I am an active investor And put time into helping my companies whether big or small. I like to have a thesis And invest on that. I also would be willing to underperform a Certain percentage if it Was in service of companies that I think are building a better world. Though FWIW have beaten vfinx easily past 5 years.
    - benibela 7y ago
      During the last years one could easily have outperformed it with spxl