Thinking about doing a senior thesis on VC. The premise: Do VCs underperform the market they exist in in the same way active fund managers do? If you somehow control for issues of exposure/access, could a simple algorithm pick needles in a haystack just as well as VCs do?
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Many VC guys will say things like “after we narrow our options by using key metrics, it often comes down to how much strength we see in the founder”. I’m doubtful of the effectiveness of this. Humans are notoriously bad at sizing people up in this way
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Malcom Gladwell discusses this in his new book. Even court judges- the people who are supposed to size up strangers for a living- can’t do this. In the situation Gladwell describes, a simple algorithm outperforms the judges in deciding who gets bail. Are VCs any different?
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I have a hunch that VCs selection processes are mostly a facade. Maybe they’d be better off having an algorithm select companies based off of whatever indicators are relevant. Then they could shift their work to be more on the consulting side, less on selection
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I think there is a parallel here to the ride of ETFs/passive investing. Lots of ppl couldn’t (and still can’t) fathom that fund managers can’t beat the market. It’s harder to measure this stuff in VC since the markets aren’t public. Figuring out the measurement is the obstacle
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Thoughts?
@Jason@wolfejosh@sacca@datarade@nntaleb@naval@justinkan@ScottAdamsSays@EricRWeinstein@patrick_oshag1 reply 0 retweets 0 likesShow this thread -
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VC is a sales job, it’s about access more than selection. Everyone knows the deals they want (the ones that everyone else wants), they just compete on price and brand to get them.
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Replying to @harjtaggar @Austen
Good point. We’ve definitely seen that play out with Clubhouse, lol. Do you think the deals that everyone wants are almost always the ones that go on to perform the best? How strong is that correlation?
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