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vgr's profile
Venkatesh Rao
Venkatesh Rao
Venkatesh Rao
@vgr

Tweets

Venkatesh Rao

@vgr

This is my conversational account. For my work follow @ribbonfarm, @breaking_smart, @artofgig. Tweets are 90% vacuous views, apathetically held. Mediocritopian.

Los Angeles, CA
venkateshrao.com
Joined August 2007

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    1. Venkatesh Rao‏ @vgr 8 Oct 2019
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      What would failure-rate adjusted valuations of startups look like? VC-firm-level returns are meaningful, but it’s weird that individual valuations are a vanity metric. Valuation: price at which you sell a % to a private group that is expecting median investment to be worthless.

      3 replies 1 retweet 11 likes
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    2. Venkatesh Rao‏ @vgr 8 Oct 2019
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      I’m beginning to think it’s almost malpractice of some sort to use valuations for anything other than IRR computations to allow VC firms to have a basis for raising the next fund. A purely technical use case since big returns take the longest to yield and failures are quick.

      1 reply 0 retweets 7 likes
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    3. Venkatesh Rao‏ @vgr 8 Oct 2019
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      If you used real returns, VC investing would be too slow and conservative, so it’s ok to use valuations for that *in a portfolio* but using isolated valuations to valorize pre-exit founders is shady af. Makes failures look like going from billion to zero. No it’s zero to zero.

      1 reply 2 retweets 10 likes
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    4. Venkatesh Rao‏ @vgr 8 Oct 2019
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      Ah got it. Valuations are how startups do virtue signaling 😐 It’s basically BIRGing *average* returns in a power-law sector where *median* returns are more meaningful but far less flattering.

      1 reply 0 retweets 7 likes
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    5. Ben‏ @BenKnill 8 Oct 2019
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      Replying to @vgr

      Why is the median more meaningful? It's more likely, but the average also carries information. Using actual results means using one shot from a distribution that has tautologically perfect accuracy but very low precision. Estimates are high precision, but potentially inaccurate..

      2 replies 0 retweets 0 likes
    6. Venkatesh Rao‏ @vgr 8 Oct 2019
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      Replying to @BenKnill

      Because VC returns are nearly a power law. The top 2-3 exits drive almost all the returns.

      1 reply 0 retweets 0 likes
    7. Ben‏ @BenKnill 8 Oct 2019
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      Replying to @vgr

      Right! Much as with estimating how good a player in a tournament is. If you wanna know how good the player is, you'll do much better looking at their expected average winnings rather than actual winnings if the estimators are savvy. The expectation is based on way more data.

      2 replies 0 retweets 0 likes
      Venkatesh Rao‏ @vgr 8 Oct 2019
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      Replying to @BenKnill

      You’re mapping “player” to “VC”, I’m mapping it to “startup” Nobody but VCs and LPs gives a shit about how well they do. Startupball as a grand narrative is about the startups and their hero’s journeys.

      9:06 AM - 8 Oct 2019
      1 reply 0 retweets 0 likes
        1. New conversation
        2. Ben‏ @BenKnill 8 Oct 2019
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          Replying to @vgr

          The VCs are the people on the sidelines estimating the chops of the player. The player is the founder of the startup, or the startup more broadly. We can look at the results to estimate their merit, or we can look at the expert-derived expected average. Tradeoffs seem analogous.

          1 reply 0 retweets 0 likes
        3. Ben‏ @BenKnill 8 Oct 2019
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          Replying to @BenKnill @vgr

          Particularly if our one-shot is in a game like Magic or poker, which seem more analogous to a startup struggling for survival than more deterministic games, it would be downright foolhardy to take the one actual result over people's estimate of how good the player is.

          0 replies 0 retweets 0 likes
        4. End of conversation

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