it's monday, so something is pissing me off

[rone]

Strike one: it's TechCrunch.
Strike two: it's an "online financial advisor."
Strike three:

3 percent of the universe of venture capital firms – generate 95 percent of the industry’s returns... Those premier venture firms succeed because they have proprietary knowledge of the characteristics of winning companies.

BULL-FUCKING-SHIT.  These "premier" venture firms succeed because they sit on a ton of capital through early lucky strikes, which lets them absorb failures while at the same time being far more attractive to new startups because, hey, they're "premier".  It would be far more revealing to show what each "premier" VC's success rate is, but that's probably "proprietary" information, too.  It's nothing more than a just-so story about why a "premier" VC is "premier".  If they actually knew what the characteristics of winning companies were, they wouldn't be funding them; they would be founding them.

Comments

[kodi]

Venture capital is an "industry"?

[dr-strych9.livejournal.com]

Welcome to the United States.

[whipartist.livejournal.com]

If you spin up a thousand VC firms and let them run, a small percentage will be wildly successful just by being lucky. The lucky ones will look brilliant. That's not to say that there's no skill involved, but a lot of it will be luck.

Once you get lucky, you have a better tools for being successful in the future.

[ronebofh.livejournal.com]

Right, there might well be some skill involved, but there is no skill that would be so effective to generate the vast division noted above.

[jwgh]

In the comments I see:

Read the theory of diversification chapter 20 in The intelligent investor of Benjamin Graham. He connects diversification to the arithmetic of roulette. "If a man bets $1 on a single number, he is paid $35 profit when he wins - but chances are 37 to 1 that he will lose (probably like angel investments). He has a 'negative margin of safety'. In this case diversification is foolish. The more numbers he bets on, the smaller his chance of ending with a profit... "

I'm trying to decide if that it stupid, obvious, or wrong. Taken to its extreme, it seems to imply that investing at all is a mistake -- or that at most you should invest once, in one company, and then never invest again.

[nothings.livejournal.com]

This seems to be the experience of people who "invest" in movies.

[hwrnmnbsol.livejournal.com]

In my opinion this Benjamin Graham is being stupid by comparing the optimal strategies for investment with the optimal strategies for a game that is rigged in favor of the house. In the latter, there is no question that putting one chip on every roulette square will inevitably result in failure. In the former, wise investors diversify by placing chips on as many winning squares as possible. This does not maximize return but it does cushion investors against making that one bad bet.

Stated another way: the two would be more comparable if roulette were a game where any given bet could either lose 100% or gain 125% of its value. Here a diversified betting strategy doesn't maximize your gains, but it does protect you from losing everything, which 99% of investors could not weather.