3 Replies to “Venture Capital – Thoughts On The Asset Class”

  1. Given that the value of VC lies in the fact that some people are better at spotting (and developing) good ideas than others, doesn’t it seem odd to be measuring mean returns? There’s an implicit assumption in looking at the mean that VCs are interchangable. If there is such a thing as VC “alpha”, then the winning investment strategy is to identify winners quickly, rather than distributing risk via diversification.

  2. Your point is good, there will always be a distribution of returns. I also think that mean return is interesting if there is some broad trend that is affecting the asset class as a whole, which is the claim made in the document I referenced. On a day by day basis in your operating role, you have to think hard about how to be best of class. In the long long run, like at the time you raise a fund, it is probably important to look at the global trends that affect the class as a whole.

  3. Looking at the article, it does talk about this as a measure of how VC scales as an investment. I think the lesson is that, if you are generically allocating funds to “VC” as a investment class, you are doing it wrong. It probably fundamentally requires some shopping, as opposed to index style allocation. (Ironically, reverting to most people’s naive definition of investing.)

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