This opportunity would be pretty solid if it were like 5-10 years ago. To me VCs are the new HFs, but have the ability to still charge 2/20 with less liquidity. ~10% of the top funds generate +90% of the returns. The rest are garbage. However, even that model is eroding. Investing with the Sequoia’s, AH, Accel’s of the world was usually a sure thing (if you could get an allocation). Now with so many new entrants, the returns among the top 10% of funds are more disparate.
I actually really like tech (more the hard science stuff, not so much social medial), but this rally so needs to die. Everyone now with some capital seems to be starting a VC fund. Worse, those who have ridden a massive beta trade think they are geniuses and are getting even more investor capital. Don’t even get me started on ICOs…
to add most of the vc that are number 1 are there usually due to 1 investment. i just rewatched something ventured on netflix. when apple first started some of the vc’s had the opportunity to buy 33% of apple for 50k. just goes to show how much of a crapshoot there is. lol
social media is the same winner take all issue! just like how the best parties are the ones with the most people! such a competitive moat.
^True, but this is an overstatement for a lot of VC funds. Many really just don’t have as much value-added input as they think they do. In any case, I was only referencing their recent popularity as a comparison to the past (over)popularity of HFs.
Agreed. Before the big VC hype, I’d argue that funds added value to investments they participated in, but nowadays, anyone with enough money and not necessarily any experience is starting a fund and labeling themselves as VCs. A bunch of rich kids from my school pooled some funds together and label themselves as “seasoned entrepreneurs”.
LOL coming in with full of made up assumptions…Yup you belong in finance…No where in what i said did i mention about hating my jobs…
Smaller funds?! Show me a small hedge fund or PE fund that have consistently outperformed on a long term basis…Given that 96% of active funds underperform and those that do outperform are rarely repeat performers…your search might be tough.
Given simple statistics that 96% fail to outperform, you dug yourself deeper by throwing in an ambiguous “smaller” funds tend to outperform… Now you gotta find a fund that not only outperform but is also small.
I only have second hand experience with VC stuff, and have made some inquiries about investing, from which I went away disgusted by the terms. But anyway, from what people tell me, it’s really hard for no-name VC funds to do well on average, since the best startups will take money from top VCs who give them benefits like advice and access to their networks. That’s a big component of startup success. If Peter Thiel tells all his friends to do business with you, you’re going to do well. It matters even more since most startups don’t do well, and you have to bet on coming across the next Uber or something.
If you’re the principal of a small VC fund, you can still be ok, since you’re collecting fees from your sucker clients. It’s usually a 2/20 ish thing, but sometimes even more expensive. Furthermore, you lock up your client’s capital for years, thus guaranteeing a long period of fees. However, as an employee of such a fund, you usually are not given a good revenue share, so it is usually not worth it if you have a good job elsewhere. Maybe it is different if you are good friends with the management.
Again, this is only what people told me, so take it with a grain of salt.
Sometimes I wonder if you are OK. You get more and more angry-Black Swanish as time goes on. Meanwhile, it seems Black Swan has been cooling down. Maybe this is his alternate ego where he gets angry still? Who isn’t a dupe account here?
The article states that small funds tend to outperform big funds but does it outperform the market index or its benchmark? Probably not.
I’m not mad, just stating the fact that the models and assumptions we use are in large part BS. If you really do work in this field, I think you should or I certainly hope you know this by now. Nobody has the power or skills to predict what the market will do in the next hour or tomorrow or next year even with super fancy excel sheets and R programs you may or may not have.
“You get more Black-Swanish as time goes on” ummmm I never said there is an impending downturn in the near future and that we are all blind to it LOL…I merely said the models we use in the finance industry is flawed. hahaha…
There’s always this assumption in America that stating truths or facts is “angry” or “depressed” or “hateful,” I find this odd. It’s sort of part of how the brainwashing works, how the system keeps everyone on the leash. It’s just funny, because you can’t call yourself a serious analyst, while also denying the facts. You have to have the mental fortitude to report on your industry objectively. If outperformance were possible, that is where it would start—analyzing the market situation objectively.
I think this discussion misses an important underlying question, which is how the F Nerdy convinced people to entrust him with investing decisions, given his insane financial logic.
The models I build are pretty useful, since we influence the operations of investments. I’d assume the same is true for you… What are you modeling? I changed jobs in part because I wanted to go somewhere that should be easier to perform better. When I worked with public securities, I agree with your analysis. But I’m just wondering why you don’t go the next step past being cynical about it and do diligence to find a place where you can prosper. Small firms is really what I meant by that… There is only so much opportunity and the more money you are managing, the harder it is to exploit
I just want you to live up to alphas definition of an analyst haha
I have worked at two sub $1B equity hedge funds. Currently, I work at VC PE fund that is very large with in-house as mentioned, VC as well as REPE and arb trading fund. we don’t ourperform. maybe RE
If you model differently somehow where you make oversized returns that is wonderful. After a few years of that, I expect to see you in the same podium and stage as Mendelbrot, Taleb, Fama, etc.
Again, I’m not cynical, just stating the facts. Fact that whatever models we use whether that is proforma, dcf, charts, mean reverting, arb, spread, var, black-scholes, fama french factor, quant of all kinds fail to beat simple market index, SP500.
BS analysts, portfolio managers, risk managers, quants, CIOs, CFOs, IBs, CNBC market “experts” show off as if they know what they are talking about using one of or combination of the above methods. Very smart people don’t get me wrong. They apparently know what stock ____ will do tomorrow or next year or next 5 years, a company they have never worked for or been to. Yet, they couldn’t see their own employers’ impending doom where most of the banks lost more money in span of 2007-2008 than they earned in the last three decades, in AIG and Merrill’s case, about 100 years before government backing and bail out ie buying of those “toxic” assets.
camaraderie imo is more important than logic. i actually met my 50m friend because we did a business venture together with an ex co worker from usc. that venture lead to friendship through bottle service! I connected him with people i know and he benefited from my contacts. but lol whats wrong with my logic?
plus my ability gather info on anything is amazing. plus we’ve worked together on other things before and he doesnt know any finance, so i can easily dazzle him with easy concepts like mc = mr. when the lease and when to own, acquisition price etc. fair multiple. even getting an s-1 or 10-k is impressive. not hard to impress regular folk plus im like educating him!
