Chris Farmer, a VC at General Catalyst, has come up with a way of ranking VCs called InvestorRank, which he presented at the TechCrunch Disrupt conference.
The problem is that looking at VC’s returns is backward looking: past returns are never a guarantee of future returns. Instead, InvestorRank looks at how connected venture firms are to each other by looking at their co-investments. If firms co-invest together, they both get rank. If a firm follows a previous firm, the earlier VC gets more rank.
We’re not sure we like the methodology, because it seems that you gain rank simply by (co-)investing a lot, and what matters to the people who write checks for VCs, the Limited Partners, are the actual returns. Andreessen Horowitz comes out on top, and it’s certainly a sterling investor, but it’s also a very active investor. Union Square Ventures, who invest in few companies, rank lower, despite having the best returns in the country.
Indeed.com, which is the “best all around company” in the Union Square Ventures portfolio, probably gains them no InvestorRank, because they only raised one venture round. But the reason why they raised only one venture round is because they’re really successful and didn’t need to raise more. Indeed is not good for InvestorRank, but very good for Union Square Ventures’ LPs.
On Fred Wilson’s largely positive post discussing InvestorRank, Spark Capital Partner Bijan Sabet comments: “i can see at least one firm on that list that has never generated carry”. (Who’s the firm? If we had to guess, we would say Khosla Ventures, which makes big ambitious bets in clean/green tech and some internet startups but hasn’t had huge exits yet.)
Past performance is no guarantee of future performance but that’s a time travel problem, not a ranking problem.
That being said, it’s an interesting way of looking at the venture world. But it doesn’t seem that useful.
Here’s who InvestorRank says are the top VCs:
Photo: Chris Farmer, General Catalyst
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