Chris Farmer, a VC with General Catalyst, presented some interesting data yesterday at Disrupt. He ranked VC firms on the basis of what companies they invested in as the first VC investor. If you invested in a highly successful company in the first round, you get “InvestorRank” and like Google Page Rank, that rank is transferable to other firms. If you follow an investor in the next round, some of your rank will transfer to the firm who led the deal before you.
This is an insightful way to look at the early stage venture capital business. The objective of early stage VC investors is to get into the best deals in the first round and then to get other high quality firms to follow on in the next rounds. That is how it was taught to me and it is how we have built the two firms I have started.
I haven’t studied Chris’ data to have a point of view on the ranks he has calculated and the ratings he presented. But if I was investing in venture capital firms as an LP, this would be a big part of what I would look at.
Returns are important, but they are a trailing indicator. There is no guaranty that past returns will be an indicator of future returns. What is more important is the team, the strategy, and their ability to get into the right deals and build the right syndicates. InvestorRank is a good attempt to quantify that last bit.
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