Predictably Bad Investments: Evidence from Venture Capitalists

ArXiv ID: ssrn-4135861 “View on arXiv”

Authors: Unknown

Abstract

Do institutional investors invest efficiently? To study this question I combine a novel dataset of over 16,000 startups (representing over $9 billion in investm

Keywords: Venture Capital, Institutional Investors, Startup Investment, Portfolio Management, Efficiency, Private Equity / Venture Capital

Complexity vs Empirical Score

• Math Complexity: 3.0/10
• Empirical Rigor: 7.0/10
• Quadrant: Street Traders
• Why: The paper uses standard machine learning methods rather than advancing novel mathematics, but it employs a large, novel dataset and rigorous empirical analysis (counterfactual portfolio construction, robustness checks, and measurement of economic magnitude) to backtest investment strategies.

  flowchart TD
    RQ["Research Question: Do institutional investors invest efficiently?"] --> I["Inputs: 16,000+ startups & $9B+ investments"]
    I --> M["Methodology: Performance vs. Investment Timing analysis"]
    M --> CP["Computation: Out-of-sample return predictions"]
    CP --> F1["Predictably Bad Investments: Poor timing leads to predictable low returns"]
    F1 --> F2["Outcomes: Evidence of inefficiency & suboptimal portfolio management"]