Predictably Bad Investments: Evidence from Venture Capitalists

Paper: SSRN 4135861

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

Complexity vs Empirical Score

• Math Complexity: 3.0/10
• Empirical Rigor: 7.0/10
• Quadrant: Street Traders — practical and empirical, lighter on theory

Why this score: 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.

Research Flowchart

  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"]