Is there meaningful quality differentiation among top-tier venture firms, or are they roughly interchangeable while lower-tier firms are harmful?

Paul Graham · published Nov 2005

VC performance drops off very sharply because success and failure are self-perpetuating, leaving only about 50 of the roughly thousand US funds likely to make money.

A spectacular hit generates publicity and founders prefer successful firms for legitimacy, so weak firms only get deals the top firms rejected and keep doing badly; new funds can hardly break in.

Scope: US

source How to Fund a Startup

Paul Graham · published Apr 2007

VC firms vary greatly in quality, and because the venture market is self-reinforcing the top firms are smarter, calmer and more upstanding than lower-ranked ones.

Past success attracts the pick of new deals; top firms don't need iffy tactics and have more brand to protect.

source The Hacker's Guide to Investors

Will Quist · published Sep 12, 2022

Sequoia is a top two or three investment management firm in the world and the firm every venture investor should learn from most

It is one of the best-run businesses he can see; the arc of history has always been in its favour, and it treats venture as a product and a business — repeatedly adding new S-curves, revisiting columns whose defensibility is eroding, and asking explicit questions about market size, what it is betting on and how it defends itself

35:41 Sequoia stands out as a top two or three investment management firm that treats venture as a scalable business

Kyle Harrison · published Oct 21, 2022

Most venture funds (probably 80%+) are not great, and mediocrity shows up in three areas: economic performance, culture, and brand

Firms didn't have to be aggressive when capital was abundant; within months of the correction that behavior appeared, and it will get out just as positive brand signals do

11:51 Most venture funds are mediocre across economics culture and brand

David Tisch · published Feb 5, 2024

The best few firms at each stage are roughly equal in quality on a given deal, second-tier VCs are uninteresting, and third-tier VCs are harmful

65:46 Top firms are roughly equal second tier is uninteresting third tier is harmful

Paul Graham · published Apr 2007

Founders with a choice should take money only from top-tier VCs — roughly the top 20 firms plus promising new ones — and this matters especially for hackers.

Top firms are more confident, so they're less likely to install a business guy as CEO and will let a smart founder run the company.

source Founders should take money only from top tier vcs since they are more likely to let founders run the company

Paul Graham · published Nov 2005 · hedged

Investments delivered in conditional tranches are more common in deals with lower-tier VCs than with top firms.

Lower-tier firms' lot in life is to fund more dubious startups.

source Lower tier vcs use conditional tranche investments more often reflecting dubious startups