How can you tell whether a venture firm's returns reflect skill rather than luck?

Semil Shah · Nov 21, 2022

Venture outcomes are substantially random — good returns often come from deals you passed on or companies you ended up holding by accident

He made poker chips commemorating shares acquired through acquisitions (Rubrik after passing on the seed, a Datadog acquisition, WeWork shares not at the $40B price) precisely to illustrate how random the business can be

60:47 20VC: Semil Shah on The Biggest Mistakes VCs and LPs Made Over the Last 24 Months, Why LP Churn is Coming, Core Lessons on Scaling from $1M Haystack Fund I to Today and How To Find, Win and Manage LPs as an Emerging Manager

Pat Grady · Jul 8, 2024 · hedged

His association with hugely successful companies may have far more to do with circumstances than with his own ability

A random person dropped into Sequoia in March 2007 would have had the best business card in venture, the start of the cloud and mobile transition, and a financial crisis in which every company traded at two times revenue — magical starting conditions

Scope: framed as a counterfactual litmus test; 'maybe'

7:16 20VC: The Sequoia Investment Process | Investing Lessons from Doug Leone, Roelof Botha & Alfred Lin | Sequoia's Framework for Analysing Founders | The True Benefit of Having Sequoia on a Cap Table & Sequoia's Biggest Threat with Pat Grady

Larry Aschebrook · Jun 16, 2025

The early concentrated wins in Alibaba, Spotify, Palantir and Twitter were largely dumb luck rather than skill

He doesn't consider himself that smart, and the same portfolios contained clean tech disasters

Scope: self-deprecating framing

15:42 20VC: How We Made $800M on Coursera | We Lost Money on Uber and Made Money on Lyft | We Did 3x on Postmates in 18 Months | DPI is King, MOIC is BS | We Dodged Theranos and I Still Lost Millions with Larry Aschebrook @ G Squared

Beezer Clarkson · Oct 18, 2023

Stringing together three or four consecutive funds with strong DPI is world class; most managers have a fund or two that struggles

The numbers bear it out if you ask different LPs about their portfolios

41:13 20VC: Are LPs Open For Business? What Does it Take to Raise a Fund Today? How Has What LPs Want to See in Fund Investments Changed? Why Do LP Incentive Mechanisms Need to Change? Which Funds Will be Hit Hardest with Beezer Clarkson @ Sapphire Partners

Beezer Clarkson · Oct 18, 2023

It's very hard to have three or four funds in a row that get to a 3x, so the idea that a manager will have a banger, a mediocre fund and a dog is not untrue — what matters is consistency of theme, thinking and team elsewhere

Sometimes things just get messy; asking different LPs about their portfolios shows the pattern

41:33 20VC: Are LPs Open For Business? What Does it Take to Raise a Fund Today? How Has What LPs Want to See in Fund Investments Changed? Why Do LP Incentive Mechanisms Need to Change? Which Funds Will be Hit Hardest with Beezer Clarkson @ Sapphire Partners

Nick Chirls · Sep 6, 2024

A long track record of returns justifies charging premium economics, but most venture firms don't make money and therefore can't justify them.

Renaissance charged around 70% carry and still delivered extraordinary net returns to LPs, which earns the right to high fees

Scope: premium terms defensible only with a long demonstrated record

9:20 20VC: Why VC is a Ponzi Scheme Today | Why Most VCs are Bankers | Why Big VCs Ruin Startups | Why Incentives in VC are Broken | Why American Dynamism is a Tool for VCs to Raise Money with Nick Chirls, Asylum Ventures

Harry Stebbings · Sep 6, 2024

Track record is a lagging indicator and a lazy way to evaluate managers — many firms got lucky on a couple of deals, lack aspirational capital or a differentiated way to find great founders, and won't win going forward.

Past returns don't establish forward edge; multiple funds would be needed to show anything

Scope: maybe defensible over multiple funds

9:46 20VC: Why VC is a Ponzi Scheme Today | Why Most VCs are Bankers | Why Big VCs Ruin Startups | Why Incentives in VC are Broken | Why American Dynamism is a Tool for VCs to Raise Money with Nick Chirls, Asylum Ventures

Mitchell Green · Mar 7, 2026

Index Ventures are genuinely world-class investors, and consistent DPI over twenty to thirty years is what distinguishes skill from the many firms that get lucky for one or two funds

The returns and DPI are math, and luck cannot persist across decades

53:58 20VC: Why the SaaS Apocalypse is BS | Why China Will Win the AI War | Why 50% of VCs Should Not Exist and are Tourists | Why Stock-Based Comp is the Hidden Sin of the Valley with Mitchell Green, Lead Edge Capital

Harry Stebbings · Feb 5, 2024

There is real skill in early-stage investing, as evidenced by Roger at IA being brilliant.

26:09 20VC: The Biggest Misconceptions & Hardest Truths About Seed Investing Today; Why The Best Founders Don't Need You, Why Uncapped SAFEs Are Good, Why Reserves Are Bad, Why Signalling is BS, Why Price Doesn't Matter with David Tisch & Terrence Rohan

Harry Stebbings · Jun 16, 2025

Hitting four outcomes like that out of seven companies can't be luck — it has to be skill in picking

One such outcome could be luck, but you cannot get that lucky repeatedly

15:54 20VC: How We Made $800M on Coursera | We Lost Money on Uber and Made Money on Lyft | We Did 3x on Postmates in 18 Months | DPI is King, MOIC is BS | We Dodged Theranos and I Still Lost Millions with Larry Aschebrook @ G Squared

Hussein Kanji · Jan 20, 2025

The bigger problem is that too many people now do tech investing and allocators cannot tell who is good, exceptional or average

Headcount in the industry went from ~10,000 to ~35,000 and, even after reverting toward the historic norm, there are a lot of people doing this and no reliable way to sort them

39:36 Explosive growth in investor headcount makes skill hard to identify

Mitchell Green · Mar 28, 2025

LPs should ask any ten-year-plus manager how much unlocked public stock they held on 30 September 2021 and why they didn't distribute it, because a shocking number held positions they should have returned

September 2021 was the peak of the insanity, funds can distribute stock in kind and LPs could have chosen to hold, so the only job — returning capital to LPs — was not done

53:21 Only a handful of investors can repeatedly back mega scale outcomes

Logan Bartlett · Aug 29, 2022

A whole vintage of investors who came of age from 2005 to 2015 confused being fooled by randomness — right place, right time in SaaS, fintech or one big consumer hit — with actually being good investors

Venture was a cottage asset class for thirty years and has only been institutionalized in the last five; in that earlier era founders came and begged them for capital, so there was no competitive tension to test them

16:37 Cottage era lack of competitive tension let luck masquerade as skill

Tom Hulme · May 8, 2024

His strong pre-2015 angel returns are not evidence that he is a good investor

There has been a massive regime change in venture since then — he was investing at $4M pre, which is no longer possible — and if asked in 2010 to stack rank that same portfolio he would have got it completely wrong, so he cannot claim to predict success

13:52 Market regime change invalidates old track records as proof of skill

Harry Stebbings · Jul 14, 2023

The best investors genuinely do know what they're doing, and that is why they consistently produce the best returns

Saying nobody knows what they're doing is an easy trope that makes everyone feel better; the persistence of top-tier returns argues against it

5:25 Top investors consistently know what theyre doing explaining persistent outperformance

David Tisch · Feb 5, 2024

No seed investor has figured out how to be right ten times more often than another; nobody is that great at seed investing and the narrative of 'I knew it, I saw it' is bullshit.

Seed is a game of gut where you will be wrong most of the time — the question is only whether a human, idea and market package can reach unrealistic scale, and nobody can know that in advance.

24:52 No seed investor shows a consistent skill edge over others

David Tisch · Feb 5, 2024

Roger is an aberration rather than a counterexample — he did largely Series A investing, which is quite different from seed, and succeeded by having a thesis and building deep positions in a specific era.

In pure seed investing there are no people who are just mostly right; Roger's returns came from thesis-driven Series A concentration in his era.

26:15 Roger style returns came from thesis driven series a concentration not seed skill

Harry Stebbings · Feb 5, 2024

Luck is central to venture outcomes, but some investors are consistently much luckier than others

28:45 Some investors are consistently luckier than others though luck not skill explains it

David Tisch · Feb 5, 2024

'Luck' is the wrong word for seed outcomes; the real skill is getting exposure to the opportunity set that could contain outliers, because if you don't see it you can't invest in it

You can only invest in what you see, so accessing potential outlier companies ten to fifteen years before their outcome is the actual skill

28:53 Exposure to the opportunity set not luck is the real skill

Martin Mignot · Aug 11, 2025

The strongest predictor of a fund's future returns is whether one of its early-stage investors in a company is on the Midas List

Quantum Light's analysis identified it as the number one predictive factor they noticed

11:40 Early stage investor being on midas list predicts fund returns