One thing that I still find quite surprising/troubling about the current tech landscape, is the incredibly strong "rich get richer" feedback loop of seed and VC investing. Especially given that most people in Silicon Valley seem to really value the idea of meritocracy when it comes to founders and companies and job opportunities. Although the personal connections involved would be a big barrier to outsiders regardless, I find it crazy that there's also the explicit legal requirement that you must be worth at least a million dollars in liquid assets to be an accredited investor and invest in a private company.
The argument in favor of the current system is that investments are risky and non-millionaires can't be trusted to make good financial decisions for themselves, and it takes such a huge amount of skill to be a decent investor anyway that the average person isn't really missing out on anything.
This type of finding seems like a pretty strong refute of this idea. It turns out that at least in the current landscape, the average tech seed investment deal is more valuable than other investments available to people.
Are you sure you're not comparing liquid vs illiquid assets? I.e. public shares that you can sell at a stock exchange vs. a highly speculative valuation that may pop >10x like WeWork did.
There's also this wonderful disclaimer:
>Summary statistics from the AngelList dataset of 684 nonnegative investments that we consider in this paper.
Given that 90% of startups fail, they are are looking at the top 10% investments. I am pretty certain if you hand-pick the 10% top-performing public stocks, you will also get great numbers. The problem is, this only works in retrospective.
So their conclusion is based on just looking at non negative investments? If so how useful is this data? Because there is no way to practically know what investment will be a positive or negative investment. In other words, there is no way to broadly index among all non-negative investments.
The paper should have compared brodly indexing among all startups vs hand picking possible winners. This is practical and avoid any survivorship bias.
Of course there is a way to broadly index among all non-negative seed investments: by broadly indexing among all seed investments.
The fraction of money-losing investments in a population will affect, for instance, whether we would expect the typical investor making five investments at random to make or lose money. But regardless of whether losers are 10%, 50%, or 90% of the investment pool, if the winners are drawing from an unbounded mean power law then broadly indexing raises an investor's expected return.
Your last paragraph is a misinterpretation of this paper. You are interpreting the result as saying "Investors would benefit from broadly indexing at seed". The paper instead says "Seed investors would benefit from broadly indexing".
The argument in favor of the current system is that investments are risky and non-millionaires can't be trusted to make good financial decisions for themselves, and it takes such a huge amount of skill to be a decent investor anyway that the average person isn't really missing out on anything.
This type of finding seems like a pretty strong refute of this idea. It turns out that at least in the current landscape, the average tech seed investment deal is more valuable than other investments available to people.