> How did the return on the good investments compare to the costs of the bad investments? And how did the overall net return compare to, say, S&P?
Both answered in the paper, so not sure how they are “the real question”.
The goal is always to make better investment decisions. If I can make 55% returns instead of 40% returns by making better decisions, the s&p returning less than 40% is irrelevant. I want to make the 55%.
The real missing unanswerable alternative is if a better decision framework had been used, what unfunded startups would have been funded and how much they would have returned.
But if, in practice, the only realistic way to make better-enough decisions to actually realize that 55% is to receive a letter from your future self telling you whether it was good or bad, then "wanting to make the 55%" is irrelevant.
It is frequently clear in hindsight which decisions were better, but the point of hindsight is that you have information you did not have when you made the decision—and, in most cases, could not possibly have without violating causality.
I would also question whether investments that are unlikely (or less likely) to make a direct return are always "bad".
The key points are that investment is an iterated game, deals are not necessarily independent and "networks" of people exist.
Consider a successful serial entrepreneur; you might fund something you consider "not so great" right now because you value the relationship and want access to future deals with that person or their network. Or their uncle, whatever.
Some sub-optimal deals might lead to more investments or opportunities due to "goodwill" and be net positives when the broader picture is taken into account.
From this perspective it is not guaranteed that making "locally optimal" decisions at every turn would actually improve overall returns.
Both answered in the paper, so not sure how they are “the real question”.
The goal is always to make better investment decisions. If I can make 55% returns instead of 40% returns by making better decisions, the s&p returning less than 40% is irrelevant. I want to make the 55%.
The real missing unanswerable alternative is if a better decision framework had been used, what unfunded startups would have been funded and how much they would have returned.