Hacker Read

aianus | karma 3878 | avg karma 1.62 · 2018-02-06 07:23:26+00:00

Why would VC investments be decorrelated with the stock market? Big exits are usually IPOs, no?

azernik | karma 12752 | avg karma 3.49 · 2018-02-06 02:24:10

Decorrelation is a matter of degree, not a binary. VC funds are less tightly correlated with, say, the oil industry than the chemical industry is.

manishsharan | karma 2067 | avg karma 2.4 · 2018-02-06 08:30:31

(I am not a finance guy so pardon my dumb question ) How do do startups serve decorrelation of fund portfolio? Startups valuation has to have some degree of correlation to the industry they serve. By this I am supposing that if you have a healthcare startup, its valuation would be strongly related to the performance of the healthcare sector. So if you have say healthcare stocks in your funds' portfolio, would investing in a healthcare startup serve decorrelation ?

closeparen | karma 19960 | avg karma 2.77 · 2018-02-06 17:44:14+00:00

That is why you invest in a VC who invests in a number of startups in different industries.

georgeecollins | karma 5862 | avg karma 3.3 · 2018-02-06 18:44:46+00:00

Startups often don't correlate very well with the industry they are in because they usually don't have the same business model. So I don't think Uber correlates with to transportation stocks, or Air BnB correlates to resorts, or 23 me correlates to Pharma etc. There is a cycle to start ups, but it is related to the broader economic outlook and the price of capital.

lozenge | karma 5489 | avg karma 2.64 · 2018-02-06 14:22:28+00:00

IPOs are a tiny part of the stock market.

aianus | karma 3878 | avg karma 1.62 · 2018-02-06 16:39:32+00:00

Your private startup VC equity is not worth very much exactly when the stock market is doing poorly and you can't IPO or get acquired for BigCo stock. It seems very correlated to me.

beauzero | karma 1424 | avg karma 3.28 · 2018-02-06 10:48:35

Big exits can also be acquisitions (e.g. Facebook/Instagram).