money & markets

It's worth noting that we already have a term for continuous-valued prediction markets: cash-settled futures.

Overall, participation in an early-stage company can be seen as a far out-the-money call option with:

1. The strike price (K) which is often based on the target of returning the fund , which is a multiple of the entry valuation and ratio of the check size to the fund size. It can also be based on reaching a certain magnitude of outcome ($1b+, $10b+,

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Megafunds don’t have to win on distributions. Venture perhaps evolves to a point where mathematical return optimization is no longer the edge. When you can own the cap table, capture optionality across product cycles (YC’s obvious play), and crown the kings in a space, you become more than a fund - you are now a meta allocator. Speed, access, and... See more

Once a prediction market becomes large enough, it transitions from being truth-seeking to being tautology-seeking.

People doing -EV trades, willingly, because those trades are positive utility for them. What's great is that they're positive utility for the other side too because the two sides have different risk preferences.

But the strategy required reimagining traditional venture capital portfolio construction. Abstract’s model focused on “relative ownership” rather than absolute ownership: If he could get 5% ownership in deals where Andreessen Horowitz got 15%, he might have one-third their ownership, but out of a fund that was one-fifteenth the size, his LPs got 5x... See more

ES trades so much because people use it to hedge. They're transferring risk they don't want, and they're perfectly willing to pay a (small) price for the service the market provides.

From this, it follows the popular idea of not fundraising at a spuriously high valuation2, as it turns the startup into an option with a higher strike price (K), that is probabilistically worth less as now the startup would far surpass that valuation in a lower number of potential futures. Funnily enough, investors end up paying more for such... See more

Statistical robustness is about finding metrics that can handle tail events, large deviations, without changing much. And, for measuring venture returns, the median is used vs. the mean because it is more robust as a statistical estimator. It represents the typical outcome (i.e., middle-of-the-road funds) vs. the mean that is sensitive to outliers... See more