Thanks for commenting! Our point is not only that VC markets are inefficient and thus the EMH may not apply, but also that the EMH is only a statement on the pricing of assets, and does not in fact imply that all available assets will be funded. Thus, it is possible for investments that offer market-rate returns to go unfunded and for the EMH to still hold.
Interestingly, in VC, investors and founders can actually negotiate the pricing for an investment round. Thus, it may be possible for most/all startups to produce market-rate returns if the valuation is tweaked (for example, founders getting less dollars per share than they are asking investors for in a priced round), but since many startups don’t even get an investment offer, clearly not all market-rate investments are being funded.
Even if this is not the case, altruistic investors/impact investors are willing to make concessionary investments in which expected returns are lower than the market rate. For example impact investors give loans to nonprofits or disadvantaged communities at interest rates lower than the market rate, gaining both impact returns and financial returns, whereas for-profit investors may pass because they are only looking at financial returns.
In my opinion, it seems like the consensus is that primary market investments (like VC investing and loans directly to people and organizations) are much higher impact than secondary market investments, and I agree with this consensus. I think there may be the chance that creative secondary market strategies, like forms of shareholder advocacy, may have a counterfactual impact (the exact degree of which is unclear), but I haven’t looked into it much yet.
“I’m interested in further research on this concept, and I’m not sure how much EA-aligned for-profits are already working on this.”
Thanks for commenting! Our point is not only that VC markets are inefficient and thus the EMH may not apply, but also that the EMH is only a statement on the pricing of assets, and does not in fact imply that all available assets will be funded. Thus, it is possible for investments that offer market-rate returns to go unfunded and for the EMH to still hold.
Interestingly, in VC, investors and founders can actually negotiate the pricing for an investment round. Thus, it may be possible for most/all startups to produce market-rate returns if the valuation is tweaked (for example, founders getting less dollars per share than they are asking investors for in a priced round), but since many startups don’t even get an investment offer, clearly not all market-rate investments are being funded.
Even if this is not the case, altruistic investors/impact investors are willing to make concessionary investments in which expected returns are lower than the market rate. For example impact investors give loans to nonprofits or disadvantaged communities at interest rates lower than the market rate, gaining both impact returns and financial returns, whereas for-profit investors may pass because they are only looking at financial returns.
In my opinion, it seems like the consensus is that primary market investments (like VC investing and loans directly to people and organizations) are much higher impact than secondary market investments, and I agree with this consensus. I think there may be the chance that creative secondary market strategies, like forms of shareholder advocacy, may have a counterfactual impact (the exact degree of which is unclear), but I haven’t looked into it much yet.
“I’m interested in further research on this concept, and I’m not sure how much EA-aligned for-profits are already working on this.”
Which concept are you referring to?