I think we’re talking past each other on one specific thing: input dollars and output dollars aren’t the same dollars.
Firms compete for earned dollars. That’s the output, and it’s what credits the firm for the value it creates (by spending money, customers signal that they value what the firm provides above its monetary cost). Invested dollars are an input. They happen to share a unit with the output, but that doesn’t mean that they measure the same thing.
I read the recent substack post on impact markets and I think this is where it runs into trouble. An org’s valuation is implied by how much money it raises later. This measures how well a funder anticipated other funders, not the actual impact.
At a surface level this appears congruent with how the for-profit world operates. Startup valuations are also set by the money raised in later rounds. However there’s a crucial difference—the value of firms is ultimately grounded in the expectations of future output in a way that value of non-profits can’t be. Equity prices are guesses about very concrete future cash flows from people buying things the firm offers. The accuracy of those guesses can be ultimately checked against something that isn’t another investor’s opinion. The output is uniform—a dollar earned on a grocery store chain is the same as a dollar earned on an AI company[1].
In contrast, EA orgs aim for “positive impact” which can be quantified only by a very subjective evaluation with multiple assumptions, not by any market mechanism. The output is not uniform. Even if we had perfect measurement (we don’t) I might value 1 human QALY above 1000 shrimp QALYs while you do the opposite.
This results in money invested being a much worse proxy for outcomes in a non-profit world than in the for-profit one. If I invest $1 M in Uber instead of Intel, I signal to everyone that I believe Uber is more likely than Intel to be worth more in some time horizon. If I invest $1 M in AMF instead of AWF, the signal is not clear. I might consider AMF to be more efficient than AWF but I might instead assign a higher value to human lives or simply have funds which are earmarked for GHD.
Coming back to your original post—it considers Money, Taste and Dealflow as separate components, but in our discussion you seem to propose to base the attribution primarily on Money. VC doesn’t do that. Limited Partners supply the capital and get returns proportional to capital. General Partners supply taste and dealflow and get carry. The carry exists precisely because “whose money was it” and “who found the deal” are understood to be different things. A regrantor is a GP, not an LP.
So I stand by my point that it’s more relevant to look at how attribution works inside firms (which also cannot rely on markets here) than to default to the amount of money invested, just because it happens to come in a familiar unit.
At least to a good approximation. Individual investors may choose to price in externalities, e.g. treat a grocery store dollar as “better” than the same dollar coming from an oil or tobacco company.
I think we’re talking past each other on one specific thing: input dollars and output dollars aren’t the same dollars.
Firms compete for earned dollars. That’s the output, and it’s what credits the firm for the value it creates (by spending money, customers signal that they value what the firm provides above its monetary cost). Invested dollars are an input. They happen to share a unit with the output, but that doesn’t mean that they measure the same thing.
I read the recent substack post on impact markets and I think this is where it runs into trouble. An org’s valuation is implied by how much money it raises later. This measures how well a funder anticipated other funders, not the actual impact.
At a surface level this appears congruent with how the for-profit world operates. Startup valuations are also set by the money raised in later rounds. However there’s a crucial difference—the value of firms is ultimately grounded in the expectations of future output in a way that value of non-profits can’t be. Equity prices are guesses about very concrete future cash flows from people buying things the firm offers. The accuracy of those guesses can be ultimately checked against something that isn’t another investor’s opinion. The output is uniform—a dollar earned on a grocery store chain is the same as a dollar earned on an AI company[1].
In contrast, EA orgs aim for “positive impact” which can be quantified only by a very subjective evaluation with multiple assumptions, not by any market mechanism. The output is not uniform. Even if we had perfect measurement (we don’t) I might value 1 human QALY above 1000 shrimp QALYs while you do the opposite.
This results in money invested being a much worse proxy for outcomes in a non-profit world than in the for-profit one. If I invest $1 M in Uber instead of Intel, I signal to everyone that I believe Uber is more likely than Intel to be worth more in some time horizon. If I invest $1 M in AMF instead of AWF, the signal is not clear. I might consider AMF to be more efficient than AWF but I might instead assign a higher value to human lives or simply have funds which are earmarked for GHD.
Coming back to your original post—it considers Money, Taste and Dealflow as separate components, but in our discussion you seem to propose to base the attribution primarily on Money. VC doesn’t do that. Limited Partners supply the capital and get returns proportional to capital. General Partners supply taste and dealflow and get carry. The carry exists precisely because “whose money was it” and “who found the deal” are understood to be different things. A regrantor is a GP, not an LP.
So I stand by my point that it’s more relevant to look at how attribution works inside firms (which also cannot rely on markets here) than to default to the amount of money invested, just because it happens to come in a familiar unit.
At least to a good approximation. Individual investors may choose to price in externalities, e.g. treat a grocery store dollar as “better” than the same dollar coming from an oil or tobacco company.
(Just wanted to say thanks for this exchange, I found your views persuasive and helpful.)