Citation
Private equity performance: Returns, persistence, and capital flows
TL;DR
Extreme dispersion in VC fund returns
Documents extreme dispersion in venture capital returns where top quartile VC firms vastly outperform bottom quartile, demonstrating that skill heterogeneity matters enormously in power law environments.
Provides evidence that power law concentration strategies work only for those with genuine skill - most organizations overestimate their outlier-identification capabilities, making this research essential for capability assessment.
Key Findings from Kaplan & Schoar (2005)
- Extreme dispersion in VC fund returns
- Top quartile significantly outperforms bottom quartile
- Performance persistence suggests skill differences
- Capital flows to past performers