Forbes came out with its annual Midas List, which ranks venture capitalists. Lists on the web are essentially page view machines, but at Forbes, they are a religion. I worked for Forbes.com and know how much work used to go into putting together the Billionaires and the Richest Americans list. So when you see the Midas List, you assume that it is going to be a well thought out and comprehensive listing.
Well, not so much. I looked at the list and found that Fred Wilson, who is one of the most-successful venture capitalists of the post-social era, is listed at #20. Wilson is a general partner at Union Square Ventures, a firm he co-founded, and his investments include Twitter, Etsy, Tumblr and Kickstarter.
He invested in most of these companies during the early stage of their start-up life and long before they became household names and were successes. When investors put money in at this early stage, the returns they get from hit companies are much higher. His return on investment on those dollars is much, much higher than say someone who invested in Twitter at, say, a $3.7 billion valuation. I don’t know, say, John Doerr, for example, who is ranked at the #12 spot.
“Everyone in the industry knows USV is the top VC, so any ‘top list’ like Forbes that doesn’t include them is a joke,” tweeted Chris Dixon, an entrepreneur and partner at the Founder Collective. David Lee, who works with Ron Conway at SV Angel, added, “It’s like putting Andrew Luck at #20 in an NFL mock draft.” Bijan Sabet, who incidentally is #57 on the list and has invested in Twitter and Tumblr, added, “Also list doesn’t take into account cost basis or ownership.”
The point is not to defend or talk-up Fred Wilson — he can do that himself on his blog, and frankly he doesn’t need to. The reason for bringing him up is that the list’s methodology is just weird and, well, ambiguous at best.
Do Forbes and its partners take take into account how much money was invested in Skype and how much of it was actually returned to the limited partners at Andreessen Horowitz? And how do they explain that Mary Meeker is on the list at #42 (ahead of say, Sabet), even though she has been in the business for — wait for the drum roll – 17 months. And well, if we are going to include Meeker on the list, then why not Brad Feld from The Foundry Group, who was an early investor in Zynga, one of the hot investments?
To be clear, I am not commenting on individuals, but more on the Forbes methodology:
For the Midas List, we created our data-based rankings again this year with TrueBridge Capital Partners, a venture capital-focused fund of funds. Also advising us on our final ranking was an expert panel made up of secret sources, including professionals from a premier global investment consulting firm and a leading foundation’s investment office.
The aim of the Midas List ranking is to identify the venture capitalists who are providing the best returns for their investors, while helping create the most valuable and impactful technology and life science companies. To assess performance, we looked at all venture-backed initial public offerings and mergers and acquisitions valued at more than $200 million over the last five years, since 2007.
When I worked at Forbes.com, I got to know a lot of people who worked on Forbes’ lists. There was a dedicated team that worked around the year and dug up little-known facts and details before assembling the final tally of America’s Richest or the Billionaires’ list. The effort that went into those lists was so comprehensive that you could take it to the bank. The methodology for the Midas List, based on Forbes’ own description above, is nowhere close to having that rigor. So, if Forbes is serious about this list, it needs to devote resources to it.