The biggest lesson from #CrusoniaForum Brooklyn is public markets are still in learning mode. It has yet to price how #biology and #bigdata drive innovation and deflation in #agtech, #healthcare, and #food In a $3.6T US market, The investment arbitrage is hidden in plain sight.
https://twitter.com/Dirt_To_Dinner/status/1453749663941681152
And this is not the first time we have seen companies with an information arbitrage mispriced in public markets for decades. 
The information arbitrage of early-stage venture capital far outweighs the return on a seed or A stage deal. If you can maintain participation rights once the optionality reveals itself, you can leverage the information to increase alpha while reducing beta.
Your first early investment, in a diversified portfolio of risk offers sensible non-correlated returns, but the true secret to outsized returns comes from the option to over-allocate in later state as market arbitrage is revealed.
That option reveals itself first in the private growth phase. But may reveal itself again post IPO. The early private investor maximizes optionality because they have information and time to diversify or over-allocate while the broader market is still gathering information.
Black–Scholes is really a proxy for information arbitrage. While a 2015 Amazon investor did better than a 2000 investor from a Time Value of Money perspective, no one knew ex-ante if the information arbitrage in Amazon would reveal in 2000, 2010, or 2020.
A 1995 Amazon investor's total return was a bit higher than a 2000 investor, but at a better ex-ante beta. The investor that invested in the Amazon A, and then disproportionately invested in the Series C (Leveraging info arbitrage), likely beat everyone on a alpha and TVM basis.
Diversification is a good strategy if you do not have information arbitrage. But, is asymmetric allocation better if you do have access to an information arbitrage.
An allocator with long history investing in secular economy, that is also invested in wide portfolio of early-stage investing, likely gains maximum information arbitrage. They maximize returns if they differentially invest as optionality matures, but before information diffusion.
Who understood this better than Hambrecht & Quist? In the mid 90's when banks ran away from Silicon Valley, H&Q doubled down. Dan Case exposed the information arbitrage to a few. Those few saw outsized returns. H&Q exposed what is now obvious.
It took decades to see what H&Q saw. Were they prescient? Or perhaps did their presence in the middle of startup stew expose so much information they had a natural arbitrage? Never lead left, but involved in every IPO. What did they know?
Hayek told us long ago, the "Coordination Problem" is solved by the information revealed in the market. Investment in early-stage startups are the mechanism to reveal that knowledge with the best "Signal to Noise" ratio. h/t Claude Shannon fee.org/articles/the-u…
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