Is Being Top Quartile Any Good?
Historically, the measure of success in the venture business has been consistent top quartile performance at the fund level. Each firm generally compares their fund level performance to funds that started the same year or vintage, and if they beat the top quartile threshold put out by Cambridge Associates, they feel good about their performance. This got me thinking about whether being top quartile in other avenues of life would even be considered as “good” as we generally do in the VC/PE business. Here’s a little sampling:
From professional sports
- Major League Baseball Batting Average: There are 750 MLB baseball players making the top quartile threshold 188. That batter is Alfonso Soriano with the Chicago Cubs with an inconspicuous batting average of .270.
- NBA Scoring: There are 452 NBA players making the top quartile threshold 113. That player is Jordan Crawford of the Washington Wizards who averaged a respectable 11.7 points per game.
From everyday life
- Height of Male Adults: This CDC study says that the top quartile threshold for height in adult US males over 20 years old is 71.5″. That translates to a healthy 5′ 11.5“.
- U.S. Household Income: According to these statistics, the top quartile threshold for US HH income is: ~$80,000.
From geography
- U.S. State Populations: There are 50 U.S. states, with the top quartile spot being the state of Washington with 6.7 million people (with the top spot being California at 37 million).
- Country Nominal GDP: There are 181 countries listed in Wikipedia with the top quartile threshold occupied by Czech Republic with $192 billion (with the top spot being the US at $14 trillion).
It seems in some avenues of life, being top quartile is positively nondescript. It’s another version of perceptually average (e.g. would any VC brag about being the Czech Republic of global economies?). Though, in some avenues of life, like height, being top quartile is more impressive than I would have thought (e.g. I would have never guessed that 25% of adult males are nearly 6′ or taller). My guess is if I re-ran the numbers to find a percentile which is consistently viewed as excellent across all walks of life – that threshold would probably be the top 5% (or vigintile), not top 25%.
Thinking About Thinking 
Agree in principle, but VCs are constantly being asked by LPs how their performance compares with other VCs, so we use the metrics available to us. Cambridge and Venture Economics both only go to the quartile level (I suspect because both are based on data from a relatively small sample of funds, so it’s as granular as they can get with any degree of statistical accuracy). While top decile or vigintile would be great to be able to say, it’s tough to back it up without objective data.
Brett, I have no issues with using the metrics. It serves a pragmatic purpose to your point. You know what’s funny is what prompted me to write this blog post is I ran in a 5-mile race, and finished at the top quartile threshold once I looked at the results. During the race, I felt like thousands of people passed me along the way (which is true). So, somehow, finishing top quartile didn’t feel so great during the process.
With respect to the baseball statistics, perhaps you should have excluded pitchers (mostly NL) from the stataistics and you would have had a more accurate picture of what batting average is all about. A shortcut would be to assume that the average team carries 12 pitchers, subtract them, leaving 13 position players, multiply by 30 teams equals 390, round it ot 400, and lok for who is number 100. It will be higher than a .270 average, but still not spectacular.
J
John, agreed – that would have been a better way to do it. My guess is it probably boosts the top quartile threshold to .280-.285 which is above average in my mind.
You are right with the top 5% because it is a better benchmark of a more hegemonic group. When you compare GDP of USA with 311 Mil population and Czech Republic with 10 Mil population, it seems that two are so different, that the comparison might be irrelavant. However, cutting the sample back to top 5% will give clearer picture.
Sending regards from Prague, Czech Republic 🙂
🙂 Thanks Kirill.
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