The Forbes Midas List is out. Let the gloating and grumbling begin

25 Jan

The Forbes Midas List is out. Unless you have been under a rock since the Clinton Administration, you will know that this has nothing to do with a list of muffler shops. Forbes has been putting out this compendium of ‘top tech dealmakers’ for a while now and it seems every year the hue and cry over bruised egos (and schadenfreude) gets a bit louder. There is some merit to this.

 I tend to place “lists” put out by large business-centric magazines up there with tarot card readings in terms of their weight, relevance and accuracy. That said, from a pure “social experiment” perspective, I do find it fascinating how people’s opinions vary so widely over this particular list and how that variance is not always correlated with whether that particular grumbler or gloater made it on the list that year.

I view the Forbes list in a similar prism that I view the business school rankings that are also an annual event (and cause similar hand-wringing, griping and boasting.) Both lists are exceedingly hard to do well or accurately. How does one really measure performance? What are the metrics? What is the timeline? In the business school rankings case, it is now fairly evident that a lot of those metrics are now “gamed” every year by certain schools and their alumni. Regardless of this widely reported fact, the rankings continue to come out each year. They sell a ton of magazines and they cause many a business school administrator sleepless nights and indigestion. Accuracy be damned.

My sense is that the b-school listings are by and large of little value–and I say that as someone whose alma mater business school is typically in the top three every year. The problem I have is that the respective magazines just seem to juggle the top three or five schools in their rankings annually to keep readers coming back. To make things interesting every couple of years, an outlier school–one that typically comes in around #15 in most years–breaks into the top pack. This gets a lot of attention for a few months (and the school in question puts that in all their brochures, ad nauseum) but the next year we are back to the usual suspects and life goes on. How helpful is this? As to the Forbes Midas List, I see a similar dynamic. [In the interest of full disclosure, I am not on it this year.]

Just as noteworthy as the business schools that went from, say, #15 to #2, and then back to #15, there are many “dealmakers” that were in the top tier in the past year on the Forbes Midas List that completely dropped out of the top 100 in the latest iteration. How can this be? Does this not only serve to undermine the entire point of such a list?

Yes, the partners from Kleiner Perkins and Sequoia Capital swapped the top two spots this year. Are you really that surprised? It reminds me of a Bruce Springsteen quote riffing on a less admirable quirk of our culture: “It’s all about who is number one this year. Let’s celebrate him and then let’s get him out of the way so we can celebrate who is number one next year.”

Other outlets, like Venture Beat (which has a good rundown of this story), will go into the pros and cons of how the list is assembled, whether it really helps, etc, so I will recuse myself from that debate. My biggest gripe is that the presence of attorneys and investment bankers seems to go against the purpose of the List. The investment banking and venture capital businesses are fundamentally different, so appearing on a list of “dealmakers” together is silly and undermines the value the List has; and, I say this as a former investment banker! Other than in rare circumstances, bankers and lawyers are not “investors” in venture deals, per se. How, then, should they be lauded in the same way as the venture capitalists who found the winning deals and nurtured them along the way to a healthy exit?  

While I applaud all my colleagues who were acknowledged this year, for the Forbes Midas List to be truly relevant (and to properly acknowledge the best of our business) further refinements are required. Stripping out the bankers and lawyers is one obvious step, but a more transparent process and clearer metrics are also needed here.

 [UPDATE: Forbes’ Erika Brown and I had an exchange the afternoon this post appeared in which she elaborated upon the methodology used to arrive at the Midas List. She also conducted an interview a day or so following with VentureBeat’s Matt Marshall, available here. My principal criticism, the presence of bankers, lawyers and other ‘service providers’, remains intact for the most part. Forbes’ own explanation for its process is to include professionals who “deploy venture capital to create wealth for their investors and build valuable, long-lasting companies.”  My argument was that bankers and lawyers clearly provide a value but that they do not meet the threshold of the magazine’s own methodology. They may take companies to the public markets and/or assist in mergers, acquisitions and the like, but they are not investing their limited partners’ capital into these companies, in most circumstances, and should, therefore, not be included on this List. Ms. Brown, however, reminds us all that this is largely a cloaked industry and that Forbes, at least, endeavors to provide some rankings, regardless of how flawed, to acknowledge those in the field. To that point, I agree that this is not an easy undertaking, I applaud Forbes for adding as much rigor as they can to this process, and I am optimistic that as Forbes’ methodology improves, so too will the List and its significance to the industry. JT]

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2 Responses to “The Forbes Midas List is out. Let the gloating and grumbling begin”

  1. Erika Brown January 25, 2008 at 11:41 am #

    Thanks for your post. I recommend you take a look at the methodoology for this project, available here:
    http://www.forbes.com/2008/01/24/midas-venture-capital-tech-08midas-cz_eb_0124method.html

Trackbacks/Pingbacks

  1. Finally, a top 100 VC list worthy of Midas « Adventure Capitalist - November 18, 2009

    […] criticisms of their version and how they compiled their rankings. My biggest gripe, from my blog post at the time, was that the presence of attorneys, investment bankers and other “service providers” […]

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