Machines outperform humans in countless ways—crunching data, organizing information, finding patterns, and even generating ideas. Yet there’s one crucial skill where we still hold the edge: predicting the future.
In the high-stakes venture capital world, an obscure Sonoma, California, firm is leveraging this human edge to potentially revolutionize the industry. Third Round Analytics Capital (TRAC) combines human expertise with machine learning to spot the most promising startups.
Using insights from “superforecaster” VCs, their 2020 Fund I identified nine potential unicorns among 46 investments, ranking #11 out of 151 comparable funds. Their 2022 Fund II is performing even better, ranking #2 out of 138 comparable funds by early 2024, according to Preqin.
This success builds on a growing trend of human-powered prediction platforms. Since 2014, when professor Philip Tetlock’s groundbreaking study in Science showed that prediction markets and crowdsourced forecasts could outpace intelligence analysts in geopolitical forecasting, these platforms have exploded. Polymarket, the largest U.S. prediction market, is growing at a staggering 200% compound annual growth rate despite regulatory hurdles.
While Tetlock’s work proved some individuals are orders of magnitude better forecasters than others, the financial world was slow to fully exploit these implications. TRAC’s founders saw an opportunity to apply this concept to venture capital, an industry where accurate predictions can lead to outsized returns.
“We realized that if we could identify and track the best-performing VCs—our own set of “superforecasters”—we might be able to predict which startups would succeed,” explains Joe Aaron, one of TRAC’s cofounders.
Despite its name, TRAC focuses on early-stage companies, primarily investing in the first two funding rounds, such as Seed and Series A, where the highest returns are often realized.
