Protecting against adverse selection
We remove failing companies
Underperforming, zombie and failed companies are removed
Companies are removed when they underperform or fail. For example, a company that has flat revenue for 2 years will be classified as a ”zombie company” and removed. Criteria changes in response to market conditions and is applied uniformly to all companies, similar to the S&P500 having minimum criteria.
The Exit Queue
Once flagged, a company enters an exit in the queue. We cap the number of underperforming companies to 30% of the Index. This gives companies limited time to turn things around and engineers the index to mimic a venture fund with a perpetual 70% hit rate.
The math
What this means for Index economics
Protects against adverse selection
Unlike previous equity products like pools, removing companies means Grove is not a way to hedge risk. We bring forward the expected value for shareholders of winning companies as long as they continue to pull their weight.
Recycles your contribution into winners
Capping the number of underperforming companies at 30% is accretive to all other participants in the Index. When a participant is removed they no longer earn and those who remain earn more.
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Outperform the market with winners
The Grove Index is designed to disproportionally reward those who pull their weight. The removal mechanism ensures quality stays with quality and that the Index does not have a freeloader problem.
The bottom line
Grove is a venture Index engineered to outperform the venture market by removing deadweight.