You might think it odd that I'm saying this. After all, I'm sceptical of anyone's ability to spot good companies, not least because, as Sussex University's Alex Coad has shown, corporate growth is to a large extent random.
However, Mr Woodford has something on his - and his investors' - side: his reputation. This increases his chance of success in two ways.
First, he could benefit from a selection effect; the better early-stage companies will approach him because they want the kudos of being backed by a high-profile investor with a long record of success. In this way, he should get the first pick of good projects.
Secondly, there's a signalling effect, which could mean that the mere fact of being backed by Mr Woodford increases a new firm's chance of success.
Picture the scene. A new company is looking for other sources of finance or for key employees - who are often crucial in human capital-dependent businesses such as medical research. "Who are your backers?" the financier or potential hiree asks. What'll be the more impressive answer: "Neil Woodford" or "Noddy Nobody"? In this way, having Mr Woodford's support might attract more investment and better staff, thus increasing the start-up's chances.
It's because of reasons such as these that internet entrepreneur Marc Andreessen has said that, in venture capital, dynamics matter: success can lead to success because "a few firms have positive selection on their side".
One big fact corroborates this. Economists at Said Business School in Oxford have shown that there is persistence in the performance of private equity funds: funds that do well in one period tend to succeed in subsequent ones. This is not true for ordinary equity funds: researchers at Vanguard have found that top quintile funds tend, if anything, to subsequently underperform.
Why the difference? It's because private companies tend to be small and hence dependent upon key staff and access to finance in a way that bigger, quoted firms are not. And having the backing of an investor with a good reputation helps secure good staff and finance, thus boosting the chances of success. For this reason, previously successful venture capitalists can continue to be successful.
This is an example of the Matthew Effect: "unto every one that hath shall be given" says the Gospel. We see this in other aspects of finance. For example, cash-rich investors can use their liquidity to buy distressed assets at knock-down prices - as Warren Buffett did when he invested in Goldman Sachs at the peak of the 2008 crisis. And companies with a low cost of capital can engage in multiple arbitrage or roll-ups: buying small companies in a fragmented industry and so benefiting from increased economies of scale.
But the Matthew Effect doesn't exist only in finance. The late sociologist Robert K. Merton - who coined the phrase - pointed out that it exists in academia; the academic with a good reputation will attract better co-workers and so publish more and better papers, thus further enhancing his reputation.
It exists also in the entertainment industry. A musician or author who acquired fame because of his early work will get lots of publicity for his later efforts and so these will sell well even if they are of uneven quality. Fans of Bob Dylan might know this.
But here's the thing. Reputation need not be well-founded upon actual ability. Columbia University's Moshe Adler has shown that fame and acclaim can arise from "pure luck". Although his theory is usually thought to apply well to the entertainment industry and journalism, it might also apply in finance. Bjorn-Christopher Witte at the University of Bamberg has shown that, under some circumstances, the talentless fund manager who takes risks and gets lucky will succeed at the expense of his more skilled counterpart.
What matters is not so much the source of reputation as the question: can that reputation, however obtained, be used to obtain future success?
Sadly, Patient Capital will initially be investing in larger listed firms, where the answer to this question is: no. This is not Mr Woodford's fault: if you have to invest £800m quickly, big quoted firms are the only option. However, as he weights his investments towards early-stage firms over time, his reputation might work to his advantage. It is this prospect that might justify investors' enthusiasm.
