If the main input is quality of other VCs, then at some point a VC has to decide to invest based on fundamentals rather than what other investors are doing. a group of "fundamental" investors with good track records then would dictate what the rest of the market invests in.

you sort of see this dynamic play out in reality. YC is an example: they invest early, before other investors often, so they cant rely on other investors as a signal. they've done well though, so many investors follow them. there are more follow-on investors than successful "fundamental" investors, so there's often a valuation step up when follow on investors join that benefits the fundamental investors

same thing plays out in biotech. theres been a massive influx of capital into biotech VC, but not a big increase in the number of funded startups. most startups that go on to raise money are seeded in house by a handful of VCs. these VCs then fund the series a. they get big step-ups for series b and beyond deals and capture nice returns

im working on a more rigorous analysis to understand whether these anecdata are true in reality