Heading into our 5th anniversary Annual Meeting next week, the risk and return of high-tech startups and venture capital on my mind…

My rough estimate of my personal “success” (positive vs negative outcome) rate of bets on new products and companies is ~60-65%. Meaning, of course, my “failure” (negative vs positive outcome) rate is ~35-40%, i.e. I’m wrong about several things at all times.

Per Tversky/Kahneman loss aversion, the negative outcomes weigh much more heavily on my mind. The key challenge = manage own psychology. Per Taleb antifragility, the saving grace of my business is: Each loss capped at 1x, but wins can scale to 1,000x and even beyond.

I am also blessed in having partners and colleagues over 20 years and today who are often better at picking than I am. I envy my hedge fund friends who can fully implement “strong views weakly held” and trade out of bad positions any time they want. However, because we make hard commitments for 10+ years, we can win from sleeper hits that take longer to develop. That’s very satisfying.

On balance, progress is made. But the emotional rollercoaster never stops! Our entire field is constantly exhilarating and terrifying. The other saving grace is seeing people we work with develop, succeed, and flourish. Enormously fulfilling, makes it all worthwhile.

Commenters correctly point out that for VC (more than other fields), to calculate “success” rate, must account for great opportunities passed, i.e. total “at bats” = decisions made to pull trigger whether they worked or not, plus decisions to pass on big wins one could have had. So “at bats” probably more like 120%-140% of # of decisions made to invest. It knocks the overall “success” rate down a fair amount. Humbling!

The counterargument against counting “misses” is that success in investing has nothing to do with hitting every good opportunity. But still! 🙂 And ultimately, in both startups and VC, “success” rate (batting average) means nothing; slugging percentage means everything.

Source: Tweets – 1,2,3,4,5,6,7,8,9,10,11,12,13,14,15

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Category:
Investment

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