Monday, March 16, 2009

A Venture Capitalist's Anti-Portfolio

Venture capitalists are no different than other types of investors when it comes to taking ownership of their failed investments. As they say, success has many fathers but failure is an orphan.

In a lot of ways this makes sense. It is human nature to assume that a successful venture capitalist must have vision and skill and the successful ones will be able to raise subsequent funds. It is precisely for this reason that the venture capitalists perform such fulsome business diligence on their potential targets (which I discuss in more detail here). If a particular investment does not work out, the VC can at least demonstrate that the financial analysis supported the investment.

What is perhaps even more difficult to swallow for a venture capitalist is when they miss a potential opportunity entirely. That is, when they look the young Steve Jobs in the eye and say, "Sorry, Steve -- we're going to pass on this Apple thing. We just don't see the sort of returns we need."

Refreshingly, one venture capital firm -- Bessemer Venture Partners (one of the oldest continuous VC firms around, c. 1911) -- has owned up to exactly that, among other things. The link below is a true list of the various opportunities that they passed on over their long and storied history. And yes, they told Steve Jobs no.

Here is the link.

2 comments:

  1. It would be interesting to understand the following stats:

    1) Cos. that all VCs say no to and they go on to be a huge success by bootstrapping

    2) Cos. that one VC says no to and another says yes, then it is a success

    3) Cos. that all VCs turn down that would have been a huge success had someone invested

    4) Cos. that received VC funding, but would have been a huge or even huger success without the VC funds (i.e. they would have been better off bootstrapping)

    3 & 4 are a bit silly, since they can't really be tested without a time machine. It's interesting to think about none the less.

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  2. Jeremy -- I like the way you think. The power of a 2x2 matrix. I think the link in my post shows mostly 2 and maybe a few 1s. Plus there is plenty of anecdotal evidence out there for additional 1s (today, everyone is a bootstrapper ...) As for the 3s and 4s, I guess we will never know ...

    Thanks for the input. -- Hank

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Dividends and Preferences by Hank Heyming is licensed under a Creative Commons Attribution 3.0 United States License.