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I am with the author 100%. The apocryphal VC batting average is 20%: That means that a VC firm with a full-time, professional team evaluating deals and has four

I am with the author 100%. The apocryphal VC batting average is 20%: That means that a VC firm with a full-time, professional team evaluating deals and has four failures for every success is considered capable. A VC who has just three failures for every successful investment would be considered good, and if they could do that based on a single pitch, they would be considered God-like. I am not a VC firm, I'm just one guy. I don't perform due diligence. I don't pick winners for a living. So if you ask me, what's your chance of success, what am I going to say? Even if I like your idea, and even if I was good enough to manage $200,000,000 of other people's money investing in winners, I'd only be right one time in four or five. So I also tell people that I have no fucking idea.

jbellis 15y ago
Upvoted, but if I am not mistaken those statistics are for false positives (VC thought idea would work, but it didn't.) What we're concerned about here are false negatives (VC thought idea wouldn't work, but it did). I could be wrong, but I would bet the true negative:false negative ratio for a good VC is (1) very, very high and (2) higher than Joe Average who doesn't do this for a living. Sure, nobody has a perfect crystal ball (famously, http://www.bvp.com/Portfolio/AntiPortfolio.aspx http://www.bvp.com/Portfolio/AntiPortfolio.aspx) but that doesn't mean there's no value in getting input from someone whose job is to get it right more often than your roommate. I'd even go so far as to say that any really great idea should go through a chorus of "that will never work"s as a kind of conditioning process.
- ScottBurson 15y ago
  > I would bet the true negative:false negative ratio for a good VC is very, very high I'll take the other side of that bet! VCs are trying to optimize their TP:FP ratio; they don't get paid for minimizing FNs. I'd bet, in fact, that their TN:FN ratio is little if any better than average. There are exceptions, but VCs on the whole have a reputation for groupthink, not for being visionaries.
- qq66 15y ago
  You're totally wrong about the (true negative|false negative) ratio. Most early-stage businesses that pitch VCs get turned down by more than half the VCs they approach (this is changing as angel rounds are getting businesses to traction). The phenomenon of "hot deals" is very rare. So for every VC investment into a Facebook, Zappos, Zynga, etc. there are multiple VCs who turn it down, pushing this ratio under 1.
  - shasta 15y ago
    You're not substituting the right numbers into that formula. The numerator includes all bad (will fail) startup ideas that get rejected.
    - qq66 15y ago
      Yep, my bad :-\
_delirium 15y ago
A VC that explicitly tried to maximize the the proportion of their investments that made positive returns could probably do a bit better on that percentage, though. They currently try to maximize the overall total return, which isn't the same goal, and probably leads to them making bets that they know are low-probability (but which have high potential return; the "home-runs" investing strategy).

jbellis 15y ago

Upvoted, but if I am not mistaken those statistics are for false positives (VC thought idea would work, but it didn't.) What we're concerned about here are false negatives (VC thought idea wouldn't work, but it did). I could be wrong, but I would bet the true negative:false negative ratio for a good VC is (1) very, very high and (2) higher than Joe Average who doesn't do this for a living. Sure, nobody has a perfect crystal ball (famously, http://www.bvp.com/Portfolio/AntiPortfolio.aspx http://www.bvp.com/Portfolio/AntiPortfolio.aspx) but that doesn't mean there's no value in getting input from someone whose job is to get it right more often than your roommate. I'd even go so far as to say that any really great idea should go through a chorus of "that will never work"s as a kind of conditioning process.

ScottBurson 15y ago
> I would bet the true negative:false negative ratio for a good VC is very, very high I'll take the other side of that bet! VCs are trying to optimize their TP:FP ratio; they don't get paid for minimizing FNs. I'd bet, in fact, that their TN:FN ratio is little if any better than average. There are exceptions, but VCs on the whole have a reputation for groupthink, not for being visionaries.
qq66 15y ago
You're totally wrong about the (true negative|false negative) ratio. Most early-stage businesses that pitch VCs get turned down by more than half the VCs they approach (this is changing as angel rounds are getting businesses to traction). The phenomenon of "hot deals" is very rare. So for every VC investment into a Facebook, Zappos, Zynga, etc. there are multiple VCs who turn it down, pushing this ratio under 1.
- shasta 15y ago
  You're not substituting the right numbers into that formula. The numerator includes all bad (will fail) startup ideas that get rejected.
  - qq66 15y ago
    Yep, my bad :-\

_delirium 15y ago

A VC that explicitly tried to maximize the the proportion of their investments that made positive returns could probably do a bit better on that percentage, though. They currently try to maximize the overall total return, which isn't the same goal, and probably leads to them making bets that they know are low-probability (but which have high potential return; the "home-runs" investing strategy).