I was about to write a comment similar to yours, but after re-reading http://paulgraham.com/swan.html http://paulgraham.com/swan.html I'm less convinced. In pa

I was about to write a comment similar to yours, but after re-reading http://paulgraham.com/swan.html http://paulgraham.com/swan.html I'm less convinced. In particular: There's no correlation between the percentage of startups that raise money and the metric that does matter financially, whether that batch of startups contains a big winner or not. Except an inverse one. That's the scary thing: fundraising is not merely a useless metric, but positively misleading. [...] We can afford to take at least 10x as much risk as Demo Day investors. And since risk is usually proportionate to reward, if you can afford to take more risk you should. What would it mean to take 10x more risk than Demo Day investors? We'd have to be willing to fund 10x more startups than they would. Which means that even if we're generous to ourselves and assume that YC can on average triple a startup's expected value, we'd be taking the right amount of risk if only 30% of the startups were able to raise significant funding after Demo Day. In this model, the VC's willingness to make risky investments becomes a kind of "thermometer" for whether an opportunity exists for an investor to win big. In fact, pg seems to be saying, "If VCs are investing in all of the startups, then that probably means there aren't any big winners seeking investment." If that's true, and if VCs are investing in every startup, then it's likely that all of those VCs are going to lose. Whereas if VCs are only investing in 30% of the startups, then it's more likely that a selective investor can win big by investing in one of the 70% of risky companies that other investors aren't willing to go near.