1/ Creating innovative businesses that make a VC model work requires failure. It is simply not possible to generate >10X financial returns with every swing of the bat. This is a point I have made repeatedly on 25iQ and my most recent book. For example https://versionone.vc/seven-years-into-fund-i-charting-the-return-multiples/ …
2/ Every investment made must be capable of returning one or more times the entire VC fund.
“Payoffs from research are from Extremistan; they follow a power-law type of statistical distribution, with big, near-unlimited upside but, because of optionality, limited downside.” NNT
3/ "When you swing [in baseball] the most runs you can get is four. In business, every once in a while you can score 1,000 runs. This long-tailed distribution of returns is why it’s important to be bold. Big winners pay for so many experiments." Jeff Bezos
4/ "If you do the math, you’ll see that VCs can get a lot of things wrong. Their overall batting average can be even less than 50 percent, as long as their at bats per home run are 10–20 percent…" https://25iq.com/2019/06/08/secrets-of-sand-hill-road-venture-capital-and-how-to-get-it-know-venture-capital-before-you-get-married-to-a-venture-capitalist/ …
5/ Some people say "Wow all these failed experiments are wasteful."
The reality is that failure of most experiments isn't remotely avoidable and instead an essential part of harvesting the benefits of optionality. VC without many failed experiments isn't VC.
6/ Marc Andreessen: A venture capitalist is buying a portfolio of long–dated, deeply–out-of-the-money call options. “The entire art of VC in our view is the big breakthrough for ideas. The nature of the big idea is that they are not that predictable.” https://a16z.com/2014/07/21/a-dozen-things-ive-learned-from-marc-andreessen/ …
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