June 8, 2006
Counter Cliche: But It’s Ok If Some of Them Turn Out to Be Frogs
This week, Fred says You Can’t Kiss All the Pretty Girls, meaning that it’s easy for VCs to get a little carried away, get outside their strike zone or core thesis for investments, put money to work in too many places, and make some mistakes. Sure, some pretty girls turn out to be nightmares when you actually start to date them.
But if you’re a VC, it’s ok if some of the pretty girls turn out to be frogs. You have a diversified portfolio. You invest in dozens of companies, and as many VCs have said over time — you lose all your money on 1/3, you more or less break even on 1/3, and you make money on 1/3. And my memory from working in VC years ago is that 1 in 20 is a magnificent home run.
So yes, you can’t kiss ALL the pretty girls, because some will turn out to be frogs, but you can get away with a lot of frogs and still be a great investor.