Venture capitalist Bill Gurley, when talking about losses reminds people that a fund can lose it’s money 1x on a failed investment in a business that goes under but can miss out 10,000x if they fail to invest in a big winner.
If you think about the nature of venture capital, it’s highly rational to have a risk profile that accepts a lot of failure to avoid misses because they are in the business of delivering returns.
It’s also rational to get into a deal at nearly any valuation. Sequoia famously walked away from Google because Larry Page was looking for a $120MM pre. The deal got done at $80MM. (GOOGL marketcap is 1.6 trillion at time of writing).
- Ellsberg paradox shows us people greatly value known risk but venture is basically the opposite of that
- Protect against the downside by enjoying the upside
- Fear is bad advice