Enough to make you feel sorry for these guys?

I know that it’s hard to imagine “feeling sorry” for venture capitalists. We think of them as very savvy, sometimes sharp-elbowed people, who typically make a good deal of money.

But read Bessemer Venture Partners’ amazing page, detailing their “anti-portfolio” — companies that were presented to them for investment and that they passed on. Companies that, had they invested, they “might not still be working.”

It’s incredible to think of the opportunities passed on — Google. Apple. PayPal. Intel. FedEx. eBay.

It almost does make you feel sorry. But it’s perhaps misleading. The fact that these deals even got in front of them says something about the types of opportunities they see and the access they have. And while I don’t know Bessemer’s fund returns, their list of “top exits” is almost (if not quite) as impressive as the missed opportunities: Skype. LinkedIn. Staples. VeriSign. Staples.

So, I am sure they did fine. More than fine. Not feeling sorry for them anymore. I’m over it. (But still, Google…ouch!)

To me, it raises a much more interesting question: are there really any effective criteria by which to distinguish good startup investments from bad ones, or is it really just luck? All the things they said I am sure seemed reasonable at the time:

Apple Pre-IPO secondary (valuation $60MM) – “outrageously expensive.”

PayPal – “Rookie team, regulatory nightmare.”

Do VC’s selections, as a whole, outperform a random sample, or an index, of all possible startup investments? (Or if not all possible startup investments, then at least those meeting some minimum standard of credibility.) These analyses are possible to run for mutual fund managers who invest in public companies — and the data is in: most fund managers cannot outperform the index — but I don’t know whether the data is out there for VC investments.

So, for exhttps://personal.vanguard.com/pdf/s296.pdfample, if you took all of the opportunities that were presented to them (not just the cherry-picked amazing deals), and chose from among them at random, or spread total investment across all of them, how would the return on that portfolio compare to their actual performance? That’s a less dramatic but far more interesting analysis than the “anti-portfolio.”


Categorised as: Startup Stuff