I was at an annual general meeting (AGM) the other week, and during one of the fireside chats, Scale’s Rory O’Driscoll said, “Having to deal with the psychological burden of having an anti-portfolio is a privilege. If you never have the psychological tax of passing on multiple generational deals, you shouldn’t be in venture. Passing on 20 great companies out of 40 great companies you see is always more preferable than investing in 2 great companies after seeing 40 average companies.”
And I couldn’t stop thinking about that line.
Last week I also wrote a quick essay on things GPs say and think are gold, but LPs don’t. In which, I talked about win rates:
“We have a 90%+ win rate.” Personally, I don’t care. Some LPs do. But I know of a lot of institutions who have a dedicated venture team do not as well. Win rate can be engineered. There are funds that only offer verbal commitments with no term sheet that claim a very high win rate, so only the ones they offered a term sheet “count.” Also, no one will ever say they have a 50% win rate (even if they do, I don’t care as much as the other metrics that you could optimize for). No one will also say 100% win rate. And if they do, THAT is the thing you need to double click on and be wary of.
This past weekend, a friend heard a comment. “100% win rate means you’re not targeting the right founders.” Which is…… true. Many of the best founders, and especially true if they’re serial founders, are picky. They know exactly what they want, who they want. I give some grace to first-time founders who eventually become mainstay names because their early days are still full of rejections.
If you’re a VC with a specific thesis who has a stake in the ground, you’re probably not the VC that every founder wants. Only a very specific founder. But every so often you’ll come across a founder who you think will make it big, but they don’t see you as someone who can help or has the know-how to help them get to the next stage. And that’s okay. As Rory said, “the psychological burden of having an anti-portfolio is a privilege.” At least you’re in the right rooms. And as a VC, that’s the first half of the battle.
To come full circle, if you have a 90%+ win rate writing $500K or less checks, that’s to be expected. Assuming you know a founder beyond an acquaintance and you’re not an asshole, it’s hard to lose out on these opportunities, especially if you’re betting in non-obvious, illegible founders in the early days.
The larger your check, the more your win rate should technically decrease, and at some point, quite dramatically, where it no longer becomes a metric worth optimizing for.
And, if you ever have a 100% win rate, I dare say you have never had the privilege of the psychological tax of seeing multiple outlier founders and companies.
Photo by Nik Shuliahin 💛💙 on Unsplash
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The views expressed on this blogpost are for informational purposes only. None of the views expressed herein constitute legal, investment, business, or tax advice. Any allusions or references to funds or companies are for illustrative purposes only, and should not be relied upon as investment recommendations. Consult a professional investment advisor prior to making any investment decisions.