Why the Most Successful VC Firms Keep Winning
The best companies seek out the most successful investors, and gains accumulate at the top
Investing in software companies is an inherently uncertain activity. It’s labeled as high risk, but “highly uncertain” is a better term. Yes, you’re taking a risk with money, but the real problem is the widely variant potential outcomes. If you invest in a restaurant, you are taking a risk, but you will either end up with a profitable restaurant or lose your money. If you invest in a software company, you can go bankrupt, have a small but profitable company, sell for five times the money in, or end up with a world-spanning multibillion-dollar behemoth that turns everyone it touches into a millionaire.
That dramatic range is why you can get a bank loan to start a restaurant but not a software company. It’s exactly why people invest in software, but also why it’s so difficult to do well.
There’s no proven method for managing this kind of uncertainty. The most successful investors frequently get it massively wrong, and a playbook that worked perfectly in one circumstance will fall flat in many others. Yet even when they frequently make monumentally bad investments, the best investors keep delivering the best outcomes. If no one knows what separates the best from the…
