In venture capital, errors of omission can be substantially worse than errors of commission. For example declining to invest in Google in 1999 (which some VCs did) was a multi-billion dollar mistake. In contrast, if you were too early to the search engine market and invested in a company like WebCrawler, your losses would have amounted to a few million dollars.¹
No investors are immune to this asymmetry but the very best of them are acutely aware of its magnitude. Of note is Bessemer Ventures, who despite their 150+ IPO exit track record continue to be inspired (and humbled) by their anti-portfolio — a group of companies they rejected but which went on to be immensely successful.
Bessemer Ventures have a page on their website dedicated to these companies. Their stories are as delightfully humorous as they are earnest in their instructiveness. Being the venture geek that I am, I’ve abstracted 9 lessons from Bessemer’s anti-portfolio. None of these lessons need to be applied all the time, but a good venture investor would do well not to forget them.
Jeremy Levine met Brian Chesky in January 2010, the first $100K revenue month. Brian’s $40M valuation ask was “crazy,” but Jeremy was impressed and made a plan to reconnect in May. Unbeknownst to Jeremy, $100K in January became 200 in February and 300 in March. In April, Airbnb raised money at 1.5X the “crazy” price. Their last fundraising was completed at ~500X that valuation.
Lesson 1: Avoid the knee-jerk reaction to decline a deal just because the valuation looks “crazy”. If growth is exponential and you are looking at a potential billion-dollar category winner, investing at a premium in the early stages could still be worthwhile.
Bessemer had the opportunity to invest in pre-IPO secondary stock in Apple at a $60M valuation. Neill Brownstein called it “outrageously expensive.”
Lesson 2: If you miss out on a deal at the earlier stage and you are lucky enough to get another shot at investing, see lesson 1. Funds like USV have an opportunity fund specifically for these situations.
Byron Deeter flew straight to Atlassian in 2006 when he caught wind of a developer tool from Australia (of all places!). Notes from the meeting included “totally self-financed, started with a credit card” and “great business, but Scott & Mike don’t ever want to be a public company.” Years and countless meetings later, the first opportunity to invest emerged in 2010, but the $400m company valuation was thought to be a tad “rich.”
Lesson 3: Don’t overthink exit routes prematurely. If you back a great business, good outcomes will emerge in the long run.
Stamps? Coins? Comic books? You’ve GOT to be kidding,” thought David Cowan. “No-brainer pass.”
Lesson 4: Don’t get bogged down with what’s possible now. Consider what’s possible in the future. Seemingly trivial and niche pursuits can seed huge businesses. One example is the Homebrew Computer Club from 1970s. Back then, no one expected an informal community of hobbyists – who met bi-weekly to talk shop about DIY machines – to spark a personal-computing revolution. Among these hobbyists was the Apple co-founder Steve Wozniak.
Jeremy Levine spent a weekend at a corporate retreat in the summer of 2004 dodging persistent Harvard undergrad Eduardo Saverin’s rabid pitch. Finally, cornered in a lunch line, Jeremy delivered some sage advice, “Kid, haven’t you heard of Friendster? Move on. It’s over!”
Lesson 5: You don’t have to be first to market to win. Google was not the first search engine. Instagram was not the first filter-based photo editing app. And Zoom, which recently IPO’d, is not the first to do video conferencing. Where existing products and services are eminent, stay open to the possibility that an upstart with the right edge could displace incumbents.
After extensive diligence, Jeremy Levine identified a fatal business model flaw: airlines wouldn’t pay high fees for placement on the platform. Fortunately for Kayak, hotels did. As did Priceline when it acquired the company for $1.8 billion.
Lesson 6: Business models and technology products at the early stage are constantly evolving. If something looks unviable but the founding team is strong, give them a chance to demonstrate execution malleability. Instagram is a good case-in-point. It started out as a location check-in app called Burbn. Only later did it pivot into the app we know today.
David Cowan passed on the Series A round. Rookie team, regulatory nightmare, and, 4 years later, a $1.5 billion acquisition by eBay.
Lesson 7: Regulation takes time to catch up with the future. We are seeing this today with crypto, drones, and self-driving cars. Being able to navigate a challenging regulatory landscape can be a pathway to huge outcomes.
In 2006 Byron Deeter met the team and test-drove a roadster. He put a deposit on the car, but passed on the negative margin company telling his partners, “It’s a win-win. I get a great car and some other VC pays for it!” The company passed $30B in market cap in 2014. Byron recently paid full price for his Model X.
Lesson 8: If you decide not to invest in a company but are thrilled to be a customer nonetheless, reconsider your decision not to invest.
David Cowan’s college friend rented her garage to Sergey and Larry for their first year. In 1999 and 2000 she tried to introduce Cowan to “these two really smart Stanford students writing a search engine.” Students? A new search engine? In the most important moment ever for Bessemer’s anti-portfolio, Cowan asked her, “How can I get out of this house without going anywhere near your garage?”
Lesson 9: If a smart friend offers to introduce you to smart people building smart things, take the meeting! By the way, Cowan’s friend was none other than Susan Wojcicki, who is now the CEO of Youtube.
 WebCrawler wasn’t necessarily a failure. In fact it was the world’s first full text search engine and the 2nd most visited website in the world in February 1996. It launched in 1994, was acquired by AOL in 1995, and subsequently sold to Exite for $12.3m. Exite went bankrupt a few years later due to Google’s dominance and InfoSpace acquired its assets, which included Webcrawler, for a measly $8m.
Ps. For an LP anti-portfolio check out this blog post https://www.ldeakman.com/archives/2018/11/the-lp-anti-portfolio.html