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January 21, 2011


Charlie K

Great post. Although I would posit two additional thoughts:

1) Is it possible that you're seeing tremendously increased deal-flow relative to prior generations because of improved communications & pervasive access? In the past life of this business, the only way to communicate was word of mouth or introductions. There are certainly more formal funds out there today than three decades ago, but are their funnels also correspondingly larger too? Would that not mean that the concept of increased "competition" really is only theoretical (if the pond is in fact an ocean...)?

2) Better yet, is it the case made only by structurally inflexible incumbent players or the middling players? The "better execution" story is tired and a recipe for sub-par returns (mostly, with exceptions). For better or for worse, the skills required to be a successful PEVC investor 10 years ago are not the same as they are today. Two main things have and are happening, one is that little thing called the internet, which is changing everything in more ways than we can imagine, and, two is the globalization of every industry (and the portfolio companies of PEVC firms). The skills needed to creatively find successful investments in a global marketplace & help build leading companies today are unquestionably different than the white glove business of old. Is it not a brave new world...

Obviously, both of these posits could go on for quite a dissertation, but they are tangential to your main post so thought I'd share the thoughts.

Chris Douvos

@ Charlie:
Thanks for the thoughtful comments. Both good points. In fact, I've been thinking a lot lately about your first point in particular: is the pond really an ocean? Are the number of ideas finite in such a way that we feel them to be finite? finite to such an extent that they feel infinite because of their vastness relative to available capital and bandwidth? or just plain ol' infinite? My bet lies somewhere between 1&2 and where along that spectrum has some implications for the business, broadly speaking.
As to the second point, I agree that the skills are different today . . . it's amazing how much more complex the ecosystem is today than it was even a scant 10 years ago. It's a shame that investors don't get returns scaled by degree-of-difficulty factors . . .


This Steven Jay Gould article is a favourite of mine, too, but I doubt it fully applies here. See, he was talking about MLB, which already is a selection of the best players in the world. With your 452 VC pitches, I bet that there are quite a few minor-leaguers, bush-leaguers and even weekend-warrior leaguers there. The number is just too high.

So, in a nutshell, you still have an important job to identify who major-league players are. Sure, there may not be 25% ROIs anymore, but you have to protect against the -15% ers...



True that . . . my hope has always been that the "minor leaguers" don't get funded, but the market is rarely that efficient (and certainly there are a lot of double-A ball pitchers among those that have thrown me pitches ...)

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