Chris Dixon at a16z riffs on one of the hardest concepts to internalize for those new to VC - the “Babe Ruth effect”: The home runs for good funds are around 20x, but the home runs for great funds are almost 70x. As Bill Gurley says: “Venture capital is not even a home run business. It’s a grand slam business.”
As expected, lots of investments lose money. Venture capital is a risky business. Notice that the curves are U-shaped. It isn’t surprising that the bad funds lose money a lot, or that the good funds lose money less often than the bad funds. What is interesting and perhaps surprising is that the great funds lose money more often than good funds do. The best VCs funds truly do exemplify the Babe Ruth effect: they swing hard, and either hit big or miss big. You can’t have grand slams without a lot of strikeouts.