Ignorance and Venture Capitalism

A while back, I wrote about how venture capitalists (VC) have to think illogically  to decide which companies to invest in.

And Ben Evans just showed that the VC’s job is even harder. He starts with an obvious point:

“It hasn't been possible to have read 'everything' for a couple of hundred years (since Erasmus, perhaps). It hasn't been possible to understand all of engineering or technology for perhaps a hundred or a hundred and fifty years. And today, it isn't really possible to understand all even of the internet or mobile - not all at once. There are simply too many things going on for any one person even to know the key basics in every relevant field, never mind become an expert or have some insight.”

That inevitably makes it extremely hard, if not impossible, for anyone to predict where technology is headed. On the other hand, this very ignorance may be the cause of the next Big Disruption:

“People are so ignorant that they don't know something can't be done and won't work, so they go and do it, and it works.”

Ok, the sentence above applies for the engineer or entrepreneur who tries. But guess what, it’s even harder for the VC:

“The challenge of venture investing is that the model depends on investing in things that are laughable, because those are the only things that can make billions of dollars from zero in a few years.”

To get an idea of how tough the VC choices are, just take at a look at Bessemer Venture Partners, a venture capital firm, and the list of the opportunities it missed, what it calls its anti-portfolio:

- Apple at a $60 million valuation: it was rejected because it was  “outrageously expensive” (Today Apple is valued at more than $600 billion!)

- eBay: “Stamps? Coins? Comic books? You've GOT to be kidding.”

- Google: Students? Yet another search engine?