Thread by @paraschopra

A short thread on Venture Capital.

1/ VCs are a portfolio of uncorrelated, risky bets that entrepreneurs take.

2/ Essentially VCs underwrite business risk - they let entrepreneurs take the risk that has a small chance exceptional returns.

3/ VCs don’t judge whether a startup would fail - they expect failure by default.

Rather, they judge whether a startup could become big.

4/ Because bets should be uncorrelated, good VCs are fairly wide in types of startups they fund.

Best VCs would fund consumer, SaaS, deep-tech or any other type of company.

5/ Many VCs seem to be focused on tech not because they love tech but because tech companies grow really big.

Remember: VCs are all about giving a return on portfolio via a few companies working out while most failing.

6/ Entrepreneurs who diss on VCs because they wouldn’t fund their company don’t understand that VCs are given money by investors to produce high-risk, high-return rewards.

For low-risk, low-reward returns, investors have bonds.

7/ It’s a bit unfair that an entrepreneur is expected to focus 100% of her effort on a company that will most likely fail while VCs hedge their risk via a portfolio.

But then what entrepreneurs get is the joy of doing one thing and building something.

You can’t have it all.

8/ That’s it.

The key thing to remember is that VCs are an instrument for investors to get high-risk, high-reward return.

And it’s a great way for society to fund innovations that wouldn’t exist otherwise.