I was having coffee a few weeks back with a friend who is at a large, very successful VC.  We were chatting about one of the senior partners at his firm, one that I’ve had the pleasure of getting to know (but not as well as I would like).  I’ve never really been able to articulate why I’ve enjoyed my interactions with this investor so much, but my friend put it this way:

“He almost always finds a way to talk himself INTO a deal, before trying to talk himself out of it.  Where most investors are tying to avoid doing any bad deals, he is focused on making sure he never misses a great one.”

It’s a subtle but profound difference, I think.  And it’s actually a pretty rare trait because of the nature of the VC business.  For one, VC’s say “no” all day long.  They pass on over 99%+ of the investment opportunities they see, and even the ones they say “yes” to go through periods of difficulty.  It’s not surprising that this would breed a bit of a negative attitude, and a bunch of resolutions to “never invest in an x, y, or z company”.  I can tell you that it’s hard to keep an attitude of negativity from pervading your interactions in light of this. I’m sad to say that it’s been hard for me, at least. 

Second, VC partnerships are such that newer VC’s are typically trained to be risk averse.  As I’ve blogged about before young VC’s are told they only have a few precious “bullets”, so it’s easy to just optimize around “not looking stupid” or “avoiding bad deals”.  They are calibrating their minds to avoid false positives. 

But shouldn’t the VC business really be more about calibrating around avoiding false negatives?  It’s an investment strategy of discontinuous returns – you absolutely don’t want to pass on one of the few really great companies because “the founders were too inexperienced”, or “the market seemed too small”, or the product looked like a “toy”.  Plus, I think it’s more fun and makes for more collaborative conversations with entrepreneurs.  

This isn’t to say that these investors fund everything they see.  Actually, this investor (and others like him that I’ve met) are just as selective as their peers.  The difference is that they try to see the company’s glimmer of greatness first, and then de-construct the opportunity and try to figure out if it’s really a great investment.  It was a great reminder for me.