Losing Money

I remember back in the mid 90s, I used to say with some pride that I had not lost money on any of my VC investments. Then one day, someone told me “then you are not taking enough risk.” I ended that streak of not losing money on VC investments in the late 90s in a series of epic flameouts. I lost somewhere between $25mm and $30mm on one single investment. I am not proud of those mistakes. They were stupid. I am ashamed of them to be honest. But I learned a lot from them. Not only was my “winning streak” a case of not taking enough risk, it was also a case of not enough learning. The go-go Internet era of the late 90s fixed both of those things for me. I took more risk and learned a ton.

Our first USV fund, our 2004 vintage, has turned out to be the single best VC fund that I have ever been involved in. We made 21 investments. We made money on twelve of those investments. We lost money on nine of them. And we lost our entire investment on most of those nine failed investments. The reason that fund performed so well has pretty much nothing to do with the losses. It was all about five investments in which we made 115x, 82x, 68x, 30x, and 21x.

It wasn’t like we were swinging for the fences in that fund. Every single one of those 21 investments seemed like an intelligent investment decision at the time we made it. But many of them didn’t work. We lost all or almost all of our money on over 40% of our investments in that fund.

The next fund we raised, our 2008 vintage, is now eight years old and we can begin to calculate the win/loss ration on that one too. We don’t yet know the magnitude of our winners, but there will be a bunch. It will be one of the better funds I’ve been involved with. I doubt it will be as good as our 2004 fund, but it will be a very good fund. We invested in 22 companies in that 2008 fund. We have already completely written off six companies. Those are complete and total losses. And, I think there will be at least a couple more losses in that fund when it is all said and done. So it looks like something like 14 winners and 8 losers. We will likely lose all or almost all of our money on roughly 40% of our investments in that fund.

My point on sharing all of this with you is to explain that losing money is part of being an investor. It happens. As Richie, the guy who sits behind me and my friend John at the Nets game, says “you can’t make ’em all.”

But there are some things you can do with your winners and losers to drive up your performance.

The first and most important thing you can do is minimize the amount of money you invest in your losers. In our 2004 fund, we invested a total of $50mm out of $120mm of total investment in our nine losers. That wasn’t so good. We could have, and should have, recognized our bad investments earlier and cut them off. In our 2008 fund, I think we will invest roughly $35mm out of roughly $140mm of total investments in failed investments. So even though our loss ratio on “names” is around 40%, our loss ration on dollars will be around 20%. We did a good job of not allocating too much of the fund’s capital to losers in our 2008 fund. And most of those losers were mine by the way.

Ironically, another key to managing your losses is to spend more time with them, not less. By spending more time with them you can develop clarity about the investment, whether it will work or not, and you can get the founders and other investors to see the light early and not waste more of their time and/or money on it. I am a big believer in “loving your losers” in the sense that you should not orphan them and you should work hard to get to the right outcome. Enabling them with good money after bad is not loving them.

Finally, getting clarity on your losers, getting them sold or shut down quickly (with dignity for everyone), frees up more time and money for the winners. And, as our 2004 fund shows, a few really good companies can carry a fund to the moon. You must make sure you can get a disproportionate amount of your time and money invested in those great investments.

When I look at a VC to work with, recommend to LPs, or very rarely, invite into our partnership at USV, I look for someone who has made their share of mistakes. Making bad investments is humbling, frustrating, annoying, time sucking, and most of all, a big part of the VC business. I look for VCs who have done it a lot, have done it with grace and respect, and continue to learn from it. They are the best VCs to work with.

#VC & Technology

Comments (Archived):

  1. jason wright

    ‘buying’ experience is always good value for money

  2. William Mougayar

    Yes, I’m learning that too. I’m about to lose all my money on 2 investments, but consider myself wiser. Others are doing well, so it compensates largely. The balance is in the experience you gain.The initial investment is almost like having access to find out if you should continue investing. At the onset, they all “seem like an intelligent investment decision at the time we made it.”

    1. Matt A. Myers

      Is the last paragraph some learnings from the investment losses? Anything you will differently moving forward?

      1. William Mougayar

        it’s tough to generalize. every situation is different, but you’re building your pattern recognition abilities as a result of that.

  3. JimHirshfield

    A good education is free.A great education is expensive.

    1. jason wright

      and a crap one is the most expensive of all

  4. andyswan

    Devil hates a coward

    1. andyswan


      1. Tom Labus

        All hail Jeff Bezos

    2. andyswan

      Lost 80% of my net worth in one morning. I don’t worry about losing money anymore.I keep a powerful wealth-creation tool locked securely behind my eyeballs

      1. fredwilson

        Great line

      2. pointsnfigures

        Been there. I had just paid off the loan on my seat. It was a 9% loan for $278k that I had to pay off in five years. I paid it off in 2.5. Next week, I lost 350K in five minutes. Had to drag myself back to the bank, and get a new loan to stay in business. Paid that loan off in 6 weeks. Learned a lot. But, it’s not like I don’t lose money anymore, I do.

      3. LE

        Iirc you are in your 30’s? When I was in my 30’s I lost roughly 55 to 60% when I went through a divorce. At the time that didn’t matter to me either I just wanted to be happy. I can’t say that would be the case now though (got a pre-nup on remarriage).

        1. andyswan

          yes still hanging onto the 30’s

    3. kevando

      Interesting quote. I recently started referring to my fear driven behavior as the “devil inside me..”A quote from The Usual Suspects comes to mind..

    4. Richard

      I would think that the devil would love a coward, the person who would trade their soul for a guarantee?

      1. andyswan

        ya I don’t know it just sounds cool when someone offers a bet

  5. LIAD

    The power law governing VC outcomes can seem daunting.Right up to the point you consider the maxed-out, uber-concentrated, weapons-grade version governing an entrepreneurs.

  6. lazerow

    I find it is much easier to find the losers than the winners. And the corollary, I’ve gotten pretty good at writing checks. (My handwriting has improved and I’m now quite proud of my signature.) I’m still working on the part where you’re supposed to get your money back.

    1. Lance Kidwell

      Well the losers are looking for you too

  7. Chuk

    As I read this post my mind turned to equity crowd-funding…wonder how many non-accredited investors will understand the VC calculus. I believe there are rules governing how much/year one can invest but they may indeed choose one of those epic flameouts. Not having a way to spread risk across a portfolio seems more like gambling than investing.

    1. Matt A. Myers

      There’s an important difference if it is a crowd of your users who are supporting something your doing and believe in you enough to do so vs. giving up equity to a VC or angel networks, most of whom are purely numbers driven – and likely can’t genuinely believe in the mission or value. The crowd can also give you immense feedback, support, and guidance relating to product development.IMHO most people won’t be making bets on organizations they don’t believe in – unless they are doing it professionally and which then they likely are trying to ride a wave because they see potential.Of course there will be edge cases where someone lands into $100k inheritance and puts a bunch of money in things that excite them in a shallow way – things they didn’t really have a passion and understanding to prior.If someone hasn’t learned the lesson yet of being responsible with money, then they’ll hopefully learn it after losing whatever amount is significant amount to them.

      1. pointsnfigures

        If angel networks were purely numbers driven they wouldn’t angel invest.

        1. Matt A. Myers

          They seem to want to focus on too few numbers out of all available. I assume that they presume that focusing resources on fewer things equates to better chances of success, less risk.

    2. btrautsc

      beside your point but I’m not sure how many VCs actually understand the VC calculus you mention.

      1. Chuk


    3. JimHirshfield

      Dropping $25M on an investment as a VC and losing it is a lot different than dropping a few 1000 and losing it, as an individual. Sure it hurts less when it’s OPM, but as you point out, the amounts and percentage of overall wealth for individuals needs to be within same scope as individual buying shares in IBM.

      1. pointsnfigures

        It just depends on how much you have, and what you have to fall back on if your loss is fatal. If you are using OPM and your loss makes it so you can’t ever invest OPM again, it’s pretty fatal and probably devastating. I agree, using your own money, which I have done for mostly my entire life, is different and fatality takes on a very different meaning. I have had at least 15-20 people I know take their lives after losses. There is something going on there besides the money, but that was the trigger.

        1. JimHirshfield

          “I have had at least 15-20 people I know take their lives after losses.”Ouch

        2. LE

          I have had at least 15-20 people I know take their lives after losses.Wow. Amazing.

          1. Richard

            It’s probably a lot more, some people just kill themselves a lot more slowly with drugs and alcohol.

        3. Susan Rubinsky

          Were the 15-20 all men?

          1. pointsnfigures

            yup. floor trading was basically a male business. there were some female traders, but not a ton of them. three of the best traders I ever saw in the business were female though-Julie Vukin, Leslie Henner and Margie Porter. Really really good people too.

          2. Salt Shaker

            Commodities? That’s a large number and frighteningly sad. Wonder if there’s a high correlation between incidence and risk. (E.g, stock vs. bond vs. commodities).

          3. K_Berger

            Floor trading is (was) a different world. I was in the OEX for one year and lost more of my own money than I should have before moving on. I would imagine the suicide rate in that group to be higher than almost any other profession.

          4. pointsnfigures

            Floor trading was a different world. Totally hard to describe. There was nothing else like it. Here is an oldie but a goodie of me trading. The guy in front of me was a good friend and beat me on a trade. He lives in Little Rock Arkansas and was one of the best traders I ever saw.

    4. JaredMermey

      VC Portfolio risk feels like a good game — riskier than other portfolio asset classes but more diversified than the entrepreneur.(Don’t mistake this comment for saying it is easy. Far from it.)

  8. Christopher Seshadri

    Nice post. The scrapes and scratches we get from falling off our bikes early help us become better riders for sure!

  9. John Pepper

    The most important words in this post related to losing money are, to me anyway, “(with dignity for everyone)”. Too often the loss of investor money is the main and only focus as opposed to the losses incurred by the founders and employees (especially) who gave everything to make the idea work as well as often the customers who supported it with time/dollars.Those four words, albeit in parentheses, are a key differentiatior between USV and so many other investment firms. It’s why I read this blog everyday.

  10. Jason T

    “Finally, getting clarity on your losers frees up more time and money for the winners.”- Certainly true in the VC world, and not a bad way to live life in general.

    1. Tyler

      My ex-gf’s would disagree lol

  11. Anne Libby

    Not only was my “winning streak” a case of not taking enough risk, it was also a case of not enough learning.If only this could be like a cigarette package warning on so many “how to” and “here’s how we’re doing X at our company” blog posts.Sometimes people counter my “how to/why to” thoughts and advice with examples of people with big voices on social media who haven’t quite yet been around the block. (Never had to fire someone, never had to downsize, never had to close the doors on a business, never had market conditions turn against their plans, never had to start over from scratch…)Until a blogger has ticked a few of these boxes, they’re learning in public.Welcome back to EDT!

    1. LE

      with examples of people with big voices on social media who haven’t quite yet been around the block.Reminds me of an opinion piece by Joseph Epstein (a writer) about the 5 Presidential candidates. In particular that superior people (the types of people that someone like a writer would find superior I guess) are no longer attracted to politics.http://www.wsj.com/articles…Check this out:One saw Marco Rubio and thought, in another time a successful siding salesman. One saw Carly Fiorina and thought, in the old days a scolding grammar school principal. One saw Martin O’Malley and thought, who let this guy off the used-car lot? One sees Hillary Clinton and thinks how exhausting it must be for her, day after day, to argue on behalf of all those things—justice, equality, fairness to women—that in their personal life she and her husband flouted.Kind of funny actually how a guy in an ivory tower makes comments about people with the stamina and energy to actually play the game as opposed to these people who would be good if they could only put up with the game itself:Superior people are no longer attracted to politics. They stay away because so much connected with contemporary political life is degrading. Mitch Daniels, a thoughtful man and a successful Republican governor of Indiana, steered clear of presidential politics because, as he openly acknowledged, he had no wish to put his family through the humiliation that accompanies running for the office.

      1. Anne Libby

        While the phrase “superior people” doesn’t do it for me, a functional GOP might have backed someone like Huntsman…

        1. LE

          GOP fucked up because they bet on Bush as the presumptive winner. That kept many people out of the race. Ditto for betting on Hillary. Shows the power of the machine.Love Trump or hate Trump one thing is this: What he has been able to do without party backing (ditto for Bernie) will have an impact on politics going forward and also in the rhetoric that politicians use perhaps.This entire idea of anointing someone really grates on me. Particularly the Bush thing. Or really anyone that gets to run simply because of name recognition. (Which applies to Trump as well obviously..)The bottom line is the majority of people voting really aren’t smart enough to judge candidates for office as being qualified for a job they have never done before (and no being governor is not like being President).

          1. BillMcNeely

            A non functioning Whip in the Republican Party has brought this all about

          2. JLM

            .We shall disagree on this.First, the GOPe was conducting its affairs as usual. They had their boy, they filled up his coffers, they whispered he was their boy, they intended to have some nominal resistance, and then something happened.What happened was 17 people showed up and tried to cram themselves into the same phone booth. The GOP doesn’t need one more candidate. They had enough. They had Senators, Governors, a business lady, and a Trump.In the interim, Jeb Bush reminded everyone his Daddy and Brother had been President and he was now going to give it a crack. But he was always going to be the GOPe candidate and was going to always be a Bush. He would let all the little people to and fro and then he’d accept the crown with modesty and “aw shucks”, really? Me? OK.Then Trump happened and he not only wasn’t impressed with the GOPe and the Bush moniker, he took dead aim at the GOPe’s boy and humiliated him on a mano a mano basis calling his manhood into question.Guess what?Jeb Bush is a pussy. Sorry.Trump is a bully and it takes a punch in the nose to stop a bully. You can’t reason with a bully, you can only punch them in the nose and beat the snot out of them. That’s the way bullies work.The electorate is angry and has been since the crushing Republican victory in 2014 which guys like McConnell and Ryan squandered. They got the mandate and then enacted every bit of Obama’s deficit busting legislation which made the electorate even angrier.Trump tapped into that anger — warts and all, he got it and he got it first.Any man in the street can figure out that a low mileage, inexperienced Senator pontificating about how many angels can co-exist on the head of a pin, is not capable of doing the job.They got that from the Obama experience.There is an earthy intelligence to the man on the street whose vocabulary isn’t fancy who can smell — SMELL — a phony.Today’s topic is interesting in that it plays into the value of not only Trump’s triumphs but also his failures. By Fred’s standards, Trump Air and Trump Steaks were the primer for DT to be ready to succeed.I am cooling more than a bit on Donald but he is still the only one amongst Goofy, Sleazy, Creepy and Braggy (DT) who can keep America from getting its lunch money stolen on a regular basis.The people are pretty damn smart.Of course, personally, I am poorly educated, ill-informed, and a sinner which is why I will likely vote for Trump plus I crave the pure entertainment value of it.Disruption? Yeah, that madman will disrupt the fuck out of things and that might just be the ticket.JLMwww.themusingsofthebigredca…

          3. LE

            Good points.There is an earthy intelligence to the man on the street whose vocabulary isn’t fancy who can smell — SMELL — a phony.Of course, personally, I am poorly educated, ill-informed, and a sinner which is why I will likely vote for Trump plus I crave the pure entertainment value of it.Imagine what the media (say Chris Matthews) and how they feel? Here you have the greatest source of copy and material that the broadcast world has ever seen. And if he loses it all goes away. Then it’s back to business as usual. If he wins they are guaranteed good ratings going forward and free content!Reminds me of when OJ won at trial and Geraldo Rivera was depressed afterwords. He thought for sure OJ would lose and appeal and he’d get 9 more months of punditry. (Really he was depressed I remember the moment very well..)What’s particularly surprising is how all of the pundits and intelligentsia seem to buy into the idea that what they think is “smart, well mannered and articulate” would be the best person to run a country or really anything. And the fact that they don’t think that Donald is smart and in fact think that he’s stupid and an idiot. Very funny. Kind of a “who is the fool at the table” type of phenomena. [1] Or how they focus (and this is relative to Fred’s post today) on his failures not even understanding that that’s part of the game in business. And how they focus on what his father gave him (money wise) and completely ignore the education (and/or family name) that his father gave him. Anyone who knows business would take that any day (I would) over $1,000,000. (Which shows how little they actually know about what matters).Disruption? Yeah, that madman will disrupt the fuck out of things and that might just be the ticket.People don’t understand negotiating strategy (but might think that because they read some fucking airport paperback book).[1] They probably don’t think Pablo Escobar is smart either.

          4. JLM

            .The best combat leaders are guys who ratchet their game into the stratosphere when the shit hits the fan. They have a gear which others simply do not possess.They can will things to happen. They make things happen. They force others to do stuff that would not ordinarily do.It is pure leadership muscle.It is often not the guys who look the part.When the action is over, these guys may revert to someone who you cannot believe was the guy they were.Trump has a bit of that. He is a natural leader.Politics isn’t life and death — sometimes, it’s more important.Take all of Trump’s flaws, double them and he’s still more likely to prevail than Goofy, Sleazy, and Creepy.The guy has taken on all the candidates, the GOPe, the media, the punditry, the intelligentsia, and he’s still moving forward. Bloodied but unbowed.BTW, I do think that Trump is his own worst enemy. Melania is right, no “retweets” for the Donald.JLMwww.themusingsofthebigredca…

          5. LE

            Trump has that “we want to please Daddy” impact on people. The others don’t possess that. That is at least part of the way (a small part) that he gets things done. He withholds love but then he gives love and it makes people feel good by contrast. Like with Jobs you have people that are going to think in advance that this is not the teacher you sit in class and crap all over. He will call a fuck up a fuck up and he will be happy when things are done right. Of course he is quite a bit different from Jobs in many respects.This is similar in a very small way to my views on child rearing. And how I get my way with my step kids. Short leash. You know just the other day I freaked out because the 11 year old girl was eating edamame right out of the container and she typically doesn’t wash her hands. I told her not to do that and she said “oh it’s ok” and put her hands back in. I then (I had just gotten home from work) yelled out “now you’re not eating it anymore at all next time listen to what I say!!!”. (That was the only time in two weeks I had to even do something like that btw.). She took it like a champ and was perfectly nice to me the rest of the night and acted like nothing had happened at all. And later gave me a big hug good night. No damage done whatsoever. The kids like the certainty. They like knowledge of the pecking order. That will help them much more than it would ever hurt them (if at all many people were raised with strict values, including me).Trump would be good at setting boundaries as well with people. That wild card is often what keeps people in line, along with a great deal of predictability as well.That said, not everyone can pull off what I do with kids and not every politician could do what Trump does by trying to be Trump. Let’s face it not everyone is a leading man and commands a certain presence.

          6. sigmaalgebra

            You do realize, of course, that there are two sides to that coin, yes, with pros and cons on both sides: On one side, have her do the right thing so that she will please Daddy. On the other side, have her do the right thing because she is being careful to be good to herself and understands that she risks some disease, in winter, colds or flu, if she eats with her fingers before washing her hands.Or, for two decades just pleasing Daddy, school teachers, etc. without understanding can lead to putting a pizza in a pizza box in a hot oven to try to warm the pizza. But pleasing just self and ignoring others can also cause problems. Yes, experience is the great teacher, and some will learn from no other, but the “full tuition” can be darned high.E.g., good first-cut rule: The main way to get a cold, flu, or some other infections is to bring the infection in on hands from being outside in public and then, without washing hands, eat food with fingers or touch face or eyes. Simple fact. So, when come in from outside, in public places, first wash hands.

          7. LE

            Ah! Pizza in a box – you remembered the story!My mom was big on washing hands. Why? See was raised in the day when there was no easy fix (like there is today) when you got sick (is my guess and the way I tell it).

          8. sigmaalgebra

            For colds and flu, and some more, there is still no easy fix today. Soap and water remain miracle cures in the sense that an ounce of prevention is worth a pound of cure.Or, for most colds, can get lots of bed rest, take aspirin, drink orange juice, eat lots of mom’s home made, organic chicken soup, get lots of TLC, and get well in 14 days. Otherwise it takes 2 weeks.

          9. sigmaalgebra

            Nice summary. It’s taking a lot of people a long time to come to that understanding.But I do wonder: Of those apparently many Wisconsin evangelical preachers who, on just the last two Sundays or so before the voting, came out strongly for Creepy, was there a recent, anomalous spike up in the proceeds from their offering plates?I also wonder: Is this boom time for political flacks and Holiday for Pundits who write specious logic with distorted quotes criticizing DT? E.g., mostly as a joke he asks some people at a rally to raise their hands and promise to vote for him, and the flacks and pundits rush off and say that the hands were a Nazi salute and that DT is another Hitler. Nazi salute, you mean, the way I was taught in the first grade to raise my hand before asking a question? DT is another Hitler? You mean, the Grand Marshall of the NYC Israeli Day Parade, or whatever it was called, and with his cherished first daughter converting to Judaism and marrying Jewish Kushner? There’s got to be a lot of money floating around for flacks and pundits spouting such nonsense.E.g., essentially from Chris Matthews,Q. If abortion is illegal and there is an abortion, who gets punished, the doctor or the woman?A.No, don’t answer that question. Why? Because in the mainstream media (MSM) and their insatiable appetite for headlines to grab eyeballs for attention, except for the MSM favorites, any statement such as “If X then Y” is reported just as Y. E.g., if global warming melts all the ice caps that the sea levels rise 10 feet, then much of Florida will become an island. True. But also true is that there’s essentially no chance the ice caps will melt because the ice core evidence is rock solid that the caps haven’t melted in over 500,000 years and lasted through climate much warmer than now. But the MSM likes to say “Global warming to Cause Florida to Become an Island!”. Or, if there are gigantic flocks of flying pigs, so large they block out the sun for days, then we will have a huge environmental disaster. True. Trivial and really just nonsense but, logically, true. So, the MSM would report “Giant Flocks of Flying Pigs to Ruin Life on Earth”. In math, if x is in the empty set, then x is a gigantic flock of flying pigs — perfectly true. But the MSM wants to omit the hypotheses and report only the absurd conclusion. “Disgusting” MSM.In the DT interview with Chris Matthews, it appeared that DT was exhausted — given four or so rallies a day on more than one state can do that to someone. But the statement, quickly, at the Trump Web site was very nicely done. And, on the hypothesis, DT was clear — it’s settle law and won’t change, or some such.That’s an old GOPe scam: Keep screaming about the 40+ year old Roe v Wade decision. And keep screaming about Planned Parenthood. Thus, totally scare the heck out of a lot of women. Dumb, but it’s been standard GOP campaign tactics for years. Supposedly this year Priebus tried to stop it, but Matthews dragged it out again, that is, wanted to scare women that the GOP was back to outlawing abortion and for each abortion would punish someone.So, it’s easy: DT claims he is “pro life”. Sure, no way does he want Melania or one of his daughters to have one of those awful, ugly medical procedures, not even in the best such clinic in the world. But he also is not trying to change the existing law; that is, he is not trying to overturn Roe v Wade and make all abortions illegal.Then just before the voting in Utah, where Creepy won big, there was sudden, high interest in an old GQ cover photo of Melania, from a famous photographer, when she was a model. Right, Creepy had nothing to do with that, didn’t know about that, had no way to stop that, etc. And Creepy still believes in the Tooth Fairy, right?And reporting that Cory was “arrested” for the accusation of arm squeezing? He wasn’t “arrested” — instead, he just got an official notice to appear. And that video evidence of arm squeezing? All the video I could find had the woman between (A) Cory and her arm and (B) the camera — there was no way to see what if anything Cory did to her arm. BS evidence. And the woman seriously changed her story, e.g., quit saying that she was almost knocked down or some such, once the video evidence became available. Right away she lost her job, but I have to wonder if maybe she gained a nice offshore bank account?Even if do have a vocabulary, might still be able to “smell” well enough to conclude that this Creepy stuff fails the sniff test.Looks like the GOPe is reacting in the standard way, that is, as in the movie Moneyball, “going batshit crazy”:… the first guy through the wall, he always gets bloody. Always. This is threatening not just a way of doing business, but in their minds, it’s threatening the game. Really, what it’s threatening is their livelihood, their jobs. It’s threatening the way that they do things. Every time that happens, whether it’s a government, a way of doing business, whatever it is, the people who are holding the reins, they have their hands on the switch, they go batshit crazy.It’s a democracy, folks, and in part that means we get the government we vote for. If people want to let nonsense about a GQ cover story and Roe v Wade get them to vote to let NAFTA and the TPP take their jobs, they can.I need to check my arithmetic again, but my guess now is that it is still the case that in November the GOPe and the Dems will be sitting on their asses on their sofas watching DT win the Presidency.

        2. JLM

          .Huntsman continues to be the most knowledgeable man in the US on the governance of China. Speaks Mandarin.I once listened to him lecture (with Newt Gingrich) on how China was ruled and how the succession plan would be implemented. Brilliant.He never had the fire in his belly to really run for President.JLMwww.themusingsofthebigredca…

  12. Rob Underwood

    I love it that Richie made your blog. The dude talks non-stop and yet it isn’t annoying. I also like his theory on seeing the Nets through 30 point losses — “We’re paying our dues now for years down the road when the good times come. Gotta bide your time.”

    1. pointsnfigures

      Unless you are similar to the Cubs.

      1. Dan Moore

        If you are like the Cubs, then you just have a longer time horizon. Much longer.

        1. pointsnfigures

          This is our year…… : )

      2. Rob Underwood

        Richie doesn’t keep his teams a secret. They are the Giants, Yankees, Rangers, and Nets. So he’s doing ok.

    2. fredwilson

      My favorite is actually “that cannot happen!”

  13. Matt Zagaja

    I just wish I could convince my friends in politics of this. Hell hath no fury like a mob of taxpayers complaining about a failed project so many are relegated to hitting singles and celebrating them like home runs.

    1. Tyler

      Problem I think here is it’s all about the end results. No one cares about the process and sound decision making behind something that has failed.The San Antonio Spurs are a great example (full discloser, I’m a homer). They only talk about the process, not the end result. In the long run, variance/luck smooths out and the orgs that make the most sound decisions at each opportunity generally rise to the top.

  14. Jenna Abdou

    Thank you so much for this post, Fred. It is really helpful.

  15. Mike Zamansky

    Welcome back to the east coast Fred. I can now resume my morning routine of morning Coffee and avc.com.Love everything about this post.So many people fail to acknowledge mistakes and learn from them. It’s worse with kids these days who are conditioned to fear failure and as a result fear risks.On those losses, you said:”I am not proud of those mistakes. They were stupid. I am ashamed of them to be honest.”Were those mistakes all “stupid” in that given where you were in your life at the time, you could have done things differently but didn’t? Were there “mistakes” that were inevitable and circumstances just weren’t on your side?I’d love to hear more.

    1. LE

      I will venture a guess here. Even if it’s not what he did (how do I know?) it’s definitely what I’ve seen others do. He took risks because he was following the advice or examples of those that had pissed with the big dogs and were still alive to tell about it. Or had observed what others had done with their good bets (look at the hero worship for people like Bezos or Musk as only one example).He says:Then one day, someone told me “then you are not taking enough risk.”That combined with not having the pattern matching and experience to make a better bet is most likely what led to the losses. It’s like seeing now that real estate in NYC is going up and up and thinking “I have to get in on this game” but not having the knowledge and experience to really make the right bets and not having any particular edge in the game (like a broker that you are already working with that gives you first dibs on hot deals).So many people fail to acknowledge mistakes and learn from them. It’s worse with kids these days who are conditioned to fear failure and as a result fear risks.Kids are in a unique position to take risks because they are young and typically have less to lose and have time on their side. Otoh they have no experience in judging the risks they are taking. Having someone to guide them is super important. Otoh that person will be biased by their experience and how things worked out for them.

  16. Tom Labus

    WOW. What a post, right up there as all time great. NYC air?In baseball you go 3 for 10, you’re going to the Hall.This should be read by everyone in the investing community.

    1. pointsnfigures

      Investing too. As long as you let your winners ride.

  17. Paul M

    Poker players learn these lessons early or they go broke. It’s not about winning the most pots, it’s about winning the most money. The sunk cost fallacy comes into play as well: the money in the middle of the table does not belong to you, only your chips in front of you do. If your hand is beat, it doesn’t matter how much promise it held at the start of the hand: stop putting money in the middle!

    1. Tyler

      At least for me, the only way I learned these lessons was to go broke unfortunately!

  18. Nathan Guo

    This is why bankroll management is so important in poker. No matter how good of a player you are, you will go bankrupt if you are playing with too much of your bankroll, because variance is high and reversion to the mean takes tens to hundreds of thousands of hands.Another corollary here is the follow-on bet: In poker, each successive street you bet on, the turn and the river, tend to exponentially increase the size of the pot and the size of investment necessary to win the pot. Many amateur poker players at this point can figure out the basic preflop rules of the game, but because they’ve seen substantially fewer post-flop decision points, they have insufficient skill to make decisions later in the hand where the decision is exponentially larger and more important. Professional poker players largely prefer cash games over tournaments because they are given more opportunities to make decisions late in hands that amateurs have not had the experience making, and they can thus take advantage of those mistakes.

    1. Tyler

      Good analogy. Analyzing and managing risk is often a pretty hard concept to understand and learn. Poker is a great game in that it illustrates these ideas in fairly concrete ways. Unfortunately, the only true way to learn is to fail (or go broke in poker) as Fred writes.Internet poker please come back…..sigh

    2. fredwilson

      Vintage AVC, Nov 2004http://avc.com/2004/11/the_…

      1. Nathan Guo

        I went even more in-depth on this comparison recently, albeit with much more experience on the poker side and less on the VC side!http://nathanguo.com/2015/1

  19. Heinz R

    Failure is endemic to venture capital investing. So, “loving your losers” and spending more time with them to evaluate their prospects early on hits the nail on the head – classic ‘escalation of commitment’ issue – many projects provide little to no return so that accurately evaluating prospects and terminating unsuccessful engagements in time has big influence on overall performance, not only in VC but in all areas of life with staged decisions.Interesting research available on psychological drivers for becoming ‘locked in to a course of action’ as well as suitable countermeasures to avoid persisting beyond an economically rational point, also with VC focus.

  20. LissIsMore

    I have always learned more from my mistakes than my successes.

  21. laurie kalmanson

    this is awesome — when you start from a place where everyone is smart, there’s so much extra value in being decent.i was at startups that succeeded, that got bought, and that failed; at a turnaround startup that ultimately didn’t make it, the ceo got on the phone and told the investors to pull the plug while there was still cash on hand to give the staff a graceful exit, or he would walk … and the company and the people that sprang from its ashes are still friends and colleagues today

    1. Girish Mehta

      Thats a great example !

    2. Donna Brewington White

      Would love to know what eventually happened to that CEO.

      1. laurie kalmanson

        Restarted his previous thing and hugely successful

    3. Twain Twain

      Great CEO who put people before pride.

      1. laurie kalmanson

        Make no mistake, pride was part of it, but the right kind of pride: looking the people who came to work for him every day in the eye and everyone knowing he did the right thing. It was obvious that the company was not going to make it; revenue model, technical issues, etc. He demanded that there be an ending with decent severance for staff, and that happened.

        1. Twain Twain

          Wrong type of pride would have been to take people down with him on sinking ship. Instead he put them into a sturdy lifeboat that landed on shore.Other wrong type of pride is when potentates bury people live to keep them company in after-life.Right pride of doing decent thing by others before personal vainglory is rare in CEOs.

          1. laurie kalmanson

            yes, exactly.watching via hulu the 51 part “empress ki,” a korean historical drama that is like a mashup of king lear, romeo and juliet, three rock albums, and secret ninja warriors on top of what the reviews say is a significant amount of korean / chinese imperial history, and there are many similar and significant lessons therein — the empress who is vain and silly and throws away her power in silly pouting and tantrums; the regent who manipulates the kingdom from behind the throne but mistakes his temporary power for the real thing; the main character who falls down and gets up twice as strong, etc. magnificent. with subtitles.

          2. Anne Libby

            That sounds amazing.

          3. laurie kalmanson

            HIGHLY RECOMMENDED. amazing costume drama. great acting. lavish sets. first k-drama i’ve watched; now i want to see them all. hulu has them. had a chat with my kid, about why this is on offer; ran thru scenarios of, if you were looking for content to stream on your platform and netflix had gotten there ahead of you, where would you go?

  22. Sebastian Gonzalez

    Love your transparency. Thanks.

  23. Nikhil Krishnan

    When you talk about shutting down the losers when you realize it’s a lost investment, does it take a lot of convincing those entrepreneurs that it’s a lost cause? How mutual is that belief?

  24. Julien

    Your post reminded me of this saying: “If you look for money, ask for advice. If you look for advice, ask for money”.Would you say that these investments who are not doing so well and ask for more money are actually in need for advice, while these company who do perform well, and who may ask for advice do actually need more money?

  25. JimHirshfield

    “ashamed” is the one word in this lengthy post that sticks out to me.And it’s got me thinking that I’m more ashamed of the things I didn’t do in life than the things I did do that went wrong. Despite what everyone says, there are regrets, but you have to move on. There should be no shame in doing what you’ve done that’s gotten you to where you are now…those “bad” investments were part of what made you ready to make the good investments. Nothing shameful in that.

    1. LE

      To what extent did the influence of your parents play a role in all of this? My guess is that it was a big factor.

      1. JimHirshfield

        This isn’t the therapist’s couch. Just a comment thread. 😉

        1. LE

          I’ll take that as a yes.

    2. Twain Twain

      I’m with you on the “more ashamed of the things I didn’t do in life than the things I did that went wrong.”In my case, there were things that went wrong: personal relationships, business deals etc. it happens, you get depressed for all of 2 minutes and rage about the unfairness of the world, and then you pick yourself up because the next random person you meet restores your hopes that life isn’t so bad, after all.However, the thing I didn’t do (yet) is have kids and I’m pretty sure that I will be more ashamed of not doing that than losing $$$ on business deals.

      1. LE

        However, the thing I didn’t do (yet) is have kids and I’m pretty sure that I will be more ashamed of not doing thatDon’t beat yourself up over that. Not everyone’s kids turn out to be joys in their lives. I know it seems like a grass is greener for everyone with kids but that is not the case. I think it’s almost a case of envy of something you don’t have whereby people who have kids in many cases just take them for granted. I have two really great kids that are doing well, healthy, no problems all of that. But to be honest it’s not like I wake up every morning and think “wow I am so lucky”. I still have the same other issues to think about with respect to what I need and what I want, kids are just not one of them. [1]If you were the type of person who really wanted kids guess what? You would have spent your life differently to this point. So don’t beat yourself up over that point.[1] No more than I think my kids wake up each morning and think “wow my Dad is great. I have a great Dad I am lucky” (and if I had died young they’d be thinking how messed up their life was because I wasn’t there for them).

        1. Twain Twain

          For sure, in my 20s, whenever I saw stressed out women stressed with screaming babies whose conversations revolved around nappy rash and the best way to sterilize equipment, my thoughts were, “After expensive education, this is what women’s intelligence gets reduced to?!”Now, though, in my work in AI I appreciate a lot more how mothers are training babies’ brains with language, emotions, values, behaviors and other cultural cues to make us intelligent.I credit my mother a lot for keeping me on good paths throughout my life and being that constant sounding board — even when it can be thankless and patience-trying for her, haha.

    3. fredwilson

      We got drunk on easy success in the late 90s and started throwing around money without really thinking. I am ashamed of that.

      1. Girish Mehta

        Some of the best startups emerge after tough times. Very different times there between the late ’90s and your best fund, the 2004 vintage . One was after a couple of years of the economy firing on all cylinders in the 90s, and the other was after the very difficult early-2000’s period.

      2. Twain Twain

        Everything’s relative. Compare $25 mln to “Evercore puts Google X’s operating loss at $909 million and its revenue at $10 million this year.”* http://blogs.wsj.com/digits…Google’s definition of “pre-revenue” and adding good/bad money to stem losses is also different:* http://recode.net/2016/02/0

    4. Mark Chin

      Shame is a negative emotion with a positive effect. It made me a better investor. It made Fred a great investor. If you take a stand on anything, you will make mistakes. Shame will either force you to never take a stand again, or it will force you to learn from your mistakes and try again. The worst investors I’ve met in my 20 years in public markets are people with no shame. Never learns and never shy to make the same unforced errors again and again. Being ashamed of one’s mistakes is a sign of self-reflection and humility. Be ashamed. It’s good for you, especially if you’re still young. Acquiring shame later in life is trickier…

      1. PhilipSugar

        This is a good point. I have met those that have no shame, they lose money and just don’t care.

  26. pointsnfigures

    Thanks for being so honest. I have lost so much money in my day I don’t want to begin to count it. Depressing and painful. When I lose money investing in startups, I generally don’t focus on the startup itself-but I focus really hard on the diligence I performed, on my attitude toward the investment prior to making it. What did I do wrong? Sure, startups make mistakes, they make unforced errors. Sometimes their hypothesis is incorrect. But, what about my process in evaluating them could be better-because when I focus on that I also think of ways to try and help the startup figure out how to execute better.Just like the guy that misses that jumpshot. Most of the time it’s on them. But, some of the time it’s a really good defender and there isn’t a thing you can do about it. I have missed a lot of jump shots in my day too. By the way, nothing is more embarrassing that stealing the ball going in for a break away slam and then ramming the ball off the back of the rim and have it sail out to half court. Been there done that too.

  27. DJL

    Given the tendency of VCs to lose money, first-time fundraisers wonder why it is still so difficult to get them to part with it! It seems that even teams who have LOST are often funded again for different ventures or pivots – as long as they are known by the VC. The entrepreneur is thinking “certainly, I can do better than that!”There seems to be some magic failure rate that happens no matter how much experience, due-diligence and thought is applied to each investment. It will be interesting to see if the phenomenon of accelerator -> Seed -> VC makes the numbers any better. It seems doubtful. It is still a game of strikeouts and home runs.

  28. Nidhi Mevada

    There is less possibility of losing money, if investor has domain expertise/ thesis and type of relations with entrepreneur. It works as team, whatever happen they figure out way.

  29. Simone Brunozzi

    Any mis-management that you have witnessed? Without naming names, that would be a great next post.When you invest, you generally assume that all founders will behave honestly, and/or that will invest money wise. Then you discover that some of them have been dishonest, and/or they have managed their (your) money very poorly, sometimes recklessly.I would be curious to hear your thoughts about it, and suggestions on what to do in these cases.

  30. LE

    I remember back in the mid 90s, I used to say with some pride that I had not lost money on any of my VC investments. Then one day, someone told me “then you are not taking enough risk.”Incredible how true this is. I think about this with respect to my father and the risks that he didn’t take (and some that he did). He would fight with my mother (and had to hide things from her) with respect to what he was able to do. Since she went through part of the depression she didn’t want any risk at all. Zero. Zilch. Since he came here with nothing he would take more risks. In the end he wasn’t able to do that much, but otoh he did well enough to provide a decent middle class life for us. And my mom is able to live nicely with what he left her. Not the same for others that I grew up with. What’s funny is that the gambles that he did take were with real estate in the 70’s. That floated every boat. So literally everything worked out for him pretty well. As such he constantly pushed me to do the same thing not recognizing that things were different than back then (plus survivorship bias). (He bought primarilyin what would become a hot neighborhood primarily (Old City Philly)) as well as another area in Miami Beach. Both were crap at the time and no way to predict what would happen going forward. (At the same time he bought something small in Atlantic City that still hasn’t paid off. (It was cheap and next to a casino..)

    1. Richard

      It is with this lesson alone why our school system is such a joke. Is there a single curriculum in the country that teaches kids about risk.

      1. LE

        Ditto for teaching them about relationships. All that time spent on things that don’t matter as much. Stupid memorization of facts and figures not needed instead of survival skills in the modern world. It’s laughable what I see my stepkids having to learn and get tested on. They could be building skills by at least memorizing more relevant facts or information.Back when the education system was started the man was king of the castle and divorce was rare (if just for survival purposes). As such the pecking order tended to be more well established and women “knew their place” (notice that I put that in quotes).

        1. Richard

          With people living longer, there is another set of skills that people need: on living living the last 35 years of ones life. The system we have in place (as measured by the declines developed nations slowing productivity) is abysmal.

  31. creative group

    FRED & BLOG CONTRIBUTORS:if you accept the advice that you need to lose money to learn a lesson or become a better investor we will pitch you on us being a better custodian of your discretionary spending (Which it is if you expect to not receive a viable return) than you. Day trading in the early nineties taught us the objective of any investment is to realize a profit. Losing your backside in anything is not a lesson in investing.

  32. Seth Godin

    A fabulous post, Fred.And for anyone look for metaphors, there are plenty here. It actually isn’t a post about the VC business, it’s a post about life in our modern world.

    1. Twain Twain

      For life in our modern world, also read Albert Wenger being interviewed by Dave Pinsen, a AVC regular, on Seeking Alpha:* http://seekingalpha.com/art

    2. fredwilson

      You brighten my day when you show up here occasionally Seth. And you are so right

  33. Brian Lund

    What I find fascinating about this post is that it could just as easily be about trading/investing in the stock market. Letting your winners run, cutting your losers fast, and understanding that by doing so, you can be (overall) profitable even with more losers than winners.But another important factor in trading is you initial position sizing, not in terms of shares, but money. Using a fixed risk amount, in only the best opportunities, is key. In the market you can identify the best opportunities in an objective way by using tools like technical analysis.I wonder how you determine initial investment sizing in your funds Fred? Is is a fixed amount among each startup or does it vary? And if it does, what criteria do you use to determine that one investment gets more of the fund’s capital than another?-B

  34. LE

    Ironically, another key to managing your losses is to spend more time with them, not less. By spending more time with them you can develop clarity about the investment, whether it will work or not, and you can get the founders and other investors to see the light early and not waste more of their time and/or money on it. I am a big believer in “loving your losers” in the sense that you should not orphan them and you should work hard to get to the right outcome. Enabling them with good money after bad is not loving them.I’ve always wondered about this with VC money. Meaning how involved can you get in an investment when there are others sitting aside doing nothing (and so your extra work is deleveraged).Edit:To my point if you were the sole (or majority) investor then it would make sense for USV to employ a full time team of many people whose job it is to just to help your investments in any way possible to insure success. [1][1] I believe Mark Cuban does this with his investments as only one example that comes to mind.

  35. BillMcNeely

    Of 230 Baseball Hall of Famers only 82 had a batting average above .300 so you are twice as good https://answers.yahoo.com/q

  36. Eddie Wharton

    As is the case for most of your advice, this can be applied to all people, not just VCs. Taking risks is essential to learning. Making mistakes is essential to taking risks. Minimizing the damage of mistakes is essential to surviving. Treating people with dignity & respect is essential to having positive relationships.

  37. Elia Freedman

    Posts like this are why people like me would love to have investment from you.

  38. george

    The basketball analogy is really perfect and defines a winners philosophy. Clear judgment is critical, when the fatal trap is to fall in love with your own portfolio picks and hang on for far too long (mounting losses). I’ve been there emotionally (my genetic code) and it’s really hard to yield to failure. Still trying to embrace this process, learn and realize, sometimes, wisdom is the ROI.

  39. Gustavo Barbeito Lacerda

    I could not agree more with it all regarding the moral/ethical matters and also managerialstrategy. But I would just make one point regarding the math of the returns andthe nature of your game (which you know a lot more than I do): Mathematically, opposed to the Loser´s game that is Value investment (Buffett, low beta bets, avoiding bad bets, etc), VC is a Winner´s game. The 5 best investments mentioned by you represent mostor all of the fund´s return. The risk of trying to avoid or cutting short thelosers might be losing big winners. As I understand (and if I can remember itright, I read it here), Slack was created after a loser bet in gaming. Thepoint is that I would say that maybe poses the biggest challenge for a huge success VCas yours would be to constantly try to endure the high stakes at game (as opposedto improving the losing bets).

  40. cavepainting

    The operative words in the post are “with dignity for everyone”Sadly, too many investors cut and run at the earliest sign of distress.1. Getting clarity on a venture is not just understanding the status quo, but also calls for seeing around the bend and connecting the dots to see the possibility of what something can or cannot be. This means spending consistent quality time with the company and trying to understand the true market opportunity or dynamics. Getting to the truth of what ails a business – market, team or product – is art. But.. the truth is powerful and makes it easier for everyone to take decisions and live with the consequences.2. Dignity for everyone means a good faith attempt to find a home for the business and its people, and taking care to be fair to the different stakeholders. It is unreasonable to invest good money after bad, but it is not reasonable to flee and take no responsibility for what happens.Just as in life, it is in investing. How we treat the ones who struggle and need help defines us as much as the ones we make our money with.

  41. JF

    Really enjoyed this honest assessment from someone who has been quite successful over many years. I have a saying I try to live by: “Never let your ego get in the way of your success.” It’s not always easy to do, especially in the start-up world, but it has served me fairly well over the years. A little humility goes a long way.

  42. Zahid Lilani

    Wow, there are many lessons here and not just in VC but stocks and small business investing. As long as you know and understand the downside, risk is manageable and loss is predictable.

  43. sigmaalgebra

    When I look at a VC to work with, recommend to LPs, or very rarely, invite into our partnership at USV, I look for someone who has made their share of mistakesGee, let me apply! Sign me up, right away! I’m rock solidly SURE I can figure out how to do THAT one! I will admit that I don’t have the most such experience, but, still, again, I’m SURE I can be successful, really, as successful as you like. “Swing for the fences”? “Shoot for the moon”? Naw, kid’s stuff, small potatoes. Trust me! For this goal, I can reliably deliver astronomical levels of performance! “Mistakes”? No problemo!

  44. Paul Sanwald

    This rings so true for me for a bunch of reasons. I’ve been interviewing software architects for my last job and the most important stuff to me is what architectural mistakes they made, what they learned from them, and how they fixed them. It’s so rare to get a really good answer but so awesome when I do.I used to play a lot of poker and to be successful you have to quickly condition yourself to separate the outcome of a decision from the expected value of that decision. You make money at poker by making +EV decisions, so you can’t be sweating the outcome if the decision was in fact +EV.

  45. Douglas Crets

    I don’t know if Fred invested in this company, probably not, but the two co-founders of SoulCycle just resigned, each taking a US$90 mil payout according to a Fortune Asia video I just heard. I am just wondering, is that a sign that maybe they couldn’t make the IPO work in this environment, cut their losses and leave with their golden parachutes strapped to their backs?

  46. Patrick Lui

    Good to know those win/loss ratio from the best VC! Thanks for sharing, Fred!

  47. Rajiv Sarman Shukla

    We are seeing the rise of robo algorithms in navigation, stock markets, medical services, law…what is the future of experts and expertise?https://www.linkedin.com/pu

  48. Thomas Schranz

    Do you have unexpected turnarounds in your portfolio? Something you wrote off that turned out to be a really good investment? Can you think of some in other portfolios? Slack/TimySpeck?

  49. Gudjon Mar Gudjonsson

    Great post.The title should rather be #Winning Money 😉

  50. Jonas

    It is possible (but not probable) to take on the risk required to effect massive change (read: returns) and maintain a perfect (or near perfect) batting average. Willingness to fail does not mean one will fail. Fear (of failure) is the mind (and return) killer.

  51. PhilipSugar

    “Enabling them with good money after bad is not loving them.” This seems like a major shift. Not saying that is wrong. But I remember you saying you haven’t turned down follow ons. Coached against them but didn’t turn them down. Sounds like that has changed.

  52. Jack Smith

    Great post Fred – apologies if you’ve already clarified previously; but a quick question to expand on your portfolio composition:does USV ever do smaller “supporting” investments, or do you allocate a pretty much equal amount of money for the first check into every company?

  53. DonRyan

    Fantastic post Fred. Never trust the guy who wins every time. That’s a Madoff. Your honesty and candor are refreshing.

  54. John

    Did you ever have times where you thought the company was a write off and they came back from the “dead”? Would love to hear your thoughts on the “mostly dead” (Thanks Princess Bride) and the truly dead companies and if intuition was wrong on some companies.

  55. JLM

    .I think the common denominator is they get mad and channel that anger into action. Courage is not the absence of fear, it is the ability to continue to function in the face of fearful conditions.JLMwww.themusingsofthebigredca…