(Excerpt from Barking Up the Wrong Tree by Eric Barker)
Marc Andreessen spoke at Stanford, saying: . . . the venture capital business is 100 percent a game of outliers, it is extreme outliers . . . We have this concept, invest in strength versus lack of weakness. And at first that is obvious, but it’s actually fairly subtle. Which is sort of the default way to do venture capital, is to check boxes. So “really good founder, really good idea, really good products, really good initial customers. Check, check, check, check. Okay this is reasonable, I’ll put money in it.” What you find with those sort of checkbox deals, and they get done all the time, but what you find is that they often don’t have something that really makes them really remarkable and special. They don’t have an extreme strength that makes them an outlier. On the other side of that, the companies that have the really extreme strengths often have serious flaws. So one of the cautionary lessons of venture capital is, if you don’t invest on the basis of serious flaws, you don’t invest in most of the big winners. And we can go through example after example after example of that. But that would have ruled out almost all the big winners over time. So what we aspire to do is to invest in the start-ups that have a really extreme strength. Along an important dimension, that we would be willing to tolerate certain weaknesses.