My friend Nilesh posted that a company he passed on just raised a huge round and is a unicorn. It would have been a seed investment for Nilesh, so it’s likely he would have had a really really nice return. So nice, it would pain you to do the math.
One of the most successful investors of the modern VC era, Fred Wilson, has an anti-portfolio. USV just closed their first fund which returned 13x cash on cash or some unbelievable number like that. For the record, VCs shoot for a 3x return. In that first fund, Fred’s firm passed on Airbnb ($ABNB). They keep a box of “Obama O’s” in their office to remind them.
If you invest actively, you will have an anti-portfolio. I have two companies that I missed, Robinhood and Trading View. I could have been in the seed on both. I will keep the reasons that I didn’t private, but both would have been very nice returns for a seed investor.
The anti-portfolio hurts doubly. Not only do you lose the gain but you probably put money into another company that didn’t work out as well! Opportunity costs matter.
However, I have a bit of a quibble with an anti-portfolio. I realize that people do it to keep themselves humble. I get that. When you put a stake in the ground and tell the world you are willing to write a check to their business you find you have a lot of “friends” that are very “flattering”. Until you don’t write the check. If you are a perfectionist, it can be totally damaging to your psyche. I don’t particularly have any scars from investments I missed. I have scars from investments I put money in that didn’t work out.
I watched commodity traders do the same thing as VCs. They’d kick themselves for not buying the low or selling the high. Somehow the day was better if they did that. “I sold the stone cold high”, you’d hear them crow. I think that only happened a few times to me. I didn’t know it was happening when it happened. It just happened. It’s not like I had a chart point or something like that. I was never that precise.
If you are going to be in any part of the investment game you are going to make mistakes. You can’t be a perfectionist. You can put together a rigorous and organized way to seek, analyze and make investments. That way, if they don’t work out, or you miss, you can look to your process to find failure rather than beating yourself up over it.
There is a subtle psychological difference between the two.
My general experience viewing other investors is that there are two types. (This is a generic description, there will be lots of flavors of each.)
1) There are what I call "feel" investors. They rely on gut instinct, experience, personal exposure (interviews) with management, and the like. Often, they are social extroverts relying on what their eyes and ears tell them, what their interactions reveal, and ultimately how they feel about the prospects. E.g., read what Points and Figures wrote about Alfred Lin, who led the deal for Sequoia in FTX. https://jeffreycarter.substack.com/p/common-thread-between-madoff-ftx
2) The other type are analytic investors, as described above, who take a rigorous and organized approach to making investments, such that, if they don’t work out, the process can be evaluated to understand where the decision went askew.
These aren't exclusive and there will be overlap.
Unfortunately, hindsight is usually 20/20, so beating yourself up for fails or misses are part of the experience.
“I don’t particularly have any scars from investments I missed. I have scars from investments I put money in that didn’t work out.”
The other thing that passed-on deals don’t do is add a black-hole like time suck to address the dissolution of the investment.