From Mathijs de Wit – Newion Investments (@mathijsdewit)
I often get this question from friends! After I tell them what kind of company I work for and what the work I do consists of. Although a 1 in 10 bet sounds pretty risky, the actual dynamics are not really risky. So my answer is always, NO.
Every time a company sends its Pitchdeck, a Venture Capitalst makes a thorough analysis of what the company does and assesses the opportunity. Most of the time the opportunity is very large and especially for optimists boiling the ocean in excel is done within minutes.
This part of the work is fun, also challenging, but especially good to get a feel for where the risky part of the business is. Now the flip side of the analysis comes into play. Assessing what can go wrong with the business and how everything that could potentially become reality is extremely difficult to realize.
This last part is why I always say NO. Assessing potential is easy, assessing risk is difficult. Assessing risk is what makes working as a Venture Capitalist extremely interesting. Getting exactly right what parts of the business are not risky anymore and making assumptions based on assumptions that only work out, because you know how to model these kind of businesses. And, when a business has parts that are not risky anymore and a business could thrive on that non-risky part. Then, full focus on the potential of the business is possible.
After all the goal of a Venture Capitalist is not to take a lot of risk, it is to make a lot of return for its investors. Hence, taking risk is not the game, but assessing it according to the philosophy of the VC you work for and getting to the essence of what could make or break a deal.
HBS November-December 1998 – Bob Zider – How Venture Capital Works // This exempt gives you an idea of how it feels to assess risk of a company