[solatic]

> It's more of a gambler's approach.

Wrong. The cultural difference comes from differing appetites for risk. VC's aren't gambling on their portfolio companies, they expect each and every one of them to turn into rocket ships. If there's no potential to become a rocketship, they don't invest, simple as that. Stupid ideas don't get investment.

That VCs understand that it is highly unlikely that each portfolio company will actually become a rocketship, just means that they appreciate that each investment in the portfolio carries high amounts of risk. Europe doesn't have the same appetite for risk.

[michaelt]

Well, the line between a risky investment and a stupid investment isn't always obvious.

If my business plan is to make wifi-enabled juicing machines that cost $400 and only work on proprietary, DRMed packets I sell at a huge margin - great investment? Or stupid investment?

If my business plan is to make a $2,000 stationary bicycle, when most competing products cost <$400 - and it'll come with a subscription, but only people who've paid $$$$ upfront will be able to subscribe - great investment? Or stupid investment?

If I'm going to take out long cheap leases on office space, spruce them up a bit and sell short expensive leases? And some of the long leases will actually be from the CEO who personally owns some office buildings - great investment? Or stupid investment?

What if I run a website that lets strangers talk to each other, and I have a lot of users, barely any revenue, decades of losses, and I have no plan to make a profit. The users hate ads. Great investment? Or stupid investment?

It turns out some investments that seem dumb have worked out much better than I would have expected. Others not so much...

[solatic]

It seems to me like you're letting personal bias get in the way.

> Juicero

Huge margin, going for rich, health conscious consumers - great investment on paper. Shitty due diligence by investors who thought they could grade the investment by the numbers and not by the actual hardware, juice bags, etc.

> Peloton

Taking a commoditized product and differentiating with a premium offering offering high margins is literally a phenomenal investment, if you can find a market for the premium offering and can build a moat. Pharmaceutical companies do this all the time with drugs that are about to lose patent protection, put in a little tweak, get the patent moat back, market the hell out of it to get doctors to prescribe it instead of the suddenly cheap generic version.

> WeWork

You literally described a way to buy low and sell high, taking advantage of latent inefficiency in the market due to misaligned incentives on the part of real estate owners vs. short-term tenants. Basically run hotels but for entrepreneurs instead of tourists. Sounds like a pretty phenomenal investment to me! Too bad the CEO was unstable and let valuations run out of control.

> Social media

Facebook specifically actually was a pretty stupid investment. FB didn't just have a ton of users who hated ads, it had a CEO who foreswore ever deploying advertising, whose board structure kept him from ever getting fired. Pretty sure early FB investors are thankful that some business sense was knocked into Zuck before they went bankrupt.

Twitter, on the other hand, was a far better investment. If you can get strangers to talk to each other, you can get people to talk to brands. Of course that's valuable.

[raffraffraff]

I can't say I agree with either of you 100%. For example, your statement that VCs expect each and every one of their investments to turn into rocket ships? Nah. If they don't know that a % of their portfolio will fail, then they're idiots. Also, FOMO. Any time there's a new hot technology, VCs soil themselves trying to get a piece of the action (AI, I'm looking at you). So they end up investing in start-ups that probably won't succeed (BUT IF THEY DO, RIGHT???)

I definitely agree that it's all about appetite for risk. I'm not sure you disagree with each other fundamentally, you're just watching from different sides and wording it accordingly. Some people buy stocks for long term investment, some people short sell, and some bet their house on a hand of poker. I'm sure they would have a bar fight if you got them talking about risk appetite.

[halgir]

> If they don't know that a % of their portfolio will fail, then they're idiots.

Yes, but they don't know which ones. What the commenter meant is that the VC believes each and every one of their investments has the potential to become a rocketship. So they spread the risk into several potential rocketships and hope for one of them to not crash.

[xdennis]

> they expect each and every one of them to turn into rocket ships

> it is highly unlikely that each portfolio company will actually become a rocketship

You're just rebranding gambling as "taking risk". Every gambler expects his next hand to be a royal flush, while understanding that it's unlikely.

[d1sxeyes]

I'm not sure that's true.

Gamblers often have various reasons for continuing to gamble, but very few of them EXPECT their next hand to be a royal flush. For most of them it is exactly the case that 'if I keep going, eventually I will get a big win that offsets my losses'.

That I suppose is a type of taking risk, but I think OP was not being quite as blunt.

In a situation where you have 10 companies each with a 1/10 chance of 20x growth (and a possibility for better) or 1000 companies, each with 1/1000 chance of 5000x growth, which would you pick?

While theoretically, the two situations are similar, and given an infinite amount of money and investment opportunities, the second situation pays off better, the first is more likely to yield returns in the real world. Most people would probably call the first one 'taking risk' and the second 'gambling'.

[FDSGSG]

Perhaps a bit weird to talk of Europe when speaking of London, because that's where you've got all the Russian and Arab money sloshing around. It's not exactly Barcelona or Berlin.