| This essay becomes more fun -- and more useful -- if we apply OP's standards to other areas of trust and risk. For example: - Are there no absolute red flags in online dating? (Some ex-convicts with teardrop tattoos may be fully reformed.) - Are there no absolute red flags in getting into a taxi (Some angry drivers with alcohol on their breath may be capable of getting to the destination.) In such situations, the thought experiment fails. Wrong decisions can be catastrophic or fatal. Past a certain point, we don't roll the dice, even if good outcomes are possible, too. And we cringe when others knowingly take those risks. OP's argument probably works best for Y Combinator, where the financial risk per deal is small and fully bounded. (The portfolio is vast; there's no implicit commitment to fund any deal beyond $500k, and everything is so early stage that the worst investments will likely fail quietly. They won't become the reputation-ruining messes of expose journalism, indictments, etc. that will impair your ability to stay in the venture business.) For larger VC firms, particularly ones that get most of their capital from scandal-wary limited partners at universities or state retirement orgs, it's a different story. Extreme investment outcomes (good or bad) define your reputation in ways that can last for many years. Even a single deal's red-flag implosion can hurt your credibility far longer than you'd like. So, bravo to OP for working at a firm where periodic red flags can be safely ignored. Do be careful in your choice of taxi drivers or online dates. |