Risk Goldilocks
One of the hardest parts of VC is knowing the “right amount” of risk to take on.
Too much, and you’re picking lottery tickets hoping to get lucky. Too little, and you’ll likely never make an investment for fear of things going South.
The reality is that most venture-backed startups fail, so in some ways the risk profile matters a lot less than the upside potential. But the reality of investing other people’s money is much more profound than that kind of YOLO mindset.
We use a rough framework to score founders across seven dimensions. A founder we were speaking with was a solid high-single-digits (of 10) score on two of the seven, a mid-single-digits score on three, and a low single-digits score on the remaining two. In other words, pretty inconclusive.
So what does that mean? Do we go ahead with the deal?
Ironically, all that quantification and rigour takes us full circle back to the starting place we were trying to avoid: it’s ultimately a gut feel call of whether you’re in the Goldilocks zone or not…