Book Review: Chaos Monkeys

Most VCs are playing a version of baseball in which the only way to score is to hit a home run when you’re at bat. They don’t care if you disgrace or impoverish yourself and strike out, and they don’t care if you get a solid line drive that lands you on second. To them, strikeouts and getting on base are equally pointless, and so they’ll push to proverbially “swing for the fences” no matter the count or the team you’re up against.

The reason for this all-or-nothing approach is how their funds are structured. VCs raise a fund, out of which they’ll provision some number of investments. Barring doubling down on the same company, which they might do if the fund still has money when a company raises again, those investments are effectively “fire and forget.” The fund’s total profit will be calculated from whatever those initial bets return. Unlike, say, a hedge fund portfolio manager, who rolls the winnings from one good bet into the next, compounding a series of returns into something truly huge, VCs do not take liquidity from one company’s exit and pour it into yet another’s. This, at heart, is why the go-big-or-go-home strategy makes the Silicon Valley world turn, and why entrepreneurs push themselves to be either the next Airbnb, or nothing. The entrepreneur who bucks this and creates a long-term business of recurring revenue but relatively slow growth is dismissed as running a mere “lifestyle business,” which is a dirty word among VCs.