Keyword for this post:
Venture Capital

Peter Rip in Newsweek magazine draws a stunning parallel between baseball and venture capital.

Author Michael Lewis chronicled the success of baseball teams such as the 2002 Oakland Athletics in his book Moneyball. The A's didn't have the funds to buy top athletes, but instead assembled a winning team through a more analytical approach. Statistical analyses included in the book found that ballclubs that simply tried to get a man on base as many times as possible won more games than teams that focused on hitting home runs.

Most investors in venture capital understand that you cannot generate an acceptable rate of return by hitting singles and doubles. What they don't appreciate is that a strikeout is far more destructive when grand slams are fewer and further between. And with fewer grand slams, time also matters. In a secular bear market, that Great Exit may take so long to occur that the drought destroys your internal rate of return.

The bottom line advice is: look to firms that sit on more solid ground, those can hit base hits more consistently. Those are the ones that will bring you returns.

It is good advice. We can only hope the venture world is smart enough to heed it.