How Do Venture Capitalists Bet on Companies?

Dax Shepard says venture capitalists follow a specific bet. They invest in 70 companies, they know 65 of them are going to fail, and they know five are going to hit so big that the result is still a net win.

He uses a founder as the example. She got into Stanford, saw that a machine did not produce the results she was hoping for, and bought Siemens machines to cover the miss. She did everything to hide the failure. He does not think she believes the machine has worked. He thinks she believes it has the capacity to work, and that anything has the capacity. A man in the same story says everyone is lying about their products and claiming a product can do something it cannot do right now.

On his account she is a symptom of a broader pattern in venture capital and Silicon Valley. The fund still wins when five companies hit big enough to pay for the 65 that fail, so the industry can keep backing claims that outrun what a product can do. He does not think anyone can live, or trust other people, on a margin of five out of 70.