Puttin’ on the Hits (Part 2): The Implications of Hit Centric Investing for VC Fund Performance

In Part 1 of this post, I agreed with Jack Myers’ opinion that a hit-centric mentality continues to pervade the investment activities of many venture capitalists. This hit-centric view emphasizes the identification of a tiny number of blockbuster hits at the expense of underwriting large numbers of high-risk ventures that fail. It is a perspective that VC Peter Rip has referred to as “fund twenty, pray for two.” The view emerged gradually among a number of VCs during the bull markets of the Roaring Eighties, and became ingrained among many, if not most, early- and multi-stage VCs during the Long Boom of the 1990s. 

I believe that hit-centric venture capital is the largest elephant in the room when VCs, LPs and industry analysts ask the question: is the VC model broken?  

Outlook Increasingly Cloud-y: Salesforce Blows Out Its Numbers, But that’s Not the Big Story

I am still a little uncertain why the news didn’t cause a bigger stir in the financial press or tech blogosphere. Maybe it’s the time of year. August market doldrums, end of summer languor. But last Thursday, Salesforce.com reported that it had crushed its numbers for its Second Fiscal Quarter ending in July. And not just in terms of one or two key financial reporting items. No, the company had exceeded consensus expectations for nearly every major financial metric.