Roulette

When it comes to generating elite venture capital returns, how many deals is the right number for a given fund? Is it better to make more small bets, or concentrate your wood behind just a few well-placed arrows? Of course all firms would take as many shots as possible if they knew they were betting only on unicorns, or 100X-ers, or pick your favorite euphemism for outlier successes. But assuming normal statistics hold, and only a few deals out of a portfolio generate the vast majority of fund returns, where’s the sweet spot in terms of investment volume?

I ask, because CB Insights released its 10-year league tables report, outlining the most active VC firms over the last decade. There are some interesting observations to be made, in terms of how things have changed since the tail end of the dot-com bubble. Some firms featured in the report’s early years, like Draper Fisher Jurvetson (DFJ) and Polaris Partners, are nowhere to be found of late, while some new names like 500 Startups, Andreessen Horowitz* (A16Z), and Google Ventures have emerged in the latter half of the decade. The mainstay throughout, appearing in the Top 3 in investing activity every year since 2014, is New Enterprise Associates (NEA).

But given the varying levels of success of each firm highlighted, it’s difficult to ascertain any sort of strategical best practice from the data. First, not all investments are created equal. That is to say, a small seed check and a large, late-stage bet mean very different things in terms of a firm’s commitment to a deal and that deal’s ultimate impact on fund returns. At the same time, a relatively small fund like SV Angel or 500 Startups making several dozen bets per fund means something different than a giant, billion-dollar-plus fund like A16Z or NEA.

It should come as no surprise that 500 Startups has featured prominently on these lists since its founding in 2010. As the name suggests, this is a volume shop, by design. And while the firm does, occasionally make larger bets, the majority of its checks are of the sub-$250,000 seed variety that don’t require board seats or much post-investment heavy lifting. The firm has yet to back a runaway winner, or, to my knowledge, even a company that’s gone public – although it’s still early – but the strategy has yielded some solid nine-figure winners like MakerBot, Wildfire Interactive, Viki, and Behance.

By contrast, a check from a multi-stage firm like A16Z, NEA, or their similarly featured heavyweights Sequoia Capital, and Kleiner Perkins Caufield Byers – although the latter has stumbled of late – often comes later in a company’s life and as a result carries more weight. These firms dedicate tremendous resources toward ongoing support of their portfolio companies, including in areas like hiring, marketing, business development, board participation, and future fundraising. For any of these firms to feature so highly on the venture activity list is a feat of operational excellence in and of itself.

A16Z, Kleiner, and Sequoia would all be listed among the top handful of venture firms in the world by any account. Interestingly, however, other firms that deserve mention in that list like Benchmark, Accel, and Greylock, are nowhere to be found among the most prolific investors. It just goes to show that there’s more than one way to skin the VC apple.

With the lifespan of individual venture funds clocking in at close to a decade, it’s still too early to render a verdict on how being among the most active investors worked out for those highlighted by CB Insights’ report. It would be useful to see corresponding data on what percentage of a given firm’s deals go bust and what percentage return capital. But as the sports cliche’ goes, you miss 100 percent of the shots you never take. Like Kobe Bryant in the heart of his career, it seems it was rare that the above firms saw a shot they didn’t like.

*Disclosure: Andreessen Horowitz partners Marc Andreessen, Jeff Jordan, and Chris Dixon are investors in Pando.