Venture firms systematically review missed deals to improve investing

Venture investing can tolerate a higher numerical loss rate because returns are expected to come from a few investments with asymmetric upside. The approach should not be judged by a high batting average; the key outcome is several major wins rather than avoiding every miss.

As part of continuous improvement, the firm reviews past investments, deals it passed on and competitors’ transactions. It maintains a large competitive-intelligence database and rates deals green, yellow or red based on whether it would have wanted to invest and how the outcome developed. The process is intended to identify biases and partially offset inevitable mistakes through ongoing learning.