As a venture capitalist, Fred believes he has this Loser’s Curse which prohibits him from being able to invest in an arena where he has previously suffered non-success. Until now, I had not pondered deeply how VC’s think about this. I blindly assumed they would be more open to similar investments later on since they already had material knowledge of the space. To wit…
In 2004 I started a company called Voxx that was in the VoIP market. Voxx had some similarities with Bill Warner’s Wildfire from way back when. Naturally, when it came time to raise money, the first people we contacted were the early Wildfire investors. I don’t know all the gory details, but I’ve been told that unlike Fred’s fantasy sports company, the Orange acquisition of Wildfire was actually a positive (albeit presumably not needle-moving) exit. But it was certainly not what the investors were hoping for.
All of the investors we contacted were happy and willing to hear us out. This list included at least two of the original GPs who led the Wildfire deals at their respective firms. Roughly half the folks we talked to gave us a polite and immediate ‘no’ after our meeting. The other half were quite engaged and invested material time in considering the deal. Ultimately, none of these guys pulled the trigger on Voxx. Zero.
I always assumed this outcome with these guys was because our business was flawed, in their opinion, in some way. The Loser’s Curse hadn’t occurred to me. Food for thought.