How venture capitalists approach risk has lessons that apply beyond Silicon Valley, according to a new book
In their quest for the next Google, Amazon, or OpenAI, VC run headlong into uncertainty and embrace contrarianism.
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In most of the business world — and the world in general — the default setting is caution, consensus, and, above all, a low tolerance for bad bets. Venture capitalists are not wired this way. In their quest for the next Google, Amazon, or OpenAI, they run headlong into uncertainty and embrace contrarianism. They accept that failure is an option as they invest in deal after deal that never takes off.
They do this because more than 50 years of VC investments have proved that this approach works, explain Ilya Strebulaev and Alex Dangopen in new window. In their new book, The Venture Mindset: How to Make Smarter Bets and Achieve Extraordinary Growth, they identify nine principles that define this way of seeing the world. And they argue that this mentality has applications far beyond Sand Hill Road. “The farther you are away from the world of VC and Silicon Valley, and the less you think your industry is vulnerable to being affected by what is happening in the VC realm, the more you need this book,” they write.
Strebulaev, a professor of finance at Stanford Graduate School of Business, has been researching and teaching about startups and venture investing for over a decade. Dang, MS ’14, a tech executive and innovation advisor, has worked at Amazon and AWS, and as a McKinsey & Company partner. (He’s also one of Strebulaev’s former students.) They sat down with Stanford Business to discuss the venture mindset and why it’s not just for VCs chasing tech unicorns.
Q. The venture mindset is quite different from the way many people approach risk and make decisions. What makes it unique?
Ilya Strebulaev: The venture mindset works in an environment where there is a lot of uncertainty, where there are a lot of unknowns, where nobody knows the truth, and we expect a lot of changes. The traditional mindset typically works very well in a stable environment. Indeed, in the past, many industries were stable for decades before something disrupted them. Now we see industry after industry undergoing dramatic changes. The VC mindset is becoming more and more useful and likely will dominate — or should dominate — a number of industries for a while.
This piece originally appeared in Stanford Business Insights from Stanford Graduate School of Business. To receive business ideas and insights from Stanford GSB click here: (To sign up: https://www.gsb.stanford.edu/insights/about/emails)