Long tail and VC

There is one very strong similarity between the venture capital game and online content.

As industries they both conform to the ‘long tail’ principal whereby a few make money and the greater number lose money. See the plots below.

However venture capital has two such plots, one for investors and one for entrepreneurs.

One needs the intersection of successful investors and successful entrepreneurs for profits to be made.

If good investors intersect with entrepreneurs in the long tail then losses are assured.

If good entrepreneurs intersect with investors in the long tail then losses are assured.

If investors and entrepreneurs, both from their respective long tails, meet and do business then you can guess what always happens

Not surprisingly, these plots are self determining in that the good entrepreneurs will seek out the good investors and vice versa.

Both investor and entrepreneurs can only get into the ‘head’ of they are born with right stuff, are appropriately educated, and never get enmeshed with anyone in the long tail.

Those in the long tails can hope all they want but they mostly get what they deserve.