The ecosystem changes: sometimes leads are scarce; sometimes plentiful. That can't explain never, ever investing in cold contacts.
Risk can be mitigated by doing some diligence. It sounds to me like the only diligence VCs do (are capable of?) is "what does some other smart guy think?"
I'm not trying to paint VCs as incapable, but this story makes it so likely. Zero cold contacts invested in? Zero ability to evaluate leads on their own? That's pretty damning.
You're missing a third category here. "Cold contact" implies that the startup contacts them. I imagine the really-smart VCs are going out, doing research/watching the market, and cold-contacting the startups, with nobody having reached out to them first.
Warm intros have a built in safety net, too. In a downside, the credibility of the referrer helps to blunt the damage to the VC's reputation. Also, the potential upside from other deals coming through that system, which is lost or diminished by non-investment, offsets the immediate loss. These are some important political dynamics. So, as a result...its not just the "information" efficiency that is at play.
Comments
The ecosystem changes: sometimes leads are scarce; sometimes plentiful. That can't explain never, ever investing in cold contacts.
Risk can be mitigated by doing some diligence. It sounds to me like the only diligence VCs do (are capable of?) is "what does some other smart guy think?"
I'm not trying to paint VCs as incapable, but this story makes it so likely. Zero cold contacts invested in? Zero ability to evaluate leads on their own? That's pretty damning.
You're missing a third category here. "Cold contact" implies that the startup contacts them. I imagine the really-smart VCs are going out, doing research/watching the market, and cold-contacting the startups, with nobody having reached out to them first.
Warm intros have a built in safety net, too. In a downside, the credibility of the referrer helps to blunt the damage to the VC's reputation. Also, the potential upside from other deals coming through that system, which is lost or diminished by non-investment, offsets the immediate loss. These are some important political dynamics. So, as a result...its not just the "information" efficiency that is at play.