Loss Ratios In Early Stage VC (2013)

Fred Wilson argues that in early-stage venture capital, a high share of failed investments is a sign of risk-taking and a willingness to cut losses, not of poor performance, and that losing money is part of the job. He describes two measures: the "names" loss ratio, the share of investments that end up worth zero, and the "dollars" loss ratio, the share of invested capital lost. He says a high "names" ratio alongside a lower "dollars" ratio is healthy, while a higher "dollars" ratio can signal holding on to losers too long. He reports that USV 2004 has a names loss ratio of about 40% and that a seed fund he invests in has 42% three and a half years in.