VC And The Illusion Of Selectivity

I saw a VC brag “I only invest in fewer than 1% of the ideas that are pitched to me!” I looked through his portfolio, and most of them made me think “Seriously? You invested in that? What a waste!”

The fallacy is that, even though the VC only invests in 1% of the ideas pitched to him, he may be no better than picking at random.

Suppose that there are more than 100 VCs, each of which randomly invests in 1% of the ideas that are pitched to him. Then, all sorts of stupid ideas will be funded, even though each VC is bragging about how selective he is.

Similarly, many corporations brag “We only hire 1% of the people who submit resumes to us!” If there are more than 100 corporations that do that, they can all brag about how selective they are, even though they’re picking at random (or worse than random). That’s one thing I’m “accomplishing” in my job search. I’m helping other businesses with the illusion of how selective they are.

Just because you only select 1% of the idea or resumes, doesn’t mean you’re brilliant. You may be picking at random, or worse than random.

4 Responses to VC And The Illusion Of Selectivity

  1. Anonymous Coward May 30, 2013 at 3:13 pm

    I discovered that a company very near where I live was hiring software developers. Now I live in a mostly residential area, with the only businesses really being grocery shops, supermarkets, mobile phone shops, restaurants, clothes shops etc.

    So I was surprised by this. What they were doing looked like a rather limited area for a software developer, but I had an open mind as a lot of companies do a lot of things you don’t realize initially.

    I went to an interview. They asked me a technical question. I correctly answered it. I then pointed out that on my personal website I had written some software that made use of the area they were asking about. In fact about a decade ago one very famous software company put a link to my software on the front page of their website for a time as a demonstration of their technology!!!!! I’m pretty sure I mentioned that on my resume/CV.

    Anyway I did technically well in the questions they asked me.

    One of my interviewers asked me to hand over the source code for my application, but I politely refused.

    A couple of weeks later I got a letter from them. I thought their letter was a little snotty. It said they had received a large number of high quality applications and as such they weren’t going to hire me.

    At the time I was also running my own small software business. As this was some years ago, the income from this hadn’t yet reached its peak.

    Eventually the company I had the interview at went bust and disappeared.

    My business is still selling software.

    • The interview process is also an ego boost for the interviewers. They get to see all the applicants coming in and supplicating for a job.

  2. And who’s to say that they’re picking the *best* 1%? So much depends on the criteria they’re using for their picks. Smart people use intrinsic criteria; idiots use extrinsic criteria.

    • It certainly is possible that they are picking worse than randomly. For example, at many interviews, I can see the hiring manager thinking “Uh oh! FSK is smarter than me! If I hire him, my own job may be at risk!” In that case, he’s picking worse than randomly (based on what’s best for the business), but he is picking well (based on preserving his own job security).

      The funny thing is that I don’t aggressively seek out promotions, yet almost every hiring manager is concerned about himself when rejecting me.

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