Passing on Homeruns: The Anti-Portfolio

Venture capitalists – or any investor, for that matter – make money by avoiding poor investments and loading up on homeruns. Of course, this is all hindsight. Dogs can easily look like bulls, and vice versa. As a result, investors often times invest in underperforming companies, all while passing on homeruns.

Bessemer Venture Partners, a top tier VC shop, calls out missed opportunities in what they dub the “Anti-Portfolio.” I’m highlighting the Anti-Portfolio for two reasons. First, it is refreshing to hear a professional firm say, “Hey, we ain’t perfect. This game is tough.” I would love to see consulting firms highlight “Anti-Recommendations” — you know,  recommendations that lead the client in back assward directions.

Second, the Anti-Portfolio proves how difficult it is to understand the future value of a market or a company. Just think of all the examples of companies that passed on revolutionary ideas because they could not envision the future potential. Western Union comes to mind. Alexander Graham Bell offered his telephone patent to Western Union. At the time, the telephone only worked at short distance, so Western Union saw it as a toy, not a next generation invention that would usurp the telegraph. And let’s not forget Hewlett-Packard. Before he started the personal computer revolution, Steve Wozniak felt morally compelled to offer the first Apple to his employer. HP passed; computers were for businesses not people, after all.

Bessemer’s Anti-Portfolio includes 13 companies. You can see the whole list here. My favorites are:

1. Google – “Cowan’s college friend rented her garage to Sergey and Larry for their first year. In 1999 and 2000 she tried to introduce Cowan to “these two really smart Stanford students writing a search engine”. Students? A new search engine? In the most important moment ever for Bessemer’s anti-portfolio, Cowan asked her, “How can I get out of this house without going anywhere near your garage?””

2. Apple –  “BVP had the opportunity to invest in pre-IPO secondary stock in Apple at a $60M valuation. BVP’s Neill Brownstein called it “outrageously expensive.””

3. eBay – “”Stamps? Coins? Comic books? You’ve GOT to be kidding,” thought Cowan. “No-brainer pass.””