# Venture investors should back strengths despite weaknesses

Markdown copy of https://realalpha.app/s/venture-investors-should-back-strengths-despite-weaknesses/ on Real Alpha, the best minutes from long interviews with the people building AI. Cite and link the page, not this copy.

- Speaker: [Marc Andreessen](https://realalpha.app/people/marc-andreessen/) · Marc Andreessen is cofounder and general partner at Andreessen Horowitz. · Co-founded Netscape and co-created Mosaic, then co-founded a16z, a venture firm backing AI, crypto and frontier tech.
- Host: [Jack Altman](https://realalpha.app/people/jack-altman/) · General partner, Benchmark · Co-founded Lattice and ran it until 2023, then started his fund, Alt Capital.
- Show: Uncapped
- Episode: [Marc Andreessen on The Future of Venture Capital | Ep. 12](https://realalpha.app/v/53FImKtf2i0/), Jun 11, 2025
- Moment: 44:59 to 50:04 of the episode (5 min), playing on https://realalpha.app/s/venture-investors-should-back-strengths-despite-weaknesses/; the episode from there: https://realalpha.app/v/53FImKtf2i0/?t=2699

## Quote

> “**invest in strength** not in lack of weakness”
> — [Marc Andreessen](https://realalpha.app/people/marc-andreessen/) at [46:04](https://realalpha.app/v/53FImKtf2i0/?t=2764) · Uncapped

## Takeaways

1. Look for exceptional strengths, not an absence of weaknesses.
2. Top-performing firms can have higher loss rates.
3. Track deals you passed on to test your judgment.

## About this segment

Marc Andreessen says a promising deal can be worth backing even when it has serious flaws. He uses investment outcomes and a shadow portfolio to argue that missing major winners matters more than a high win rate.

From “Marc Andreessen on The Future of Venture Capital | Ep. 12”, Jun 11, 2025. [Watch the full episode](https://realalpha.app/v/53FImKtf2i0/)

## Transcript

Transcribed by machine (Whisper) from the episode’s audio, so a word may be off here and there.

[45:02](https://realalpha.app/v/53FImKtf2i0/?t=2702) Because the natural orientation towards any kind of – anybody who's in an existing business, there's a natural organizational incentive to try to reduce risk because you just want to like hold on to what you have and not upset the apple cart. And so Ben and I are generally on the side of like take more risk. One of the applications of this is the old Sequoia adage, which is they say, when in doubt, lean in.

[45:23](https://realalpha.app/v/53FImKtf2i0/?t=2723) Like, so, so for example, so you see this, I'm sure when you do it as it's just like, okay, there's this thing, there's this company that is like potentially very interesting, but like there are these issues, right? And it's just like, it's too early and this and that, and weird guys got a weird background and this, that, that, and he's in a, you know, whatever, I don't know the issues and, you know, the hair, you know, there's hair on the deal. There's no hair on the GP.

[45:41](https://realalpha.app/v/53FImKtf2i0/?t=2741) that's funny that's good but there's hair on the deal the founders tend to have really good hair they're saying the deal and it's just like all right like what do you what do you how do you calibrate that right and and and the history and again the history of venture is when you see something that's very promising and there's a lot of hair on it sometimes when you invest it's going to go to zero yeah because the hair is going to kill it and then sometimes when you invest it's going to be but it's like something where you're like i love that i hate that it's much better than yeah everything's fine 100 and this is the way the way we describe this is invest in strength not in lack of weakness or another way to think about it is it's not good versus great it's very good versus great differentiating good from great is very straightforward differentiating very good

[46:20](https://realalpha.app/v/53FImKtf2i0/?t=2780) from great is actually very hard and and again the risk reducing way to try to do that is as you kind of alluded to it would be kind of the checkbox thing which is like very good team very good market very good this very good that and then you have this other one where it's like they've got six great things and nine like horrible things right yeah okay which is the better bet totally Usually. Usually it's the thing with the greater strengths. Statistically, by the way, this shows up in the return data from the LPs, which is the top decile firms have a higher loss rate than everybody else, which is called in baseball called the Babe Ruth effect, which is the home run hitter strike out more often.

[46:53](https://realalpha.app/v/53FImKtf2i0/?t=2813) Yeah. So the top performing venture firms statistically tend to have a higher loss rate than the mediocre firms. Right. And it's for this reason. They're willing to invest in the thing that is just looks like completely nuts, but has that magic something. Yeah. And so so when Ben and I think about trying to get the team to take more risk, it's almost always it's basically either that kind of thing, which is like, look, and it's what you're doing is you're telling the person closest to it, go with your gut. Yeah. If your gut tells you there's something magical here, like, go ahead. It's OK, because we're going to have some losses.

[47:20](https://realalpha.app/v/53FImKtf2i0/?t=2840) So it's okay to make the bet. If it breaks because of the hair, that's fine. But then the other form of risk we try to do, and I do this a lot, is just, you know, I am trying to push the firm constantly. It's like, go earlier. Yeah. Right? Because, again, as we discussed earlier, the national inclination is to wait, right? And it's like, no, no, no, go earlier. Like, we do actually want to make these, you know, we will make some seed bets, but we definitely want to make, like, a lot of A bets.

[47:42](https://realalpha.app/v/53FImKtf2i0/?t=2862) Yeah. And, again, we're going to lose a bunch of those. Like, we're going to screw those up and miss the winner or whatever. But, like, we have to do that because we have to get into some of these things early. we have to you know get the level of percentage you get in the a yeah that kind of relationship i mean i guess there's risk that's of the flavor of like do things that are more asymmetric where there's hair but also brilliance correct there's also the flavor that's just like, well, sometimes something I struggle with is the deals where I just barely said yes and just barely passed. I'm like, I don't actually have that much confidence that I can tell the difference between those. There's another flavor of sort of be more aggressive, which would just say like, just do a higher percentage of those ones where you're like

[48:17](https://realalpha.app/v/53FImKtf2i0/?t=2897) right on the line. Do you give that kind of guidance? Like, do you think like that too, where you're like, it's not just do the more out there things and we're swinging for the fences, but it's also like, let's just do a little bit more right now in general. Yeah. So we used to run this process we call the anti-portfolio, the shadow portfolio. And so the shadow portfolio was, we used to track this statistically for like the first five years exactly on this point, which is every time we do an A, every time we do pull the trigger on an A round, let's put in the shadow portfolio the other company we were looking at at around the same time that we didn't end up pulling the trigger on.

[48:45](https://realalpha.app/v/53FImKtf2i0/?t=2925) Yeah. And then let's build up representative, like build up the Earth 2 portfolio. I'm so curious. Well, so the good news is it turns out generally that the main portfolio did better than the shadow portfolio. but the shadow portfolio it was a good book did really well yeah right exactly the point and so and then you're okay so then you're just like okay you're not that smart but you're just like okay obviously what does that mean it means do them both right and again this goes to the thesis of like how big should these firms get it's just like well if you had the opportunity to do both the portfolio the shadow portfolio you should do them both what's the constraint on that as we discussed is complex yeah um but generally speaking you should try to do both yeah and by the way this is the this is the um i don't know if it was josh or the other the other podcast that they were

[49:21](https://realalpha.app/v/53FImKtf2i0/?t=2961) talking about this but you know at least i saw a reference to like a statistical analysis of like win rate or whatever return a percentage returns or whatever or percentage of wins it's just like it doesn't in venture math it doesn't matter it doesn't matter the the thing that matters is were you in the next big thing as early as you could get in and buy as much as you did like that's the only thing that matters because if you don't do that you miss out on the thousand x gain the one x losses don't matter they wash right out yeah um and so this idea that somehow there's some like virtue to being like a you know small you know we only make a few bets we have a higher percentage it does yeah how much is i'm glad people think that that's a i would like to encourage people to uh to think that that's a virtue that they should shoot for it seems like