There's a really great Radiolab podcast Dealing with Doubt[0] that talks about how high level competitive poker has evolved over the years.
ANNIE DUKE: Sometimes you have to be 40 percent sure. Sometimes you have to be 30 percent sure. You know, if there's $70 in the pot and you only have to call $10, you know, now you're in the 15 percent range in terms of how certain you have to be that your hand is good.
JAD: In that case, you can bet this hand that you're really not sure about knowing that while you might lose this time ...
MIKE PESCA: If I do that a million times in my poker life, the law of high numbers indicates that I'm going to be very much a winner in the long run. It might be the very long run, but you should be ahead in the long run.
ANNIE DUKE: Because it's not—it's not about winning the hand all the time, it's about winning the hand enough of the time.
Any VC is making a bet of the same nature. Because there is some intangible in the team itself, it makes sense for the VC to bet on multiples if they believe that there is a valuable problem to be solved here. Some team(s) will be more successful than others, but it's really difficult to tell at the outset.
YC is putting through 200+ companies per batch and making a tiny investment. It’s far more efficient to swallow the occasional bad bet than to do a lot due diligence… Now the VCs that came in after… that’s another story.
