[There is] immense difficulty getting confidence in predicting how things will develop. It is easy to plug 75% growth into a model, but that's far from it actually happening. With all this uncertainty, my perception is that one would want to be super conservative or have downside protection (ie. low valuations) to make up for this forecasting reality. However, good companies get funding and it can be competitive, so you're forced to push yourself beyond comfort. Balancing the uncertainty risk and a lack of sector expertise with competition on deals is the most difficult thing I have observed thisfar. Damned if you do (higher values than you're comfortable with), damned if you don't (nobody to take your money). This is much more of a problem with late stage investing I'd imagine.
[Related:] valuations are so subjective and small numeric tweaks can prove anything, so keeping that in check is key.
There’s an inherent tension in the VC asset class – LP’s pay us to take crazy risks (relative to their other portfolio investments), which naturally means finding investments that have uncertain outcomes. But for someone who prides themselves on being able to do great, deep analysis (I’m a former consultant), this 'comfort zone' issue causes a lot of inner turmoil. To the extent great, deep analysis is possible, the ‘analyst’ function in VC is on the hook for ‘the answers’. But LP’s are looking for exposure to exactly the investments where ‘the answers’ are hard if not impossible to find.
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