The Hard Part of The VC Business

Fred Wilson has a great post today on the need to stay disciplined as a venture capitalist.

"... one of the problems (the kind of problems we all like to have) is that you can't kiss all the pretty girls. I see opportunities every day that I get excited about. I come home and tell my family about this new service, a great idea, some wonderful people I met. They ask me if I am going to invest. And I shrug and say, "we'll see".

If we invested in every idea we liked, every person who we know will make it, every new web service that we can't wait to use, we'd end up with a portfolio of thousands of companies. And that is unmanageable. So we have to pick the ones that make the absolute most sense for a variety of reasons and let all the other ones go."

Personally, I find the hardest part of this business is telling an entrepreneur that we will not invest in his/her business. Entrepreneurs pour their hearts and souls into these companies and pitches and are true believers. I try hard to make sure I add some value to their companies in the due diligence or investment process through an insight or an introduction, although it is not always possible. When saying "no" I get 2 sinking feelings in my stomach:
1. Is this really the right decision? Am I missing something that could be the next big thing?
2. The second is the horrible feeling you know the entrepreneur has after working hard in the diligence process and realizing that he needs to restart a process with another firm or angels. And, in the worst case, will need to give up his dream.

Entrepreneurs, if you have comments on this topic, I would love to hear them.

I highly recommend Fred's entire post.