The Bear In Vests — a fable about venture capital (with bears, in vests)

Why a bear, exactly

Most investors are chasing returns. The Bear is gardening.

You don't have to be very smart to win at this. You just have to back people who are smart, nice, and sparky — and let them iterate.

Back the kind, smart, sparky ones.

Not the loudest pitch. The mouse who wiggles when she talks about cheese kites.

→

Their ideas grow into real things.

Plops one, two and three are tuition. Idea four is a cheese kite, a postal service, a thing-that-didn't-exist-yesterday.

→

The whole forest moves forward.

It isn't really the acorns that compound. It's the stuff. Humanity advances one spark at a time.

That's the quiet trick. Back the bears who are wired to do good things.

The Bear's method, in three sentences

How to do this without a Bloomberg terminal.

Trick № 01

Back the spark, not the spreadsheet.

Find the kind, smart ones with a twinkle. They'll iterate through three bad ideas and one great one.

Trick № 02

Plant when everyone else is napping.

After someone's first idea goes plop, the forest writes them off forever. That's when the next idea is on sale.

Trick № 03

Plant a lot. The math is on your side.

Most acorns plop. That's a feature, not a bug. You only need a few to grow into giants — they pay for everything else.

…meanwhile, in the rest of the forest

Meet the other bears.

Every theory has its counter-examples. Here are the Bear's old friends, ranked by how much they overthink it.

Doug In Vests

strategy: vibes

Reads no decks. Picks names he likes the sound of. Throws acorns. Nobody can explain why it works.

10-yr return +4,217%

Ben In Vests

strategy: one trick

Only invests in baldness cream. Annoyingly, the one trick keeps working. The market for hair never closes.

10-yr return +1,840%

Chris In Vests

strategy: inner peace

Mutters "om nom flibbity hum" for nine hours a day. Has forgotten he owns anything. Chris is fine.

10-yr return +812%

Jason In Vests

strategy: one car thing

Got lucky on one car investment in 2014. Still mentions it. Has not had another winner since.

10-yr return +312%

Harry In Vests

strategy: the podcast

Invests in every founder he's interviewed. All 412 of them. No due diligence. "They were vulnerable in the room."

10-yr return +34%

Tarquin In Vests

strategy: moral high ground

Refuses to invest in bears, on principle. Has explained why on LinkedIn forty-seven times. Mostly owns one otter.

10-yr return +18%

Matt In Vests

strategy: running for Prime Minister

The model finally works. Matt has lost interest — he's running for Prime Minister. The Forest does not have a Prime Minister.

10-yr return +406%

Alice In Vests

strategy: actually doing the work

Runs the entire portfolio while Matt is off shaking paws. Returns have quietly doubled. Alice is thriving.

10-yr return +284%

…the Bear, watching all of this, has quietly stopped explaining.

Right. Now for the actual bears.

A cheese balloon, a plop, and a kite that — eventually — flies.

The Bear had something special in his pocket — not gold coins, not jellybeans, but acorns. Acorns, you see, were how the forest folk made new things grow. Every morning, animals would knock on the Bear's door and say, "I have an IDEA!" — and the Bear would smile, pour the tea, and listen.

Most folk in the forest only listened to ideas that sounded clever. But the Bear had a secret rule. The Bear looked for the spark — a little twinkle right behind the eyes that said, "I can't wait to try."

One day, Mabel the Mouse came skipping up. "I want to build a CHEESE BALLOON that floats over the meadow!" The other animals giggled. A cheese balloon? Silly. But Mabel had the spark. Her tail wiggled. Her whiskers fizzed. And Mabel was kind, and Mabel was clever. So the Bear gave her three acorns.

The cheese balloon did not float. It went plop. Right into the pond. The other animals shook their heads. "Poor old Bear. Three acorns gone." But the Bear chuckled.

"Plop is not the end. Plop is the beginning."

Meanwhile, Mabel was back. "I figured it out! Not a cheese balloon — a cheese KITE!" The other animals had stopped paying attention long ago. "Mabel? That mouse who plopped? No thanks." Which meant the Bear could plant just a few acorns — and own a big slice of the kite.

When nobody else is planting, your acorns count for more.

The cheese kite soared. It zoomed past the willow, all the way to Badger Hill. Every animal wanted one. Mabel's three acorns turned into a hundred. Then a thousand. Then more than the Bear could carry.

The rude numbers

Correlation Ventures · 21,000+ US financings · 2004–2013

Yes, but does any of this actually work?

It does. Here is what venture capital really looks like — and what happens when you plant lots of acorns instead of one.

What happens to one acorn (just one)?

Total plop — gets you nothing

35%

Partial plop — get less back

30%

Small win — 1× to 5×

25%

Good win — 5× to 10×

Big win — 10× to 20×

2.5%

Huge win — 20× to 50×

1.1%

Grand slam — 50× or more

0.4%

2 in 3 investments lose money. About 1 in 250 returns 50×+ — and that tiny sliver is most of the cash venture returns.

OK but what if I plant more acorns?

10,000 imaginary investors per row, each planting N acorns. Watch the misery shrink.

Acorns planted	Average payback	Typical (median)	Unlucky (10th %)	Lucky (90th %)	Chance of losing money
1	2.43×	0.52×	0.00×	5.14×	64%
10	2.41×	1.77×	0.73×	4.93×	20%
25	2.42×	2.05×	1.13×	4.32×	6%
100	2.41×	2.32×	1.63×	3.29×	~0%
250	2.40×	2.37×	1.89×	2.97×	~0%

The average is always ~2.4×. Planting more acorns doesn't change the mean — it kills the variance. Plant one acorn: you flip a coin that loses two times out of three. Plant a hundred: the grand-slams arrive so reliably that losing becomes essentially impossible. The bears are not lying.

Most acorns plop. The Bear plants them anyway.