Monday 28 November 2005

How Many Hands Did She Shake?

Eary stage VC's must make investments decisions with very little information. No wonder that barely half our investments turn a profit.

Here's a question I have often asked aspiring VC's to see if they persist in the face of seemingly incomplete information...

My wife and I went to a dinner party with four other couples. At the beginning of the party, some people shook hands. (Obviously, no one shook his or her own hand or spouse's hand, and no one shook hands with the same person twice.) During the party I surveyed all the other people as to how many hands each one shook. I got different answers from everyone. What did my wife say?

If the aspiring VC gives up on this solvable problem, I don't see how he or she will face down the much murkier puzzle of predicting a startup's success.

Update: The solution is presented visually in a nice way here.

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