a fable about investing (with bears, not advice)

Most acorns plop. The Bear plants them anyway.

A picture-book theory of venture capital, starring a bear with no MBA, a mouse who builds a cheese kite, and a hedgehog with self-esteem issues. Spoiler: the math works. Even better, so does humanity.

Why a bear, exactly

Most investors are chasing returns. The Bear is gardening.

Here is the trick nobody puts on a pitch deck: you don't actually have to be very smart to win at this. You just have to back people who are smart and nice and sparkly โ€” the rare breed who, even when their first idea goes plop into a pond, get up the next morning and try something better. They are wired to do good things. The forest gets a bit nicer every time one of them wins. So does humanity. So do you.

You back the kind, smart, sparky ones.

Not the loudest pitch. Not the slickest deck. The mouse who wiggles when she talks about cheese kites โ€” and who'd be a delightful dinner guest even if the kite never flies.

โ†’

Their ideas eventually grow into real things.

Plops one, two and three are tuition. Idea four is a cheese kite, a postal service, a medicine, a tool, a thing-that-didn't-exist-yesterday. Made by someone who actually cared whether it helped anyone.

โ†’

The whole forest moves forward.

This is the part nobody quite admits at conferences: it isn't really the acorns that compound. It's the stuff. Humanity advances one spark at a time, and the Bear gets to fund the spark.

That's the quiet trick.
Back the people who are wired to do good things โ€”
and the math, the relationships, and the world all bend in the same direction.
The Bear's method, in three sentences

How to do this without a Bloomberg terminal.

Trick โ„– 01

Back the spark, not the spreadsheet.

The cleverest pitch in the room often comes from someone you wouldn't lend a fiver to. Find the kind, smart ones with a twinkle. They'll iterate through three bad ideas and one great one. The nervous-but-brilliant ones? Hire those. Plant acorns with the sparky ones.

Trick โ„– 02

Plant when everyone else is napping.

After someone's first idea goes plop, the rest of the forest writes them off forever. Wonderful โ€” that's when their next idea is on sale. A small handful of acorns buys a whole slice of the next thing, because nobody else is at the planting table.

Trick โ„– 03

Plant a lot. The math is on your side.

Most acorns go plop. That's not a bug โ€” it's a feature. You only need a few to grow into giants, and they pay for all the plops put together. The numbers are further down. They are very rude to anyone who only planted one.

Where the fable lives

Right. Now for the actual bears.

If you'd like the picture-book version (and frankly, who wouldn't), here is the whole thing in five short chapters. Cheese balloons. Wobbly hedgehogs. A grand-slam kite. Naps.

01

The Bear had something special in his pocket โ€” 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!" โ€” 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 โ€” a little twinkle right behind the eyes that said, "I can't wait to try."

I have an IDEA!
02

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."
PLOP!
03

Next came Pip the Hedgehog. Pip had a spark so bright it could light up a burrow โ€” but Pip whispered, "I'm not sure anyone will like my idea." The Bear leaned close: "Animals who feel a little wobbly make wonderful helpers. They work hard. They double-check everything. But animals brimming with spark? Those are the ones I plant acorns with."

Pip's first idea โ€” Prickle-Proof Pajamas โ€” went plop. The second โ€” Acorn-Powered Skateboards โ€” went plop-plop. But Pip kept the spark burning.

04

Meanwhile, Mabel was back. "I figured it out! Not a cheese balloon โ€” 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 โ€” 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 in his little bear pockets.

And Pip? Pip's third idea was a Hedgehog Postal Service. Tiny parcels, tiny paws. It worked. Oh, how it worked. Pip's acorns grew into a great big oak tree of their own.

05

Some of the Bear's other friends never quite figured it out. Their ideas went plop, plop, plop โ€” and then they napped. That was okay. The Bear still loved them. Acorns gone, but friendships kept.

Not every acorn grows. You only need a few to grow really, really big โ€” and they pay for all the plops put together.
z z Z
The rude numbers
Correlation Ventures ยท 21,000+ US financings ยท 2004โ€“2013

Yes, but does any of this actually work?

It does. Embarrassingly well. Here is what venture capital really looks like when you stop squinting at it โ€” and what happens when you bring the Bear's method (plant lots, plant kindly, plant when nobody's watching) to a sample of 21,000 real-world bets.

What happens to one acorn (just one)?

Total plop โ€” gets you nothing
35%
Partial plop โ€” get less back
30%
Small win โ€” 1ร— to 5ร—
25%
Good win โ€” 5ร— to 10ร—
6%
Big win โ€” 10ร— to 20ร—
2.5%
Huge win โ€” 20ร— to 50ร—
1.1%
Grand slam โ€” 50ร— or more
0.4%

About 2 in 3 investments lose money. Only 1 in 25 returns 10ร— or more. About 1 in 250 returns 50ร— or more โ€” and that tiny sliver is responsible for roughly a fifth of all the cash venture capital returns.

OK but what if I plant more acorns?

A simulation: 10,000 imaginary investors per row, each planting N acorns, each acorn drawn from the actual real-world distribution above. Watch the misery shrink.

Acorns planted Average payback Typical (median) Unlucky (10th %) Lucky (90th %) Chance of losing money
1 2.43ร— 0.52ร— 0.00ร— 5.14ร— 64%
10 2.41ร— 1.77ร— 0.73ร— 4.93ร— 20%
25 2.42ร— 2.05ร— 1.13ร— 4.32ร— 6%
100 2.41ร— 2.32ร— 1.63ร— 3.29ร— ~0%
250 2.40ร— 2.37ร— 1.89ร— 2.97ร— ~0%
The average is always ~2.4ร—. Planting more acorns doesn't change the mean โ€” 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.
Not investment advice
SCEPTIC at large !?
important interruption from a rabbit

This is a fable. Not financial advice.

If you've made it this far and are reaching for your wallet, please consult Cyril, our sceptical-rabbit-in-residence. Cyril would like a word.

The numbers in here are real. The acorns are not. The maths is real. The Bear is not (though he is lovely). Past performance is no guarantee of future cheese kites. Please don't remortgage your burrow because of a website with cartoon bears on it.

"I've seen people lose actual money chasing the power law without understanding it. Read the book. Then talk to a real, regulated human who is legally responsible for advising you. I'm a rabbit. I'm not regulated."
The Bear's Big Idea Forest
For the bookshelf, the bear-shelf

Right, but I want the actual book.

19 pages. All the bears. All the cheese kites. All the math at the back, in case you want to wave it at someone at dinner.