Are you feeling lucky?

People often wonder how venture capitalists choose the investments they make.

Most venture capital firms will only invest in a fraction of the hundreds, if not thousands, of business plans they receive every year. That’s why VCs have such poor reputations – for every entrepreneur who has received backing, you are ten to a hundred times more likely to meet someone who has been rejected.

In venture capital circles, there is an old saying about how we screen new business plans: every Monday we take half of the plans we have received and file them in the waste bin as “unlucky”. Naturally, this isn’t true, but it does point to luck as being a factor in the process of raising capital. In fact, even after being lucky enough to have raised money, every VC will tell you that good fortune is an important part of turning that investment into a successful business, and even more so in making a great investment return from a well-timed exit.

Master of destiny

Interestingly, science has shown that it is possible to influence your luck. Professor Richard Wiseman, a psychologist, has spent years studying thousands of people who consider themselves either lucky or unlucky. In his book Quirkology: the Curious Science of Everyday Lives, he describes his experiments, which demonstrate how lucky people tend to be optimistic, energetic and open to new experiences and opportunities.

By contrast, unlucky people were more withdrawn, clumsy, anxious about life and unwilling to make the most of opportunities that came their way. Professor Wiseman points out that those born in the summer months tend to be slightly luckier, and are also more sensation-seeking, preferring to meet new people and try new things, as opposed to those unlucky people who prefer to stick with more comfortable surroundings.

Most interesting, however, are his experiments regarding how connected you are. Wiseman replicated the famous “small world” study conducted in the US in the 1960s by Professor Stanley Milgram. This involved random people trying to post a letter to a target person in another US city, by sending the letter to someone they knew on first name terms who they thought was more likely to know the ultimate recipient.

Milgram’s results suggested that everyone in America is connected by a maximum of six degrees of separation. In 2003, Wiseman demonstrated, similarly, that people in the UK are only separated by four degrees. He suggests that this result is due to the UK being more geographically concentrated, as well as in part to the revolution in electronic communication in the past 20 years. Given the study was in 2003, before social networks such as Facebook or LinkedIn became mainstream, perhaps today we are only two or three steps away from anyone else.

Wiseman asked each participant to rate themselves as “lucky” or “unlucky” before the experiment. It turns out that those who consider themselves unlucky did not know as many people, and were separated by more degrees than those who considered themselves lucky. Some of the unlucky people didn’t even send the letter on and failed completely, citing that they had no suitable contacts at all. It seems that lucky people live in a much better connected world.

If I think back to the points in time when our businesses have been lucky, and seem to have been in the right place at the right time, those moments can often be traced back to a series of connections that were developed over many years. The biggest exits come from businesses being bought by trading partners that have spent a long time working with the acquired company, long before an exit is even considered. The best business plans are from those entrepreneurs we have backed before, successfully or otherwise, or from people we have got to know in other walks of business life.

The scientific answer seems to be: to get lucky, get networking. Spend time at those conferences, have random coffee meetings with trade partners, potential investors, busy executives and competitors, and network online with people furiously. Through regular, meaningful first-name conversations, your luck will improve immeasurably.