pattern matching

Definition

When VCs make investment decisions based on superficial similarities to previous successful startups rather than rigorous analysis. It's why they love Stanford dropouts building social apps in their dorm rooms.

Example Usage

The partner admitted his firm's pattern matching led them to pass on Airbnb because the founders didn't fit their typical profile.

Origin

Borrowed from computer science and psychology, applied critically to VC decision-making

Fun Fact

Pattern matching is blamed for perpetuating homogeneity in VC funding, as investors keep backing founders who look like previous winners.

Source: Venture capital decision-making critique terminology

Related Terms

Intermediate

TAM

Total Addressable Market -- the theoretical maximum revenue if you sold your product to every possible customer on Earth, including people who don't want it, can't afford it, and live in places without internet. It's the biggest number in every pitch deck and the most fictional.

🚀 Startup / VC

Beginner

Pivot

A strategic change in business direction that's celebrated in Silicon Valley but called failure literally everywhere else. It's the entrepreneurial equivalent of missing your exit on the highway and announcing you meant to take the scenic route.

🚀 Startup / VC

Intermediate

founder mode

An operating style where founders maintain deep involvement in company details rather than delegating everything to managers. Popularized by Paul Graham as a counterpoint to conventional management wisdom that says CEOs should stay hands-off.

🚀 Startup / VC

Advanced

adverse selection

The phenomenon where the worst investment opportunities are most aggressively marketed to investors, while the best deals are oversubscribed and hard to access. If they're begging you to invest, run.

🚀 Startup / VC

Advanced

non-participating preferred

Preferred stock that must choose between taking its liquidation preference OR converting to common and sharing the remaining proceeds—can't do both. The slightly-less-greedy version of investor terms.

🚀 Startup / VC

Intermediate

reserve allocation

Capital set aside by a VC fund to support existing portfolio companies in future rounds. The difference between investing in 20 companies and actually having money to help the 2-3 that work.

🚀 Startup / VC

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