Spray-and-pray vs. Cherry-picking

Two alternative approaches in Venture Capital (VC) and Business Angels (BA) are spray-and-pray and cherry picking. The former refers to the case where an investor puts money into several start-ups in the same sector. In the latter case, the required analysis of the alternative options is more detailed, in order to choose a single option, hopefully the one with the highest probability of success, where to invest the money.

Here discussed by the CEO of GS and the Chairman of the Nobel Prize 2016, among other profesionals. They acknowledged an increasing interest for spray-and-pray investing in places such as Sillicon Valley. However, they established three elements to consider:

  1. In sectors where required investment is not so relevant, such as internet and TICs, spraying among several options is feasible. That is not the case when we deal with investments in pharmaceuticals, for instance.
  2. Secondly, also in sectors like TICs, the result ‘the winner takes it all’ often comes eventualy. However, there are no clear clues for these start-ups on what might be that future winner. Thus, the spray-and-pray alternatively becomes less risky, increasing the chances of having a piece of cake when the dessert is served.
  3. One or the other, they all agreed a key aspect to succeed for VCs and BAs is to have access to the environment where innovation takes place. And this, they insisted, is in places like Silicon Valley, US East Coast, London or Berlin.

Point 3 is true to a great extent. But also true that, when the environment is not optimal for innovation, the public sector must play its part. The four Asian Tigers are perhaps the best example. Now, in peripheral regions like Galicia, facing a dooming demographic perspective and out of the main innovative centres in the World, it is time to think whether we should expect innovation to come from laissez-faire policies and by the private sector alone -not to mention the illusory possibility that big investors are to put their money in start-ups coming from this environment.