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There are four types of Venture Capitalist: historian VCs, theoretical VCs, politically correct VCs and econometrician VCs.
The Venture Capitalist acting as an economic historian chases a black cat in a dark room. By studying past markers (it must be a tom, leaving his sign), he guesses where the cat will be, i.e., where the next "big" advance will be and places his bet.
The Venture Capitalist acting as a theorist chases a black cat in a dark room, but there is no cat. Since the "new" product or project has no basis, the VC projects an illusionary three-dimensional image of the cat in a smoke-filled room and seeing the results of this activity, becomes so enamored with the result that he buys in.
To the Venture Capitalist that is politically correct, it makes no difference if the cat exist or not, it will be painted black or red by this VC to reflect his or her views. The color chosen will depend upon how the VC registers to vote and/or if his/her party is in power. The politico-VC, knows of course that after dark, all cats are grey, so it doesn't really matter, so long as political capital can be made at the expense of other investors, so he takes a position on both sides.
Lastly, the econometric Venture Capitalist chases a cat in a dark room when there is no cat and no room yet he exclaims, "I know where it is", and then with gusto, "I have it!" Of course this is reported in the Wall Street Journal and other financial papers. When other VCs rush to invest he sells out.
Frederic Bastiat followers would insist that you must permit the cat to breed so that you can offer the offspring to the French and English for culinary dishes. They will export the hides to a Far East country to be made into fine gloves, etc., which will be sold to you and your fellow citizens. The free trade ensuing will enrich you, the French and English, and second tier nations as well; permitting all to take leisure. But wait you say, "The cat does not exist." No problem, our Government will through the use of hot-decking (b) provide numerical proof of its existence based on their knowledge of the kind and number of pets in your neighbor's house. (Or stock ownership and the like, if you prefer.)
So now all we have to do is provide a table of Net Present Value to the VCs so they can begin their games.
(a) Rational for making risky investments.
(b) Devised by Deming (of Total Quality Assurance fame). Named after the process, which used computer cards to count responses to various Census question. Fresh data on piles of cards (decks), warmed by processing, was eagerly sought. Where data was missing, the "nearest neighbor" data is used to fill in the blank. The process continues although the use of cards (decks) is long gone.
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The Wall Street Journal on 15th December 2000 published an interesting letter to the editor on the use of mathematical models to describe the world as imagined by economist. Entitled, "Who let the Cats Out?" by Jeffrey Huston.
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