When Genius Failed by Roger Lowenstein In 1998, the hedge fund Long-Term Capital Management collapsed after it lost a complex series of bets that it had made, using borrowed money, on global bond markets. These bets generally worked out fine in calm times, but not if something unexpected happened—as it did that summer, when Russia defaulted on its sovereign debt. L.T.C.M.’s collapse would have been easy for a writer to demonize in a crude way.
This concept seemed to me to be so fundamentally important that I borrowed the phrase for the title of my own book. Another idea, which follows from the power law, is that, because only one or two bets out of ten generate all of a V.C.’s profits, those bets really have to be unusual. The founders’ proposal has to be “We are going to do something so difficult and unlikely that nobody else is going to do it—and therefore, if we manage to, we will dominate this class of product.