There has been much discussion these days about the changing landscape of early stage investing and how it impacts valuations and exits, so I wanted to share a brief story I heard yesterday from an investment banker.

As a pre-cursor to the story, I want to re-iterate my own thoughts on generating returns for LPs.  As we all know, the early stage asset class is defined by making a series of investments, seeing most of those investments fail, and then having one or two exceptional companies generate most, if not all of the returns.

At Scout, we’ve realized a few things that help us outperform the industry:

(1) The fewer complete failures we have, the better the overall performance of our fund.  This means that when our companies experience challenges or fail to deliver the product or revenue to become a great company, we try to figure out how to find…