The sequence of hits and misses matters a lot, not just the probability of success over the evaluation period. This is where chaos theory ties in beautifully to probability.
Consider 2 VC funds that each make 10 investments –
Fund 1 gets the first 4 bets right, the next 5 wrong and the last one right
Fund 2 gets 4 of its first 5 bets wrong but makes up for the probability later
In theory they should both end up with similar 10 year track records. But in practice fund 1 will have an easier time attracting better deal pipeline, more attention and gets committed capital from LP’s on time. This enables them to bet on the best deals in their pipeline
Fund 2 will have a tough time getting good deal flow, it may so happen that LP’s may lose faith before they allocate the fully committed amount. The fund might miss out on investing into a great opportunity for this reason.
Emotionally too it is much easier to keep the faith if you’ve had a good start. Look at the world of tennis – those who end up winning their first grand slam within their first 2 finals usually goes onto win many more grand slams. Those who get beaten in 3-4 finals before they win their first slam usually end up with less than 5 slams in their career, given the same level of talent.
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