The 99% (of startups)

Post by gabemart » Thu, Dec 03, 2015, 9:20 AM UTC

Androider wrote: post #80

coffeemug wrote: post #68

Earlier quoted context omitted.

> This gives an interesting glimpse into the prognostication abilities of supposedly brilliant VC's. The question isn't whether VCs are brilliant according to some absolute metric. The question is whether they deploy capital better than random chance. The numbers show that top ten VCs consistently do.

Take 1000 people, have each predict a coin flip 10 times. The top 10 players will have predicted way better than random chance would have you believe. Why several of them are even 10 for 10, they must have special prediction powers! ;) Grow the player base, increase the number of predictions, you'll end up with some real super-stars who just go on winning. They'll probably write books and lecture about their techniqu…

Post by maurits » Thu, Dec 03, 2015, 9:32 AM UTC

chongli wrote: post #121

coffeemug wrote: post #68

Earlier quoted context omitted.

> This gives an interesting glimpse into the prognostication abilities of supposedly brilliant VC's. The question isn't whether VCs are brilliant according to some absolute metric. The question is whether they deploy capital better than random chance. The numbers show that top ten VCs consistently do.

Texas sharpshooter fallacy[0]. The specific problem with your argument is that you didn't set forth a hypothesis that would predict which VCs would be successful before they'd all started investing their money. [0] https://en.wikipedia.org/wiki/Texas_sharpshooter_fallacy

Post by jmathai » Thu, Dec 03, 2015, 9:40 AM UTC

noname123 wrote: post #29

Would love to see a series of good curves: (1) of all startup's started by people who working in the industry, quit FT jobs to do startup or put in serious moonlighting hours in startup; total earnings - opportunity cost, annualized: (total income from startup - opportunity cost of hours worked on startup) / years spent Maybe this data-set should be split further into bins of founders whose last title prior to startu…

  Loss of salary for 1 year, 2 months
  Does not include loss of 401k match or ESPP
  -$140,000

  Successful Kickstarter @ $25k
  +$20,000

  8 week contracting project @ 20hrs / week
  +$16,000

  Living expenses for 14 months (savings/stocks)
  -$70,000

  Post funding difference in salary from market rate
  -$50,000 (year 1)
  -$40,000 (year 2)

  Total ≈ -$264,000

Post by lepunk » Thu, Dec 03, 2015, 9:48 AM UTC

sangnoir wrote: post #146

lepunk wrote: post #144

"...but there are hundreds if not thousands more startups that will make their founders and investors rich." I think the correct word here would be "richer". For VCs 5x return on an investment while desirable, it's not the ideal outcome. Consider a VC invests in 100 companies during X years, $1 million each. Ballparking here but 80 of these will be a total failure. 19 of them will make 5x return. That is -$100 millio…

> Ballparking here but 80 of these will be a total failure Would those 80 still have failed if the mindset was "get 5x returns" rather than the current "get 100x - 1000x returns"? My gut says the demand for high-returns results in "total failure" in many cases due to insane burn-rates in quest for "hockey-stick growth"

Post by maaku » Thu, Dec 03, 2015, 10:26 AM UTC

rockinghigh wrote: post #120

maaku wrote: post #90

Earlier quoted context omitted.

Explain Berkshire Hathaway for me then, please.

They mostly make money with the private equity business by buying businesses with high cash flow and extracting more cash from them.