Black Swan Farming • Hacker News Board

Re: Black Swan Farming

#91

Post by dbul » Mon, Sep 10, 2012, 1:55 AM UTC

For that reason one of my most valuable memories is how lame Facebook sounded to me when I first heard about it.

This is partially why I think the YC application process is flawed. If you think about the idea for 20 seconds or so, what good is that? You may be wasting 20 seconds trying to rectify an idea you can't logically determine to be good.

A better process is a continuous one: you'll get an excellent stream of actual data and not just made up answers to "What is your best non-computer hack?" The YC partners could start out the morning looking at their Twitter-like feed of what have potential startup teams done today? At some point a partner would say, "We have to pull these guys into our next batch."

Incidentally, this would be better for startup teams looking to break the threshold of project to startup. By updating this proposed feed, the startup feels obligated to not only continue to put out data, but good data. Eventually the team would realize they can't cut it or they will keep mutating teams or changing ideas until one has great prospects.

EDIT: I'll buy someone a smile and a coke if the above hypothesis is implemented and tested. The following is exactly why: Instagram is the one we'd most likely have missed. It all depends when we'd talked to them. They were a kind of overnight success in traffic. If we'd talked to them even a day after they launched we would certainly have said yes. But before that it might have seemed too speculative.[1]

[1] http://news.ycombinator.com/item?id=4497561

Re: Black Swan Farming

#92

Post by pmarca » Mon, Sep 10, 2012, 1:56 AM UTC

mnutt wrote: post #68

cperciva wrote: post #13

Quoth pg: It would hurt YC's brand (at least among the innumerate) if we invested in huge numbers of risky startups that flamed out. Paul, you're sounding like a venture capitalist who is worried about whether he can find investors for his next fund. I would posit that the people whose opinions you should care about are potential founders ; and that their primary concern is themselves , not the performance of a fund…

It would hurt founders' perceptions but wouldn't actually decrease any individual founder's chances of success. YC would just accept a bunch of people who aren't likely to get funded. What would happen if you split up the batches into two groups, YC Classic and YC Black Swan, and placed founders into the groups post-interview? People who were placed in YC Classic could continue to have the expectation of ~100% demo d…

I know which Demo Day I would go to! (The Black Swan one.)

Re: Black Swan Farming

#93

Post by pmarca » Mon, Sep 10, 2012, 2:00 AM UTC

00000000swan wrote: post #51

pg wrote: post #20

Earlier quoted context omitted.

That is a very interesting exercise. I feel pretty sure we'd have been impressed enough by Max and Peter to fund them regardless of the idea (which initially had almost nothing in common with Paypal). I knew Ev before Twitter so I'm sure we would have funded that. Pandora I know nothing about, so I can't guess there. SalesForce I'm pretty sure we would have funded because Benioff radiates "winner" in much the same ov…

This seems to suggest the decision to fund has less to do with the idea and more to do with the founders. We already knew that. Does this also mean that the "big winners" will not come merely from a pool of what appear to be bad ideas, but from a subset of that pool: bad ideas put forth by founders the VC thinks are impressive? That too, seems somewhat obvious. Taking it one step further, can you separate the "idea"…

Yes -- this is why, for example, we (at A16Z) have such a strong bias towards technical founders with strong personalities, typically with a background of accomplishment of some reasonably strong form (even if very young). You have to screen at the founder level since there are too many bad ideas from less qualified founders otherwise.

Re: Black Swan Farming

#94

Post by ajju » Mon, Sep 10, 2012, 2:02 AM UTC

dschobel wrote: post #62

pg wrote: post #49

Earlier quoted context omitted.

I mean it. Have you met either of them? They both seem unstoppable.

It strikes me as smacking of old-school fatalistic "some are born winners" type thinking which is fundamentally contrary to everything we are led to believe about startups (namely; success is a function of smarts, hustle and luck). I have not met either of them. And while I have met a few individuals who have achieved success I can honestly say I have never met anyone who I thought radiated success or was otherwise p…

When did he claim they were born that way?

Re: Black Swan Farming

#95

Post by hiddenstage » Mon, Sep 10, 2012, 2:02 AM UTC

loumf wrote: post #83

hiddenstage wrote: post #64

Dropbox and AirBnB may currently have the biggest valuations, but I imagine it would be difficult to say they are YC's biggest successes (both in financial and historical terms). If YC had funded Paypal, they would have made a nice return with the $1.5B eBay acquisition. But their valuation would've ended there. In reality though, they currently make up 44.9% of eBay's revenue. eBay is a $63.45B company. I don't know…

eBay and Google stock is available for anyone with cash. You'd have to get acquired with pre-IPO stock for it to make a difference.

A lot of acquisitions are funded via stock. I imagine YC owns a sizable amount of publically traded stock through acquisitions.

My point though is that in 50 years, their minute percent ownership in Google they received via an acquisition could be worth far more than their much larger percent ownership in Dropbox.

So which was the better investment?

Re: Black Swan Farming

#96

Post by pmarca » Mon, Sep 10, 2012, 2:02 AM UTC

nostrademons wrote: post #90

pg wrote: post #39

Earlier quoted context omitted.

Yes, Dropbox was in the Google category of bad ideas: there were already lots of similar things. Success turned out to depend on execution. Dropbox was the first application of its type that worked sufficiently well. But that sort of thing is hard to predict.

My recollection of Drew's YC app was that it was posted on HN before he applied to YC and it received wide acclaim, so I went and Googled it: http://news.ycombinator.com/item?id=8863 Turns out my memory was only half right. DropBox had many people that loved the idea and thought it would revolutionize filesharing. It also had a large number of people who pointed out all the reasons why it wouldn't work. I wonder if t…

> I wonder if there's a lesson here in that good ideas that seem bad tend to be highly polarizing.

Yes -- exactly -- and they tend to generate a lot of heat in group discussions. One of the indicators we watch for are people getting visibly angry during the discussion -- either angry that other people aren't "getting it" or angry that other people ARE "getting it".

Re: Black Swan Farming

#97

Post by dbul » Mon, Sep 10, 2012, 2:03 AM UTC

pmarca wrote: post #88

mixmax wrote: post #18

There's a pretty interesting lesson for potential YC candidates, particularly the ones that get turned down, here. When you interview a startup and think "they seem likely to succeed," it's hard not to fund them. And yet, financially at least, there is only one kind of success: they're either going to be one of the really big winners or not, and if not it doesn't matter whether you fund them, because even if they suc…

> If your startup ends up making you a million dollars a year you will probably be very happy and rightfully call yourself a success. I see this a lot from various corners of the startup ecosystem, particularly 37 Signals and their followers. The problem is that it's not really true, by which I mean there are not very many examples of it begin true, and there is an excellent reason to believe that it may never be tru…

One of the reasons Jason Fried needs to yell so loudly...

Another reason: marketing. People don't get that.

Re: Black Swan Farming

#98

Post by seiji » Mon, Sep 10, 2012, 2:08 AM UTC

dschobel wrote: post #43

pg wrote: post #20

Earlier quoted context omitted.

That is a very interesting exercise. I feel pretty sure we'd have been impressed enough by Max and Peter to fund them regardless of the idea (which initially had almost nothing in common with Paypal). I knew Ev before Twitter so I'm sure we would have funded that. Pandora I know nothing about, so I can't guess there. SalesForce I'm pretty sure we would have funded because Benioff radiates "winner" in much the same ov…

a guy 'radiates "winner"'? Really? I sincerely hope you're being flippant and don't mean that as a serious answer.

Consider 'winner' as being shorthand for: "someone who, given the right environment, timing, and support, can take over the world. Given two of the three, they will manifest the third."

It's just something you are. A bottom of the org chart stinky sysadmin doesn't just wake up one day and have the personality and determination of a world class CEO.

In a more grim outlook, it's genetic. The disconnect is when people want to be 'winners' but are, at heart, bottom of the org chart stinky sysadmins. You can work your way up to lifestyle business, but the next step of multi-billion pants in the air growth company is probably out of reach.

Re: Black Swan Farming

#99

Post by pmarca » Mon, Sep 10, 2012, 2:08 AM UTC

sidman wrote: post #65

So it seems for investors, the big winners are simply based on luck, there is no logical factor that you can easily pick out that will give you a better chance of winning accept for possibly experience over a number of years that allows you to pick the features of a successful startup that initially doesn't look like they are going to be successful (maybe a glimmer in the founders eyes, something that isn't completel…

> So it seems for investors, the big winners are simply based on luck...

That's not quite right. It's more a question of taking enough of the right kind of chances in funding the companies that you do fund, as opposed to all the companies you don't fund.

I think of it as the concept of "search space" -- you need to define your search space properly, so that you have a good chance of having some big winners in the search space. You have to define your search space because you can't invest in everything. The investors that do the best job of defining their search space (having the most accurate criteria, best judgment, best mental models, etc.) have the best chance of funding some of the winners -- almost as a side effect.

When you talk to old successful VCs, what they tell you is that they had almost no ability to judge which of the companies they funded would go on to be the big winners in their portfolios at the point of funding them. They only learned that later. The challenge was to get enough of the right kinds of risk "above the line" and then give the portfolio time to develop.

Re: Black Swan Farming

#100

Post by greendestiny » Mon, Sep 10, 2012, 2:08 AM UTC

mixmax wrote: post #18

There's a pretty interesting lesson for potential YC candidates, particularly the ones that get turned down, here. When you interview a startup and think "they seem likely to succeed," it's hard not to fund them. And yet, financially at least, there is only one kind of success: they're either going to be one of the really big winners or not, and if not it doesn't matter whether you fund them, because even if they suc…

"What this means is that YC is not looking for sustainable businesses, but homeruns. Which is entirely fair, that's the business they're in."

I think it means more than this - it means if you invest in companies the homeruns will dominate your returns no matter your preferences for it to be otherwise. So there might be no model of systematic investment that makes sense investing in companies with no homerun potential. At least at the risk levels of software startups.