I would love to see a demo day of YC companies that are still around who either quietly launched / didn't have much on demo day or who pivoted to something entirely different. Sort of like a "where are they now" demo day.
Black Swan Farming
131–140 of 321 posts
Re: Black Swan Farming
#132For 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…
Funny. I was just today thinking of something similar for finding unknown creative breakthrough talent.
Re: Black Swan Farming
#133Quoth 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…
Isn't there a simple solution to this problem? Bundle the unfundable ideas into a secretive spinoff. Say, call it YC BlackOps, or something. Keep it mysterious, like Google X Labs. If you do it right, it won't hurt the YC brand.
Re: Black Swan Farming
#134PG, In part you are correct, but you are making some huge mistakes and, in a saying from my past, are "straining over gnats and forgetting elephants". > That's made harder by the fact that the best startup ideas seem at first like bad ideas. I've written about this before: if a good idea were obviously good, someone else would already have done it. That's likely true from what you and Silicon Valley see, but that's j…
Why's your post blurred?
Re: Black Swan Farming
#135There'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…
>it's really rare to find a lifestyle technology business.
You... must live in a different world from me. I mean, I am a lifestyle "technology" business. Most of my customers are, too... a whole lot of them are so small that they still have dayjobs. For that matter, most of my suppliers are, too.
But think of all the web design firms that exist. All of the small-business IT firms. The small consulting shops of various stripes. There are huge numbers of these "too small for important people to care" companies. and so many web applications are thrown together by one person, just messing around.
Many, probably most of my suppliers and competitors are also small operations owned by one or two people. Linode, as far as I can tell, started a lot like I did; and so did most of my smaller competitors. (Slicehost is the counterexample; my understanding is that they started in a very startup-y manner.)
I mean, obviously, you get fewer firms as you raise your revenue cutoff. If you require millions of dollars a year in revenue, nearly all my customers fall off the list... but actually, probably not that many of my suppliers. I mean, I'm buying one rack from coresite, 5g from cogent, and 1.1G and 2 racks from he.net, but that's less than half my monthly outlay, and other than that, all that money goes to small private companies (and really, he.net might be considered a small private company that grew to be a not-so-small private company.)
Re: Black Swan Farming
#136Earlier quoted context omitted.
More attacks. No thoughts. WHAT a flock of bird brains.
Come on bird brains, cough up what passes for thinking in your flock of losers. "Losers"? Sure: As the limited partners know all too well, the returns over the past 10 years from the 'information technology' venture capital 'asset class', in highly technical terminology, just SUCK. And PG's essay provides more evidence of the struggles to make money. Bluntly, on average, even including the big winners, the HN flock i…
Ad-hominems will get you nowhere.
Also you appear not to have any idea how much waste exists in Pentagon contracting. Look up the writings of Robert Higgs, Winslow Wheeler, Dina Rasor etc etc etc When DoD is throwing billions of dollars around with merry abandon of course some of it ends up used for useful projects. They use up all their money and then get their budgets bumped up automatically by the politicians.
And, if YC starts acting like DoD, who exactly is going to provide follow-on financing? None of the money men, not Sand Hill Road, not Wall Street, are willing to put money in the same way and with the same scale that DoD is.
What's even worse is academic research. The professors don't care about product development, they care about publish or perish. And the output from PhDs is predictably a lot of useless greek squiggles and not very much product actually usable by Grandma.
There is no fabulous opportunity because the incentives are out of whack, and your exhortations won't change that.
Re: Black Swan Farming
#137The counter-intuitive nature of startup investing is a big part of what makes it so interesting to me. In most aspects of life, we are trained to avoid risk and only pursue "good ideas" (e.g. try to be a lawyer, not a rock star). With startups, I get to focus on things that are probably bad ideas, but possibly great ideas. It's not for everyone, but for those of us who love chasing dreams, it can be a great adventure…
So, if you randomly decided which startups to invest in, would you be more successful? Can you really predict anything? If you randomly invested in 100 startups, would your returns be better than your screening process? Can you test this?
They do something similar with equity trades. They get professionals and public entrants to select stocks and include a 'dartboard'. From my limited reading experience the dartboard rarely wins implying people do add value, but it would be interesting if someone could find a history (I didn't with a quick Google). In Australia one news paper includes an Astrologer which I find amusing.
With start-ups I think it would be too expensive an experiment to fund.
Re: Black Swan Farming
#138The counter-intuitive nature of startup investing is a big part of what makes it so interesting to me. In most aspects of life, we are trained to avoid risk and only pursue "good ideas" (e.g. try to be a lawyer, not a rock star). With startups, I get to focus on things that are probably bad ideas, but possibly great ideas. It's not for everyone, but for those of us who love chasing dreams, it can be a great adventure…
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Re: Black Swan Farming
#139Earlier quoted context omitted.
> 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…
>it's really rare to find a lifestyle technology business. You... must live in a different world from me. I mean, I am a lifestyle "technology" business. Most of my customers are, too... a whole lot of them are so small that they still have dayjobs. For that matter, most of my suppliers are, too. But think of all the web design firms that exist. All of the small-business IT firms. The small consulting shops of variou…
Slicehost is the counterexample; my understanding is that they started in a very startup-y manner.
Maxed out their credit cards, tried to find angel funding in St. Louis, and got told the going terms were "We'll get 50% of the company to cosign a loan for you" so they continued to bootstrap, managed to successfully structure a pricing model such that customers pre-paid for services (allowing them to service most of demand), rode on to acquisition by Rackspace... if I recall correctly. (Pours one out for Slicehost.)
Re: Black Swan Farming
#140This is a very interesting essay, if for no other reason that when smart people observe that other smart people have mental blocks against believing the truth of measurable features of material reality, that suggests a market inefficiency. Persistent market inefficiencies should always ping your radar a little bit, because exploiting them makes you rich.
One inefficiency could be related to this point Paul makes:
We can afford to take at least 10x as much risk as Demo Day investors. And since risk is usually proportionate to reward, if you can afford to take more risk you should. What would it mean to take 10x more risk than Demo Day investors? We'd have to be willing to fund 10x more startups than they would. Which means that even if we're generous to ourselves and assume that YC can on average triple a startup's expected value, we'd be taking the right amount of risk if only 30% of the startups were able to raise significant funding after Demo Day.
So- if a VC can triple a startups expected value that's great, but you'd need to do a bunch of them. I think this is essentially what Dave McClure is doing- making lots of smaller bets to "hit singles" as he says.
Reminds me of my college days playing online poker. The best players would have a 20% ROI at the $55 10 person tournament tables, and each game would take an hour. If you just play one at a time, you'd make about $10/hr. That's why everyone played 10 tables at a time- we made 10 times as much.