11–20 of 321 posts
Is it possible that this is simply just the effect of a Bell Curve (i.e, the normal (Gaussian) distribution of a field)?
pg is basically writing http://blakemasters.tumblr.com/post/21869934240/peter-thiels...
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 (oops, I mean class) as a whole. You're damn right that it would hurt YC's brand if 70% of each class didn't survive past Demo Day -- because for an individual founder, success is pretty much binary, and having a 50% chance of becoming a millionaire is more attractive than having a 5% chance of becoming a billionaire, despite the 100-fold reduction in mean wealth.
You may be in in the business of farming black swans, but if they're all you worry about you'll find that all the swans end up laying their eggs elsewhere.
There is going to be nothing that will "explain" why or which companies could be the big winners. Trying to is falling into the narrative fallacy trap Taleb writes about. Best strategy is to "win" in other ways, and let the cards fall where they may.
There is going to be nothing that will "explain" why or which companies could be the big winners. Trying to is falling into the narrative fallacy trap Taleb writes about. Best strategy is to "win" in other ways, and let the cards fall where they may.
Best strategy is to "win" in other ways, and let the cards fall where they may.
Edit: I have sympathy for the Black Swan theory, but I also believe that the startup market is way more tractable than, say, the CDO market – that there do actually exist investment strategies that will increase your chances of hitting the billion dollar jackpot.
Is it possible that this is simply just the effect of a Bell Curve (i.e, the normal (Gaussian) distribution of a field)?
I still shake my head with AirBnB, a total ripoff of couch surfing. For it to be comparable in any way, shape or form to the innovative and beautifully executed Dropbox boggles the mind.
If you stagnate, you will be eaten. Just keep swimming.
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 succeed the effect on your returns will be insignificant.
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.
But you and your startup are in a different business: Your measure of success isn't the same as Ycombinators. If your startup ends up making you a million dollars a year you will probably be very happy and rightfully call yourself a success. But as the post points out that won't be enough for YC since they need to fund a lot of other startups that will inevitably fail out of their minority share. Thus they need a much bigger success.
If you get turned down for YC it might well be that your idea is just a sound business idea that YC doesn't consider just crazy enough that it might make them a billion dollars. But that doesn't mean that it won't make you a million.
The reason that angels and VCs show up is because YC is providing a service for them, so from their perspective you would have jumped the shark. Each angel only has so much money to invest, and VCs feel it's necessary to provide value-add in other ways, so because their ends don't scale I'm having trouble seeing this purely mathematical strategy benefitting anyone besides YC. If there were a way for follow-on investors to benefit in a way that helps improve the overall startup ecosystem then it makes a lot of sense, but I think that's a case that needs to be made that this essay didn't touch on.
History tends to get rewritten by big successes, so that in retrospect it seems obvious they were going to make it big. For that reason one of my most valuable memories is how lame Facebook sounded to me when I first heard about it. As a thought experiment, I would love to hear what pg and team would have thought about the following companies, had they applied to YC before they grew in popularity (assuming YC existed…
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 overwhelming way that Zuckerberg does.
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.
I don't know about FourSquare. I've never met the founders and don't understand the business.
Pinterest we definitely would have funded, because Ben is a two time YC alum (with different companies alas). We knew he was good because the first time he was part of a startup that as an experiment we didn't make move to California. As Demo Day approached, they were in terrible shape. But Ben swooped in at the last moment and gave one of the most convincing Demo Day presentations.