I wrote the following email to PG some time ago, which I hope have helped inform the present essay.
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1.
You know, I came across:
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I think they're not so much dense as bitter. There's a subset of HN readers who regard startups as a whole as a sort of con game, and are angry that the participants get so much attention. There may not be that many of them, but their anger makes them disproportionately active as commenters and voters.
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I want to tell you that I don't like the fact that you and ycombinator only look at immediate sales vehicles and hardly any big ideas, like Google or Skype. Mine is a Big Idea - it's not a sales vehicle. You almost have negative things to say about $100B market aspirations. And your results speak for themselves - smaller companies with no big vision.
That's what I don't like.
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2. this was after leaving him this comment which I hope he also saw
(PG here on HN):
Financially, as if you were an investor. They're the people whose job it is to evaluate startups' prospects, and they care above all about two things: the founders and the market. The founders should be relentlessly effective, and the market should ideally be of a size that can only be obtained by riding on trends beyond the startup's control (but visible to few besides the founders, or the market would already be full). Joining the young Microsoft, for example was a bet on Bill Gates and microcomputers, both of which turned out to be very good bets.
As a hacker you may be able to judge market bets as well as or better than many investors. E.g. I think HN readers knew Dropbox was onto something before most investors did. So if you go wrong it will be in judging founders. For many hackers, especially the unwordly sort, it's hard to distinguish true Bill Gateses from mere good talkers.
I wish I could offer some advice about distinguishing, but that would take a whole essay. The best simple hack I can think of is completely self-serving, but I'll offer it anyway: piggback on our filter. YC specializes in distinguishing between genuine Gateses and good talkers. We're occasionally fooled, but far less often than a typical hacker looking for a job would be.
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1 point by its_so_on 0 minutes ago | link | edit | delete
where's your Microsoft?
My only problem with your filter is that it filters out companies that genuinely have a plan to grow to revenues in the billions or tens of billions annually. This doesn't happen by chance alone, but through planning and commitment. That very commitment is a red flag for you and reason enough for you to say "no".
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3.
To drive the point home: it's almost impossible to adjust to investors like YC with a big idea. You can't sell what you have, however cheaply - which I think is ridiculous.
If you are holding a winning lottery ticket that is worth $20 billion and you need $500,000 to go and cash it, you would think that selling 7% of your company for the 500k amount is a no-brainer. Yeah, it's expensive, but so is taxes. You can live with 93% of the $20Billion. Expensive for you, not for the investor.
The ticket in this example is worth $1,400,000,000 (7% of the $20b) minus a bit of net-present-value calculation, and you are selling it for $500,000. This means the built-in return is 2800x or 280000%. Selling this share is very expensive for you, the owner of the company/holder of the winning ticket.
But would an investor like YC jump on this? No. An investor like YC will go ahead and take the step of applying a "0.000..% chance of successfully cashing" to the winning lottery ticket you hold. (If you are honest with them about what you will do and what you need to do it.)
NOT 1%, leaving an expected 28x or 2800% return (2800x built-in * 1%) from the 2800x or even 0.1% which would leave a 2.8x or 280% expected return (2800x * 0.1%) out of the built-in 2800x. But, exactly 0.000..% with unlimited precision. And then, obviously, in their estimation "it doesn't make sense to invest." (Even though in reality they have a built in 2800x return from the terms you are offering them. A cool 1.4 billion dollars basically for free.)
Then they will go ahead and say "no".
What is interesting is that you can show that the "0.00..%" they go ahead and apply to you really does have unlimited significant figures. If you were to hypotehtically need only $50,000 instead of $500,000 in this round you have to lie if you want their money.* The above calculation still produces a "no".
Yet another way to show significant figures in the 0.000%: if your winning ticket has 200b written on it (mine doesn't, mine has 20b written on it) it does not increase your chances of funding or interest in it. The 0.0000 that YC and several other "investors" apply really has that many sig figs.
So now you understand why I would never like to be associated with an outfit like YC. If I need money to cash my check, why would I ever want to associate with someone whose only M.O. implies they will go and apply a 0.000000000000% (infinite zeros) factor to it? I don't need that kind of tarnish. Where is YC's "Google"? Nowhere. They wouldn't touch a $200B or even $20B seed-stage company with a 200-foot pole.
* how can you build a $50b company from $50,000? Maybe you're an Indian-American entrepreneur and an able CTO and single founder, and you can get nearly unlimited high-quality output for peanuts, while personally overseeing it, from your Indian network. Then $50,000 is easily as much as $800,000 in the hands of a non-tech MBA who must first of all find a CTO and then insists on expensive labor.