71–80 of 321 posts
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…
This reminds me of Arthur Rock's heuristic: he said he invested in startups that were "open ended with no limits to their success" as opposed to ones that seemed likely to succeed.
If the public Demo Day is now fraught with too much expectation perhaps it should be treated as a PR event rather than a goal for the startups to shoot for.
This doesn't solve the other problem you mention, which is that you'd be surrounded by people flaming out, which would be stressful in a lot of dimensions.
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…
Let's say that p_accept is the probability that YC accepts the founders of the next Dropbox. YC itself cannot optimize for p_accept because of the factors mentioned above: instead, it has to optimize for p_apply * p_accept * p_fund, the product of the chances that those golden founders will apply to the program, be accepted, and find the funding they need to grow and thrive.
With the hypothetical YC / YC Black Swan split, the original YC can optimize for p_apply * p_fund, and YC Black Swan can optimize for p_accept. Not only that, but since all Black Swan candidates would have started as applicants to YC, Black Swan's p_apply would equal that of the original YC. Numerate investors with the same sense of the power law as pg would take care of Black Swan's p_fund.
Thus, all the prestige, cultural appeal, and midsize exits would derive from the original YC, but all the power-law returns would emerge from Black Swan.
So, pg, new business model?
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…
Deal with people you already know.
If the project turns out to be a dud, the past history of success of the people involved negates any arguments that it was not the right decision to fund it. No one is going to question that the people involved were not "winners". They had proven that already; that's why the project received funding: because those particular people were involved with it.
To use an oft regurgitated title: "No one ever got fired for funding a project that involved [insert so-called born winner name here]"
Just for fun: How about Andrew Mason, the guy behind Groupon. How far do you think he would have gotten by taking the YC route? Is he a "born winner"? Groupon made some investors very happy.
One might wonder why no one can tell us who the "born winners" are until after they've had some "victories".
That we can accept and reject trades (or ideas) based on their agreeability, or dispersion of opinions, is not often considered as a metric. So long as the difference between eccentric crap and alpha is difficult to discern and costly if one goes all in on the wrong bet the uncertainty should be dealt with by diversifying across only disagreeable trades.
As a former quant trader who left a large bank and found the centre of Silicon Valley uncannily similar to the heart of Wall Street, this essay is illuminating. Wall Street is being too conservative, consigning itself to blindly jumping between mediocrity (low expected return) or bubbles (strongly negative expected return) in the top two quadrants. Just like Silicon Valley, though, at its edges it allows itself to be different. It's interesting seeing how similar mantras, based in sound financial theory, change in their aesthetics as they cross domains.
It's telling, though, that the concept of a "black swan", implying a tail event generally unforeseen by the relevant population, is met with trepidation by much of Wall Street and corporate America yet seized with zeal by a select few.
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…
Would be interesting to learn why the black swans have done better then the normal batch, or why the normal batch did better or why it was a 50/50 split.
You might even learn that because a startup is considered as a black swan founders in that group work harder and thus have a higher success rate. This would really put into light debates about how much intelligence vs hard work may effect success rates in the world of startups.
Would you have invested in Wikipedia? Tim Berners-Lee's WorldWideWeb project? WikiLeaks? Linux?
I guess I'm interested because it's not clear to me that any of the founders of these things radiate "winner" in the same way that you seem to look for in your founders. Or maybe they do?