Ask PG: Is There A Startup You Regret Not Funding? (Like Fred and AirBnB)
8 comments
Does it always mean that something went wrong if you passed on an eventually successful startup? That seems like an assumption baked into the question and your answer.
At the end of the day you are taking a calculated risk. The interesting question isn't whether you wished you had funded them, because that is asking you to make a risk-free (in hindsight) decision. The real questions is how you decide whether a missed opportunity indicates a lapse in the way you calculated risk/reward, or simply a bet you ended up on the wrong side of despite it being the right bet at the time.
That's the question I'd really be interested in hearing the answer to. How do you decide whether a missed opportunity represents an error in your process?
At the end of the day you are taking a calculated risk. The interesting question isn't whether you wished you had funded them, because that is asking you to make a risk-free (in hindsight) decision. The real questions is how you decide whether a missed opportunity indicates a lapse in the way you calculated risk/reward, or simply a bet you ended up on the wrong side of despite it being the right bet at the time.
That's the question I'd really be interested in hearing the answer to. How do you decide whether a missed opportunity represents an error in your process?
As far as we're concerned, missing a good startup is by definition an error in our process. We may never get our error rate down to zero, but we can try. And it's reasonable to assume we have a lot of room to, considering how early we are.
Having funded 465 startups over 7 years may not sound early, and I suppose it isn't in a relative sense, but it is in an absolute one. Society in general and we in particular are still learning how to predict which startups will succeed.
Having funded 465 startups over 7 years may not sound early, and I suppose it isn't in a relative sense, but it is in an absolute one. Society in general and we in particular are still learning how to predict which startups will succeed.
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But surely there are success stories which are outliers/anomalies/red herrings, that you really don't want to try and replicate?
To say that every missed opportunity is a failure is like saying that every CA lottery I didn't buy a ticket for was a mistake. That strategy risks over-fitting to successful fluke's, to people who made bad bets that happened to work out. There is enough loose money floating around today that some people out there are going to make bad bets and succeed.
I don't see why you/YC wouldn't focus on bets where you have an unfair advantage over the market and feel fine passing those up where you don't, even if they have some non-zero probability of success.
To say that every missed opportunity is a failure is like saying that every CA lottery I didn't buy a ticket for was a mistake. That strategy risks over-fitting to successful fluke's, to people who made bad bets that happened to work out. There is enough loose money floating around today that some people out there are going to make bad bets and succeed.
I don't see why you/YC wouldn't focus on bets where you have an unfair advantage over the market and feel fine passing those up where you don't, even if they have some non-zero probability of success.
Startup success is a reflexive (from social theory) process, not a scientific one. As in economics, successful long-term predictions would, by definition, beat the market. Its impossible for "society in general" to learn how to do that.
If you guys ever figure that out please share it with the rest of us :)
Sorry about the obvious and slightly more controversial question, but are there any startups that you regret having funded?
In particular from the non-economic perspective.
In particular from the non-economic perspective.
I'm hoping he regretted funding 9GAG. It's one of the most unethical companies I've ever come across. This post on /r/4chan details some of their misdeeds:
http://www.reddit.com/r/4chan/comments/zacju/9gag_repost_mac...
http://www.reddit.com/r/4chan/comments/zacju/9gag_repost_mac...
This may seem obvious, but don't believe everything you read on the Internet.
The post I linked to is just a fairly comprehensive example of a widely-known phenomenon. While some details in that post may be erroneous, the overall picture is not and has been independently arrived at by many different people. 9GAG reposts content from other sites. Fine. I'm not concerned about that. I'm concerned about the dishonesty with which they do it, and the claiming of others' content as their own. I don't even care that they use dummy accounts to make the community appear more involved than it is, after all that's how reddit started out, as well. I care that it's those dummy repost accounts that are responsible for some of the more egregious acts of plagiarism.
Lots of redditors will repost a picture and claim it as their own, but this is both frowned upon and the doing of users, not admins. 9GAG admins themselves are the ones guilty of plagiarism, and that's where they cross the line.
Lots of redditors will repost a picture and claim it as their own, but this is both frowned upon and the doing of users, not admins. 9GAG admins themselves are the ones guilty of plagiarism, and that's where they cross the line.
I didn't know about 9GAG, but unethical behavior is exactly the kind of reason for regretting funding that I had in mind with my question.
Barely anything on reddit is original content, I don't think the users should complain about reposts on other sites. If it keeps certain demographics away, it might even be a good thing for reddit's content/comment quality.
There's a difference between posting something from another site, even if it's a screenshot, and scrubbing the watermark then adding your own in an attempt to claim authorship. Reddit does the former, 9GAG the latter.
> Barely anything on reddit is original content
On the contrary, Reddit (and particularly smaller subreddits) contain some of the most active and intelligent conversation available to vast general audiences on the web. AMAs alone spark a lot of interesting dialogue. Nick Eftiamiades' yesterday was really enlightening (http://www.reddit.com/r/IAmA/comments/zchnb/ive_appeared_on_...). The hivemind can be embarrassing, but there's still a lot to glean from such a userbase.
On the contrary, Reddit (and particularly smaller subreddits) contain some of the most active and intelligent conversation available to vast general audiences on the web. AMAs alone spark a lot of interesting dialogue. Nick Eftiamiades' yesterday was really enlightening (http://www.reddit.com/r/IAmA/comments/zchnb/ive_appeared_on_...). The hivemind can be embarrassing, but there's still a lot to glean from such a userbase.
Never mind 9GAG, what about Zynga?
Outside of Zynga's acquisition of OMGPOP, I don't believe YC has any ties to them. I could be wrong.
How do you decide/realize you "missed a good startup"? Profits? Traction?
You can never find out a private company's revenues, so the best we can do is to go by approximations like how frequently we hear about them, later funding rounds, etc.
Interesting. In Sweden the high level information about a private company is publicly available. Several websites like allabolag.se lives from aggregating this data and reselling it.
Is there nothing more to it than revenues? [that's not intended to be snarky and rhetorical however it sounds in your head!] Like do you think "Wow, sorry we missed them, they're making awesome stuff" or is it primarily financial.
This kinda fits in with the Kickstarter discussion, scale is entirely different of course.
I guess in short is business more about making money or about creating value.
This kinda fits in with the Kickstarter discussion, scale is entirely different of course.
I guess in short is business more about making money or about creating value.
Note that a rejected applicant will have learned from the failed YC interview and adjust his presentation accordingly when applying to another incubator.
Kudos for your postmortem optimization feedback loop. This is one of the non visible features of YC that could explain the difference. Do you record the presentations for later review in such case ?
For the applicants, this gives the hint that they should apply to many different incubators and angels before applying to YC so that they can learn from their rejection how to optimize their submission. ;)
Kudos for your postmortem optimization feedback loop. This is one of the non visible features of YC that could explain the difference. Do you record the presentations for later review in such case ?
For the applicants, this gives the hint that they should apply to many different incubators and angels before applying to YC so that they can learn from their rejection how to optimize their submission. ;)
Thanks PG !
I'm neither Paul Graham, nor a venture capitalist. I've never invested in a startup.
However, I have been involved in the process with potential investors deciding whether or not to invest in a company -- on both sides of the table. I can't answer your question, but I might be able to lend some relevant conversation on the topic.
Investors, especially those who specialize in early-stage startups, take a lot of risks. We all know that most startups will fail -- and those that don't are not always wildly successful. There are plenty of ramen-profitable startups that will piddle out, and plenty more that never even get to that point.
Because of the inherent risk involved with investing in general, it makes sense to take as risk-averse an approach as possible. That's why YC-backed companies are built on such solid, great ideas (the best foundation possible) -- and even many of those, even with Y Combinator's full support, still fail.
Whether or not pg has regrets is a question that only Paul himself can answer (and I hope he will), but my opinion is that his approach is the same that I take towards my investment portfolio: maybe a slight tinge of missed opportunity, but the decision whether or not to put money into a company is calculated rationally. Because of this, there's no real regret to be had.
However, I have been involved in the process with potential investors deciding whether or not to invest in a company -- on both sides of the table. I can't answer your question, but I might be able to lend some relevant conversation on the topic.
Investors, especially those who specialize in early-stage startups, take a lot of risks. We all know that most startups will fail -- and those that don't are not always wildly successful. There are plenty of ramen-profitable startups that will piddle out, and plenty more that never even get to that point.
Because of the inherent risk involved with investing in general, it makes sense to take as risk-averse an approach as possible. That's why YC-backed companies are built on such solid, great ideas (the best foundation possible) -- and even many of those, even with Y Combinator's full support, still fail.
Whether or not pg has regrets is a question that only Paul himself can answer (and I hope he will), but my opinion is that his approach is the same that I take towards my investment portfolio: maybe a slight tinge of missed opportunity, but the decision whether or not to put money into a company is calculated rationally. Because of this, there's no real regret to be had.
and you slept at a Holiday Inn last night?
[edit] I meant Holiday Inn Express
[edit] I meant Holiday Inn Express
Could you explain your comment ? It don't understand the relation with the comment you responded to.
It's an american joke, my apologes for both using a cultural reference and making a pretty snarky comment.
A more "HN-spirited" comment would have been:
A more "HN-spirited" comment would have been:
You aren't speaking from any real authority or
experience, and your 5 paragraphs could have been summed
up with the following: "when you gamble you don't expect
to win them all, so regret is baked into the equation".
Please be more concise with your comments and get to the
point.tl;dr the only way to catch them all is to fund them all
There is a series of commercials where someone who is handling a task well explains that they are not a professional but they slept at a Holiday Inn Express the previous night.
The original commenter's post read like the beginning of one of these commercials.
The original commenter's post read like the beginning of one of these commercials.
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Here's Fred Wilson's post about passing on AirBnB: http://www.avc.com/a_vc/2011/03/airbnb.html
My next one ;-)
Edit: joking aside, I cannot comment for pg but there are a number of startups I regret not funding - funding with my time and effort. Whatever strategies or not people use to invest in others companies we can all invest in one - our next one.
I am minimising my regrets, by investing in me.
(I do worry about that management team though !)
Edit: joking aside, I cannot comment for pg but there are a number of startups I regret not funding - funding with my time and effort. Whatever strategies or not people use to invest in others companies we can all invest in one - our next one.
I am minimising my regrets, by investing in me.
(I do worry about that management team though !)
I feel like this is a common problem - we all get presented with many opportunities to join startups that become great.
I remember reading a similar post that was about how an engineer felt about turning down the opportunity to be a 1-10 employee at Facebook
I remember reading a similar post that was about how an engineer felt about turning down the opportunity to be a 1-10 employee at Facebook
I think a MUCH better question is "Are there any companies that didn't ultimately reach exits that you regret funding: I.E. companies who you believe YC itself would have made the essential difference in their success"
This would be a company who got grew initial growth but, for lack of proper guidance and mentoring, made really bad decisions that killed them. Perhaps a company that had a chance to be huge, did well initially, but didn't have the proper connections to scale after that.
That to me is a harder but ultimately much more valuable question.
This would be a company who got grew initial growth but, for lack of proper guidance and mentoring, made really bad decisions that killed them. Perhaps a company that had a chance to be huge, did well initially, but didn't have the proper connections to scale after that.
That to me is a harder but ultimately much more valuable question.
More valuable because of COURSE PG had some misses. If he didn't have misses, he wouldn't be human. But where it gets really interesting is in his estimation of the YC effect, which I think is estimable: what companies would have been billion dollar companies with the YC effect but aren't because they don't have it?
Surely they wish they were able to allow the n+1'th team to join a given class, but they're busy enough with the n they do select that I'm sure they dont give it a lot of thought. Certainly not regret.
YC's investment is primarily about time and effort, not money anyway.
YC's investment is primarily about time and effort, not money anyway.
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i think they rejected sendgrid, but not 100% sure.
When we miss a good startup, we always go back and figure out what went wrong and try to fix it. One advantage of all the other incubators that have arisen is that when we miss a good company, we at least find out about it. We've changed our application process several times in response to misses.
(Strangely enough, it might actually be net beneficial to YC to have so many competitors, because they're training our filter.)