How Super Angel Chris Sacca Burned Bridges and Crafted the Best Seed Portfolio(forbes.com)
forbes.com
How Super Angel Chris Sacca Burned Bridges and Crafted the Best Seed Portfolio
http://www.forbes.com/sites/alexkonrad/2015/03/25/how-venture-cowboy-chris-sacca-made-billions/
53 comments
I can't help but see Survivorship Bias in any profile of a successful investor. You rarely see the profiles of the more numerous people whose investments lost them all their money. It's always "How XYZ became that 1 out of ~1 million who flipped heads 20 times in a row. The secret to coin flipping revealed!"
I don't mean to come off too critical, but I'm curious how we the HN community can move away from this sort of survivorship bias cynicism without discounting it entirely. I openly acknowledge that survivorship bias is a very real phenomenon that can be easily overlooked, but every time a story about a successful entrepreneur or angel/vc pops up, there's the tendency to discount every thing that is being said as survivorship bias, as if there's nothing else to be learned from the story. These comments tend to overwhelm the discussion in their prevalence. I think it puts a overall cynical attitude in the community that I've seen overtake other entire online communities of entrepreneurs. I really hope it doesn't do the same here.
Even Chris Sacca says it in the video: "It's almost like the game is rigged". He got lucky at the beginning and now that he has tons of money he can afford to diversify his portfolio enough to be able to buy all the lottery tickets. On top of that, he has become the legendary Chris Sacca, so the probability that the next big thing won't be presented to him at a very early stage is very low.
So it's not only the survivorship bias, you have to add to that the Matthew Effect [1].
And I'm not denying that he is probably smart, has people skills, hard worker... The thing is that, in my opinion, there quite a few Chris Saccas out there that never got as lucky as him. So the survivorship bias here doesn't nullify all his work, since he showed that if you do the things his way you can get the chance to become the next Chris Sacca. It only shows, that even if you follow his path you can still fail.
I realized that people that don't see the survivorship bias tend to view people that do as cynical pessimists that downplay the hardwork of the Chris Saccas of the world. But this is just a problem of perception, at least in my case, I admire the Musks, the Jobs, the Gates, the Buffets... of this world. However I realize that in order to become like them, it takes more than just hard work and a vision, you have to get lucky and preferably be born white, to well educated and relatively wealthy parents, in the right country, be sent to a good school...
I like to consider myself a realist, if somebody gave me 80% of the lottery tickets I will probably be really hopeful that I will win, but if I only have 0.001% of the tickets I won't probably even remember to check the outcome. I want to believe that that does not make me an optimist in one case and a pessimist or a cynic in the other.
[1] http://en.wikipedia.org/wiki/Matthew_effect
So it's not only the survivorship bias, you have to add to that the Matthew Effect [1].
And I'm not denying that he is probably smart, has people skills, hard worker... The thing is that, in my opinion, there quite a few Chris Saccas out there that never got as lucky as him. So the survivorship bias here doesn't nullify all his work, since he showed that if you do the things his way you can get the chance to become the next Chris Sacca. It only shows, that even if you follow his path you can still fail.
I realized that people that don't see the survivorship bias tend to view people that do as cynical pessimists that downplay the hardwork of the Chris Saccas of the world. But this is just a problem of perception, at least in my case, I admire the Musks, the Jobs, the Gates, the Buffets... of this world. However I realize that in order to become like them, it takes more than just hard work and a vision, you have to get lucky and preferably be born white, to well educated and relatively wealthy parents, in the right country, be sent to a good school...
I like to consider myself a realist, if somebody gave me 80% of the lottery tickets I will probably be really hopeful that I will win, but if I only have 0.001% of the tickets I won't probably even remember to check the outcome. I want to believe that that does not make me an optimist in one case and a pessimist or a cynic in the other.
[1] http://en.wikipedia.org/wiki/Matthew_effect
What would be an intelligent way to find those individuals just as talented and bright as the Musks, Jobs, and Gates of the world that weren't lucky enough to get the right lottery ticket?
I would imagine those who can develop a way to uncover the hidden talent that can be 90% as effective as the above names at 10% of the cost would really be onto something.
I would imagine those who can develop a way to uncover the hidden talent that can be 90% as effective as the above names at 10% of the cost would really be onto something.
Musk, Jobs and Gates, to use your examples, are/were all phenomenally driven people. I'm not sure you find hugely driven people as much as are eventually confronted with them.
Nassim Taleb once said something interesting on this subject like:
"You need skills to get a BMW. You need skills and luck to become Warren Buffet. Journalists later wrote 'Taleb says Buffet has no skills!'"
"You need skills to get a BMW. You need skills and luck to become Warren Buffet. Journalists later wrote 'Taleb says Buffet has no skills!'"
I'm honestly not sure the cynicism is a bad thing.
I'd say the HN community has a higher than average grasp of statistics (the same could probably be said about many other entrepreneur communities) As such, when we see something which all broad statistics tell us is "one in a million" occams razor directs you to assume that it is in fact one in a million.
That "let's be extremely doubtful given a high bayesian prior suggesting that the doubt is legitimate" occurs strikes me as a wonderfully pragmatic viewpoint. If someone really wants to convince me there's some "trick" to being that one in a million they have to go against all of the evidence I've been presented thus far to say that simply doesn't happen. (evidence coupled with the fact that these sorts of news sources have a history and incentive aligned with the "how to strike it rich" style articles.)
I'd say the HN community has a higher than average grasp of statistics (the same could probably be said about many other entrepreneur communities) As such, when we see something which all broad statistics tell us is "one in a million" occams razor directs you to assume that it is in fact one in a million.
That "let's be extremely doubtful given a high bayesian prior suggesting that the doubt is legitimate" occurs strikes me as a wonderfully pragmatic viewpoint. If someone really wants to convince me there's some "trick" to being that one in a million they have to go against all of the evidence I've been presented thus far to say that simply doesn't happen. (evidence coupled with the fact that these sorts of news sources have a history and incentive aligned with the "how to strike it rich" style articles.)
> I'd say the HN community has a higher than average grasp of statistics
No, just no. From my experience as an engineer that's transitioned into finance, I assure you that engineers and developers have the WORST pre-conceptions about statistics as applied to investing. All of those have to be unlearned fast at the start of a finance career. Took me years to fully adjust.
No, just no. From my experience as an engineer that's transitioned into finance, I assure you that engineers and developers have the WORST pre-conceptions about statistics as applied to investing. All of those have to be unlearned fast at the start of a finance career. Took me years to fully adjust.
Would you please share the examples as this would be useful to the engineers in HN.
Fascinating - I'd have thought the opposite. Any examples?
The problem with (and complaint about) the top comment isn't cynicism, it's emptiness. It really just says "there is survivorship bias" with nothing specific about the shared article. It's not interesting.
It's definitely interesting if lots of top 'content' is actually just lottery winner stories, in which case I might consider spending some of my HN time reading the local casino's profile on their recent slot winners.
I'd argue that stories about lotto winners are more honest than stories about successful VCs and entrepreneurs, as the writers usually are up front about the odds of winning the lotto. It's often one of the major facts cited in the article: Joe Smith's lottery win was 1-to-2 million! When writing about lotto winners, nobody pretends that the winners had a system. Even if the winner says something like "I always play my birthday numbers LOL" it's never presented as causing positive EV. While non-luck-based factors may play a role in investment success, they are all that tends to be written about.
I like the idea of a "luck surface area" which suggests that the more you put yourself out there the more likely you are to be that one in a million.
If you Google it you'll probably get a better explanation than I gave.
If you Google it you'll probably get a better explanation than I gave.
I get what you're saying, and it seems totally fair. If all of the possible paths any human can take are the space of all outcomes, and there is some extremely sparse set of volumes within that space that are "one in a million successes", your likelihood of finding that success will be directly related to the amount of coverage you can explore.
I don't mean to suggest there isn't an aspect of hard work here. Like many other side posters say, diligence is certainly a component to "making your own luck" which can be well expressed within the concept of a "luck volume". (Even things like opportunity and family connections fit in nicely by expanding the set of vectors you can follow)
I don't mean to suggest there isn't an aspect of hard work here. Like many other side posters say, diligence is certainly a component to "making your own luck" which can be well expressed within the concept of a "luck volume". (Even things like opportunity and family connections fit in nicely by expanding the set of vectors you can follow)
You might like the idea, but there are millions of people who work hard, who are smart and don't get anywhere.
Of course, because they're unlucky. Most of them realize that. The mentally healthy accept it, and then ignore it.
I think that the disconnect in this thread is between people who make their decisions based on what is true and those who make it based on what is useful. The former see the factual reality - that a lot of success comes down to luck - and then conclude "And therefore it doesn't matter what I do..." The latter see the factual reality - that a lot of success comes down to luck - and then conclude "But I can't control my luck, however I can control my luck surface area, and my preparedness, and my judgment". They shrink their world down to the parts that they do have control over and don't let the stuff that's out of their control worry them too much; after all, it's not like they're going to get a better outcome by thinking about that.
The wiser of the latter group always remember that there is still a lot of luck in any success or failure that they have, but there's a lot of psychological pressure to either believe luck doesn't exist or to let it rule your life.
I think that the disconnect in this thread is between people who make their decisions based on what is true and those who make it based on what is useful. The former see the factual reality - that a lot of success comes down to luck - and then conclude "And therefore it doesn't matter what I do..." The latter see the factual reality - that a lot of success comes down to luck - and then conclude "But I can't control my luck, however I can control my luck surface area, and my preparedness, and my judgment". They shrink their world down to the parts that they do have control over and don't let the stuff that's out of their control worry them too much; after all, it's not like they're going to get a better outcome by thinking about that.
The wiser of the latter group always remember that there is still a lot of luck in any success or failure that they have, but there's a lot of psychological pressure to either believe luck doesn't exist or to let it rule your life.
No doubt. But if I solely punch the clock then what is going to be the impetus for my success? If I create and network then I have to believe my chances for success are at least a little bit better. Are you suggesting otherwise?
Or as the phrase goes, it takes ten years of hard work to be an overnight success.
Or as the phrase goes, it takes ten years of hard work to be an overnight success.
Chris Sacca admits himself that if Twitter hadn't been his first investment [1], you'd never have known his name - he spent every dime he had (plus a few thousands of dollars he didn't) in their seed round. It's not cynical to mention survivorship bias. It's the name of the game to not hear about the failures.
[1] http://gimletmedia.com/episode/1-how-not-to-pitch-a-billiona... (You'll need to listen for a bit.)
[1] http://gimletmedia.com/episode/1-how-not-to-pitch-a-billiona... (You'll need to listen for a bit.)
Because otherwise HN becomes an echo chamber for "aspiring entrepreneurs" who think that it's easy becoming a billionaire. Most people here forget that 95% of all startups fail, even in this environment.
There are just way too many exogenous variables to any exchange within a market to give an individual credit for success. As a founder, I know that my inputs and the inputs of my team are necessary but not sufficient to achieving market/financial success.
I think we need to be addressing instead the problem of causality as relates to success and trying to decouple success from individual inputs.
I think we need to be addressing instead the problem of causality as relates to success and trying to decouple success from individual inputs.
[deleted]
[deleted]
[deleted]
While I worked at a VC I ran some analysis on Angel performance and found (for top-tier angels) past performance does in fact predict future performance.
That is if you took the top-tier angels today then the investments that they make over the next year will do disproportionately well compared to other angels.
That is if you took the top-tier angels today then the investments that they make over the next year will do disproportionately well compared to other angels.
> That is if you took the top-tier angels today then the investments that they make over the next year will do disproportionately well compared to other angels.
Do you think that has to do with a virtuous cycle, and not say any magic in investment thesis of these angels.
Said differently, because of Ron Conway's position, he gets first pick of all the best deals, which have a higher likelihood of success, because in part they're connected to Ron Conway.
Do you think that has to do with a virtuous cycle, and not say any magic in investment thesis of these angels.
Said differently, because of Ron Conway's position, he gets first pick of all the best deals, which have a higher likelihood of success, because in part they're connected to Ron Conway.
Of course. Just like Buffett gets deals that others (even with billions) simply can't get. Reputation matters much more than your investment thesis.
Another thing that kind of builds off of this that I've been thinking about lately after reading sama's blog posts. Do top VC companies that make predictions on the future of big companies shape the outcome of future startups? For example, if all the top VC firms are saying widgets are going to be the biggest thing in the next 10 years, does that cause enough of an influence to create that market and persuade people to go into that field rather than the one they were already intending on?
Most definitely. It's kinda like technical analysis in stock markets - it works because it's a self-fulfilling prophecy, people vote with their wallets. At the end of the day consumers don't really know what they want before it's marketed to them, as Steve Jobs has shown time and again.
some of that, yes.
also, you get to understand what good deals smell like.
also, you get to understand what good deals smell like.
Perhaps, but the overriding salient point is whether or not you can take the investing "ability" out of the individual performant VC, implant it into a random human being in the developed world, and still predict a performant future for that individual. I mean, obviously it's not lost on anybody that network, means, opportunity, and luck play a big part of the whole picture. But what I'm starting to think is that you could take investing "ability" out of any successful VC, and leave them with their current station (network, means, opportunity, and luck), and they will perform as admirably as before.
What was the result, formally?
What do you expect journalists and writers to do? The true secrets to success haven't changed since the days of Aristotle: go at something you love with hard work and perseverance and when (and if) the world meets you halfway, you'll find success. But repeating that story won't get you to the front page of HN, or even basic readership, or even comments in your comment section.
From his interview[1] with Sarah Lacy, I believe he would agree with you. The paraphrased quote[2]:
At this point, the still unsophisticated investor got caught up in the realities of human nature that make people attribute their successes to their personal genius while attributing failures to bad luck. In reality, he says, the exact opposite is the case.
[1] https://www.youtube.com/watch?v=iqUG2_cmZ6I It is long. I recommend watching it fully nonetheless.
[2] http://pando.com/2012/11/01/how-chris-sacca-turned-his-stude...
At this point, the still unsophisticated investor got caught up in the realities of human nature that make people attribute their successes to their personal genius while attributing failures to bad luck. In reality, he says, the exact opposite is the case.
[1] https://www.youtube.com/watch?v=iqUG2_cmZ6I It is long. I recommend watching it fully nonetheless.
[2] http://pando.com/2012/11/01/how-chris-sacca-turned-his-stude...
It's a story wrapped around randomness. That's what profiles are about more often than not.
Of course, Sacca isn't ordinary but to achieve the level of success he has had, its clear that randomness has a significant role to play (one that's vastly understated in the profile)
Of course, Sacca isn't ordinary but to achieve the level of success he has had, its clear that randomness has a significant role to play (one that's vastly understated in the profile)
This goes for anybody that 'made it'. The luck factor is discounted after the fact except by those who didn't have it.
The main factor is the size of the pool, if the pool is large enough then some will end up to be outliers and those are the ones whose profiles you will read. The profiles of one of the countless numbers of also-rans never make it.
The main factor is the size of the pool, if the pool is large enough then some will end up to be outliers and those are the ones whose profiles you will read. The profiles of one of the countless numbers of also-rans never make it.
I don't need to read a story on mediocrity, since I'm already living it! :-)
It would be useful to create a spectrum of investments where survivorship bias is more or less likely to be the complete explanation.
From what I've read of stock investing, it's almost pure survivorship bias. The total number of investors guarantees some spectacular results by luck alone.
To what extent is angel investing similar, and different? Angels often have significant business experience and some insider knowledge (i.e. They may know the person or industry in question far better than the market on the whole could)
On the other hand, there are a fair number of angels, which raises the odds of survivorship bias.
From what I've read of stock investing, it's almost pure survivorship bias. The total number of investors guarantees some spectacular results by luck alone.
To what extent is angel investing similar, and different? Angels often have significant business experience and some insider knowledge (i.e. They may know the person or industry in question far better than the market on the whole could)
On the other hand, there are a fair number of angels, which raises the odds of survivorship bias.
It's simple - these stories attract the most eyeballs. Ever seen a black swan?
I don't know how a profile of Chris Sacca could omit how he was a math prodigy who hated math, never went to class for law school or lost $8 million dollars trading in the stock market and refused to declare bankruptcy, instead paying back creditors over many years.
Here is a video of him talking about it with Kevin Rose https://www.youtube.com/watch?v=0cWl9UTHZoE
Great interview with Sacca - highly recommended. Thanks for posting.
If you haven't heard it before then I'd definitely recommend listening to Sacca's critique of Blumberg pitch on TAL:
http://www.thisamericanlife.org/radio-archives/episode/533/i...
I've heard a lot of people pitch but I'm not sure I've heard anyone pitch better than Sacca can do while ad-libbing.
http://www.thisamericanlife.org/radio-archives/episode/533/i...
I've heard a lot of people pitch but I'm not sure I've heard anyone pitch better than Sacca can do while ad-libbing.
I agree that he did a great job, but consider the power of circumstances: it's a lot easier to pitch when pitching is an intellectual exercise for you, instead of the full expression of what you are and hope to be in this world as a person, delivered to the gatekeeper of the capital you need to make that journey, who will not give you a second chance if you fuck up, and without whom you're destined to go back to living in your mother's basement, a broken and destitute man shunned by society. Or back to Yahoo or Stanford or wherever you came from.
Perhaps it's psychological. I've often found that if I build up stakes for a test/interview/application, I perform far worse than attempting it with a more frivolous attitude.
It is almost an artform as to how Sacca did that pitch. I have hear it in an environment where a high energy debating teams were going head to head on contentious subjects.
I recommend listening to the whole Blumberg's Startup podcast, where that pitch came from. While you shouldn't take it as a lecture on how to start a business, it's certainly entertaining, well produced and it shows you that side of the story that you usually don't get to hear.
http://gimletmedia.com/show/startup/
http://gimletmedia.com/show/startup/
Altruistic first-money angel investors, like Mark Markkula at Apple or YC with Airbnb, deserve a ton of credit for the success of their startups. People who glom on to hot startups launched by already-successful Silicon Valley insiders deserve less. Twitter and Uber did not need help to exist the way Apple or Airbnb did.
Angel investors should be judged by what they help bring into the world, the value they create, not how rich they get from doing backdoor deals with JP Morgan. That's how you judge lawyers.
Angel investors should be judged by what they help bring into the world, the value they create, not how rich they get from doing backdoor deals with JP Morgan. That's how you judge lawyers.
The article talks about the work that Sacca did by tenaciously evangelizing Twitter in the early days. I don't think the article mentioned it, but he did the same for Instagram. He was all over it, posting non-stop!
You shouldn't assume he made no contributions simply because he was also clever enough to make himself mega-rich.
You shouldn't assume he made no contributions simply because he was also clever enough to make himself mega-rich.
As if "clever enough" is all it takes.
Would be really interested to see how big an effect the massive doubling down on Twitter and Uber had vs. if he had just been an a more normal super early investor. Did he generate the over the top amazing returns mainly by being first into great companies, or mainly by being crazy enough to make outsize allocations for the winners?
tl;dr loudmouth with a penchant for social media and oddball cowboy shirts made a lot of money investing in startups
As Spock once said, "Colloquially expressed, but essentially correct."