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I would hardly consider "spray and pray" to be a "professional" approach to investing, although this aligns perfectly with my experience with many VC firms. The

by yborg 10y ago

I would hardly consider "spray and pray" to be a "professional" approach to investing, although this aligns perfectly with my experience with many VC firms. The key skill there is sales ability with the types of investor that also allocate large amounts of other people's capital on the basis of gut feels and lunches at expensive eateries.

mbesto 10y ago
Ok, I'll be more diplomatic - not spray and pray, but a "portfolio approach".
- ska 10y ago
  Hah. I think you're off a bit though. There is a place for diligence at early VC stage, but it is almost entirely about the people.
  - mbesto 10y ago
    That's not necessarily a technology due diligence then...
    - ska 10y ago
      Fair, it's more of a technical (and other) competence DD
gmarx 10y ago
I'd argue (if provided with beer and a forum) that it is a very professional approach once you acknowledge that once you have applied a pretty low bar BS filter, the average, and probably great VC, has no better way of predicting massive success than a crap flinging monkey. Oh, coupled with the fact that almost all VC returns come from the gigantic winners.
Retric 10y ago
It's surprisingly hard to beat random investing. The problem is analysis costs money and having less money lowers your odds. On top of that the classic VC's 2/20 can make money even if the fund loses money creating a huge bias to just pick something.
- fapjacks 10y ago
  So, honest question... What is stopping a government- or non-profit-run VC firm from investing pretty much randomly, where all of the lottery winnings go right back into the fund? Or does randomized investing not put out a net win in the end? Including companies that really go on to make billions, I would think something like this would be sustainable. But again, I have no idea. It just seems like it would be worthwhile to have an investment machine which didn't need to pay for someone's megayacht in the process of reaping returns and investing that money in even more companies.
  - Retric 10y ago
    Wall-street/VC's is focused on convincing people and well funded organizations to part with their money. Thus they need to be able to talk up their choices. Even if it's just "we only employ people from MIT and Harvard so can trust us." But, everyone does that so they really want to be able to say: "I had the foresight to invest in Google so you should trust my judgement." That said, they could also just randomly choose without telling anyone and justify actions after the fact. But, as you might guess nobody who does that is going to say they did it that way. The basic problem is if your going to randomly pick then why should I pay you anything? PS: One fund did chose to fund every YC company which is close to a random choice.
    - fapjacks 10y ago
      Just to throw something back to your question: Because you showed that randomized investing is a net win, and that your randomization methods are robust. Of course I'm still very curious if this is the case about randomized investing being a net win (though my instinct is that investing in startups is no different than investing in the stock market, and therefore at least as good as randomly investing, because no one has a crystal ball). But if you can just literally show people the numbers... "Hey, put $50k in the pot, X years later, you get $85k out." Or whatever, of course. I just think it would be worthwhile -- seeing that the government already does invest in the stock market -- for the same to feed startups.

by yborg 10y ago

mbesto 10y ago

Ok, I'll be more diplomatic - not spray and pray, but a "portfolio approach".

ska 10y ago
Hah. I think you're off a bit though. There is a place for diligence at early VC stage, but it is almost entirely about the people.
- mbesto 10y ago
  That's not necessarily a technology due diligence then...
  - ska 10y ago
    Fair, it's more of a technical (and other) competence DD

gmarx 10y ago

I'd argue (if provided with beer and a forum) that it is a very professional approach once you acknowledge that once you have applied a pretty low bar BS filter, the average, and probably great VC, has no better way of predicting massive success than a crap flinging monkey. Oh, coupled with the fact that almost all VC returns come from the gigantic winners.

Retric 10y ago

It's surprisingly hard to beat random investing. The problem is analysis costs money and having less money lowers your odds. On top of that the classic VC's 2/20 can make money even if the fund loses money creating a huge bias to just pick something.

fapjacks 10y ago
So, honest question... What is stopping a government- or non-profit-run VC firm from investing pretty much randomly, where all of the lottery winnings go right back into the fund? Or does randomized investing not put out a net win in the end? Including companies that really go on to make billions, I would think something like this would be sustainable. But again, I have no idea. It just seems like it would be worthwhile to have an investment machine which didn't need to pay for someone's megayacht in the process of reaping returns and investing that money in even more companies.
- Retric 10y ago
  Wall-street/VC's is focused on convincing people and well funded organizations to part with their money. Thus they need to be able to talk up their choices. Even if it's just "we only employ people from MIT and Harvard so can trust us." But, everyone does that so they really want to be able to say: "I had the foresight to invest in Google so you should trust my judgement." That said, they could also just randomly choose without telling anyone and justify actions after the fact. But, as you might guess nobody who does that is going to say they did it that way. The basic problem is if your going to randomly pick then why should I pay you anything? PS: One fund did chose to fund every YC company which is close to a random choice.
  - fapjacks 10y ago
    Just to throw something back to your question: Because you showed that randomized investing is a net win, and that your randomization methods are robust. Of course I'm still very curious if this is the case about randomized investing being a net win (though my instinct is that investing in startups is no different than investing in the stock market, and therefore at least as good as randomly investing, because no one has a crystal ball). But if you can just literally show people the numbers... "Hey, put $50k in the pot, X years later, you get $85k out." Or whatever, of course. I just think it would be worthwhile -- seeing that the government already does invest in the stock market -- for the same to feed startups.