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(I'm the author of the post.) There's definitely some sampling bias from the post-mortem article. Alas, this is the the most relevant public data that I could

(I'm the author of the post.) There's definitely some sampling bias from the post-mortem article. Alas, this is the the most relevant public data that I could find. I do have a good (anecdotal) first-hand dataset: I've worked closely with about 50 portfolio companies at this point, and I've tracked a few dozen more that my fund didn't invest in. Maybe 5 out of the 50 had real technical risk, and 2 or 3 struggled and/or failed due to technical issues. For the remaining companies, the challenges have always been market-related, hiring-related, funding-related, and so on.

cs702 10y ago
Isn't your tech background useful for smelling technical bull%&!t?
- lpolovets 10y ago
  Yes. That's basically the only kind of tech diligence that I do at this point, and it's more conversational than diving into the tech. (And I only do this if someone is making very bold claims.)
  - cs702 10y ago
    Surely your ability to detect baloney in just a few minutes of casual conversation is far, FAR superior to that of, say, the stereotypical MBA or lawyer with zero technical expertise. There's more value in that than you suggest, I think.
    - lpolovets 10y ago
      It's definitely useful. I wasn't trying to say there was no value in a tech background in VC. Rather, I expected to use my tech skills to dive into code and understand technology a lot more, and instead I just use them as a baloney detector and a good differentiator from VCs who have non-technical backgrounds.
      - cs702 10y ago
        Makes sense. Thank you for taking the time to answer questions on HN in a thoughtful manner!
hoodwink 10y ago
You are really missing the point of due diligence... "Homeowners' insurance is a waste of money. 99% of the time your house doesn't burn down!" You don't buy insurance because you expect your house to burn down. Similarly, you don't perform due diligence because you expect to find something. You do it to catch those rare 1 out of 20 events where something is f*cked up.
- lpolovets 10y ago
  It's a little different in Venture Capital because exits follow power laws. So the big mistakes are literally the opposite of insurance: it's okay to make a lot of losing investments as long as you don't miss Airbnb. Missing out on Airbnb because you got stuck on it being 3 designers and no engineers is way worse than investing in Airbnb and 49 companies that go bankrupt.
  - hoodwink 10y ago
    Perhaps you do not use the term "due diligence" the same way that it's used in the investment management industry, which to be clear, includes "Venture Capital." "Due diligence" does not mean making a judgment call on whether three designers can build, scale, and operate a tech company. Due diligence means diving into the details of a company you are going to fund and checking, among other things, that the things they've said are valid and that there are no skeletons in the closet. Don't get me wrong: due diligence sucks for all parties involved. If you are investing your own money, you have the right to do as little work as you want and skip it, but when you are entrusted as a fiduciary of someone else's capital -- and paid for the job -- it comes with responsibility.
    - lpolovets 10y ago
      There are other factors, like Time, that influence the diligence process for (seed stage) venture capital. Investments are made at a fast cadence, which is good for founders and for investors. A seed fund might see 1000 companies in a year and invest in 10. That allows for a few hours spent on each company, but not much more than that. Similarly, a founder might meet with 50 or 100 investors before closing their round. 1-2 hours per investor will take a few months, but if investors spent too much time on diligence then a founder could spend all year just answering investors' questions. That would be like a twisted variant of the Uncertainty Principle, where just going through fundraising process basically dooms a company to fail because of the time required. Given that time is a factor and given that I have 2-4 hours to spend with the companies I'm most interested in before making a final investment decision, I've gotten the most value out of spending 95% of that time on non-tech diligence. YMMV.
nostrademons 10y ago
There's a bias to your first-hand data too: throwing money at a problem does not usually reduce technical risk, at least in software, where a larger team is usually less well-equipped to execute on technical risk. Instead, you just need wrestle with the problem and develop expertise on it. So a team working on such a startup idea is unlikely to be seeking venture funding. Instead, they're probably a university professor and a couple grad students, or just the grad students, or an eccentric genius in a garage. When they have something that works, then they'll seek venture funding to turn it into a company, but at that point the idea has already been significantly de-risked (and they'll often go to a "name brand" VC, since the de-risking of the business makes them attractive to pretty much all investors). If they never get to the point where they have something that works, then they go back to their research or get a job, and you never hear about them.

cs702 10y ago

Isn't your tech background useful for smelling technical bull%&!t?

lpolovets 10y ago
Yes. That's basically the only kind of tech diligence that I do at this point, and it's more conversational than diving into the tech. (And I only do this if someone is making very bold claims.)
- cs702 10y ago
  Surely your ability to detect baloney in just a few minutes of casual conversation is far, FAR superior to that of, say, the stereotypical MBA or lawyer with zero technical expertise. There's more value in that than you suggest, I think.
  - lpolovets 10y ago
    It's definitely useful. I wasn't trying to say there was no value in a tech background in VC. Rather, I expected to use my tech skills to dive into code and understand technology a lot more, and instead I just use them as a baloney detector and a good differentiator from VCs who have non-technical backgrounds.
    - cs702 10y ago
      Makes sense. Thank you for taking the time to answer questions on HN in a thoughtful manner!

hoodwink 10y ago

You are really missing the point of due diligence... "Homeowners' insurance is a waste of money. 99% of the time your house doesn't burn down!" You don't buy insurance because you expect your house to burn down. Similarly, you don't perform due diligence because you expect to find something. You do it to catch those rare 1 out of 20 events where something is f*cked up.

lpolovets 10y ago
It's a little different in Venture Capital because exits follow power laws. So the big mistakes are literally the opposite of insurance: it's okay to make a lot of losing investments as long as you don't miss Airbnb. Missing out on Airbnb because you got stuck on it being 3 designers and no engineers is way worse than investing in Airbnb and 49 companies that go bankrupt.
- hoodwink 10y ago
  Perhaps you do not use the term "due diligence" the same way that it's used in the investment management industry, which to be clear, includes "Venture Capital." "Due diligence" does not mean making a judgment call on whether three designers can build, scale, and operate a tech company. Due diligence means diving into the details of a company you are going to fund and checking, among other things, that the things they've said are valid and that there are no skeletons in the closet. Don't get me wrong: due diligence sucks for all parties involved. If you are investing your own money, you have the right to do as little work as you want and skip it, but when you are entrusted as a fiduciary of someone else's capital -- and paid for the job -- it comes with responsibility.
  - lpolovets 10y ago
    There are other factors, like Time, that influence the diligence process for (seed stage) venture capital. Investments are made at a fast cadence, which is good for founders and for investors. A seed fund might see 1000 companies in a year and invest in 10. That allows for a few hours spent on each company, but not much more than that. Similarly, a founder might meet with 50 or 100 investors before closing their round. 1-2 hours per investor will take a few months, but if investors spent too much time on diligence then a founder could spend all year just answering investors' questions. That would be like a twisted variant of the Uncertainty Principle, where just going through fundraising process basically dooms a company to fail because of the time required. Given that time is a factor and given that I have 2-4 hours to spend with the companies I'm most interested in before making a final investment decision, I've gotten the most value out of spending 95% of that time on non-tech diligence. YMMV.

nostrademons 10y ago

There's a bias to your first-hand data too: throwing money at a problem does not usually reduce technical risk, at least in software, where a larger team is usually less well-equipped to execute on technical risk. Instead, you just need wrestle with the problem and develop expertise on it. So a team working on such a startup idea is unlikely to be seeking venture funding. Instead, they're probably a university professor and a couple grad students, or just the grad students, or an eccentric genius in a garage. When they have something that works, then they'll seek venture funding to turn it into a company, but at that point the idea has already been significantly de-risked (and they'll often go to a "name brand" VC, since the de-risking of the business makes them attractive to pretty much all investors). If they never get to the point where they have something that works, then they go back to their research or get a job, and you never hear about them.