5 ms·

It's not that exactly. It's that investors are more interested in making money than "ideas". And they feel that people who have a good track record of deliver

by rmah 10y ago

It's not that exactly. It's that investors are more interested in making money than "ideas". And they feel that people who have a good track record of delivering results are more likely to make them money than unknown an team with a great idea. Part of being a good management team (which is what VC's are looking for after all) is being able to sell. Selling the concept to investors, selling the product to customers, selling benefits to partners. People's history, credentials, contacts, etc. are all part of how you sell. Just think about how hard it is to determine if someone can do a specific, relatively narrow, job when hiring. Then imagine how hard it is to determine if a team can work together, be persistent enough to see things through but flexible enough to roll with the punches as needed. To assess if the team can deliver a product, manage their finances, hire a good crew, craft a compelling marketing message, sell to customers, sound good to the media, etc, etc. This is not easy. Is it any wonder that VC's put great stock in past successes of any kind? Maybe this isn't fair. But it's how the world works. Sorry for rambling this morning :-)

wslh 10y ago
Also good ideas with a lot of value don't imply good businesses. As an example, just look at GitHub financial numbers. Another issue is the scale that makes your idea profitable, it is almost impossible to sustain growth like Facebook or Amazon did before you make a dime and they were excellent ideas with great business execution. In the past a music concert with 10k people will be enough to sustain artists, now you can have one million viewers in YouTube and receive a tiny amount in comparison.
- aaron-lebo 10y ago
  Also good ideas with a lot of value don't imply good businesses. As an example, just look at GitHub financial numbers. A lot of that is of their own doing. Github is a great business; they just got greedy. Interesting if they should fail, their failure will be cited as evidence that you can't make money hosting code (you already are). If they didn't take on millions and keep hiring engineers like crazy, they'd be doing just fine. They wouldn't be losing $66 million hosting a code repository anyway....
  - wslh 10y ago
    > A lot of that is of their own doing. Github is a great business; they just got greedy. Amazon was/is greedier and look at where they are now. My central point is that great businesses are just a small set within great ideas with lot of value. One simple example is what happened with software tools in Windows. There are great tools that provide a lot of value for the users but people are use to free software and almost nobody is buying them.
aaron-lebo 10y ago
It's not that exactly. It's that investors are more interested in making money than "ideas". And they feel that people who have a good track record of delivering results are more likely to make them money than unknown an team with a great idea. This is post-hoc justification. Google, Facebook, Reddit, and Twitter have been worth billions (Reddit the exception) for more than a decade. They've collectively innovated how much since 2005? They have a bunch of small improvements that anyone could have anticipated and purchased many of the good ideas that have come along (Occulus). Some are floundering in spite of having massive reach (Twitter), some can't anticipate uses of their platform until after it happens (Facebook). Some are dead and their founders have joined the VC game (Digg). Did Kevin Rose not look like a pretty sure bet in 2006? Whatever happened to Milk? Yet according to the "they know how to deliver" logic, they should be knocking new ideas out of the park. Where are they? Of course they have some successes but you could have some successes too if you have billions of dollars to subsidize yourself and an existing social network to support yourself and advertise your success. You throw ideas at a wall and the ones that work are evidence of know how. It's a broken metric. Honestly, there is no evidence these companies are well run except for the fact that they won, but they effectively won a lottery at which point money starts flowing in. And that's the entire VC game - you'll have some moderate successes, mostly failures, and some unicorns. As long as you hit jackpot a few times you are ok. Meanwhile, part of the VC job is selling the idea that they know what they are doing, too. And with hundreds of thousands of the world's smartest kids being funneled through the top colleges each year, you've got a lot of lottery tickets. I think it's interesting that all of these authors are at Stanford or MIT. Seems similar to the backgrounds of a lot of tech talent: Gates (Harvard), Zuckerberg (Harvard), Brin and Page (Stanford), Reddit guys (Cambridge area) you could go on and on. Maybe there would be more diversity of ideas if the people behind them weren't all coming from similar backgrounds and self-selecting to certain locales...
- nine_k 10y ago
  I suspect that buying something that is a good idea and bring it to commercial success is what an accomplished founder should be best at doing. A successful founder is usually good at telling a better idea from a worse idea ahead of time, when the competition hasn't yet done the same. A successful founder is usually good at execution, so the next logical step is to bring the idea to fruition. OTOH coming up with a new and worthy idea by oneself is much harder: most good-looking ideas do not survive a contact with the reality. This is why Google came up with Maps and Android, both hugely successful, by acquisition. This is why Facebook got its iconic "Like" functionality by acquisition. As you noted, coming up with an idea and following it through to making millions off it is a lottery. Acquiring a good idea in a semi-product shape and making millions off it is also a lottery, but with much better odds. Guess what an intelligent person would choose more often, given the choice.
jondubois 10y ago
I think the fact that people with good track records are more likely to get a good ROI is mostly a self-fulfilling prophecy. Everyone buys into the same illusion; that because someone succeeded before, that means they must have the secret sauce for success. In doing so, they forget the thing that actually matters; the product/service.
dv_dt 10y ago
We should also have a concern that "investment grade" filtering selects for relatively short windows to yield return.

by rmah 10y ago

It's not that exactly. It's that investors are more interested in making money than "ideas". And they feel that people who have a good track record of delivering results are more likely to make them money than unknown an team with a great idea. Part of being a good management team (which is what VC's are looking for after all) is being able to sell. Selling the concept to investors, selling the product to customers, selling benefits to partners. People's history, credentials, contacts, etc. are all part of how you sell. Just think about how hard it is to determine if someone can do a specific, relatively narrow, job when hiring. Then imagine how hard it is to determine if a team can work together, be persistent enough to see things through but flexible enough to roll with the punches as needed. To assess if the team can deliver a product, manage their finances, hire a good crew, craft a compelling marketing message, sell to customers, sound good to the media, etc, etc. This is not easy. Is it any wonder that VC's put great stock in past successes of any kind? Maybe this isn't fair. But it's how the world works. Sorry for rambling this morning :-)

wslh 10y ago

Also good ideas with a lot of value don't imply good businesses. As an example, just look at GitHub financial numbers. Another issue is the scale that makes your idea profitable, it is almost impossible to sustain growth like Facebook or Amazon did before you make a dime and they were excellent ideas with great business execution. In the past a music concert with 10k people will be enough to sustain artists, now you can have one million viewers in YouTube and receive a tiny amount in comparison.

aaron-lebo 10y ago
Also good ideas with a lot of value don't imply good businesses. As an example, just look at GitHub financial numbers. A lot of that is of their own doing. Github is a great business; they just got greedy. Interesting if they should fail, their failure will be cited as evidence that you can't make money hosting code (you already are). If they didn't take on millions and keep hiring engineers like crazy, they'd be doing just fine. They wouldn't be losing $66 million hosting a code repository anyway....
- wslh 10y ago
  > A lot of that is of their own doing. Github is a great business; they just got greedy. Amazon was/is greedier and look at where they are now. My central point is that great businesses are just a small set within great ideas with lot of value. One simple example is what happened with software tools in Windows. There are great tools that provide a lot of value for the users but people are use to free software and almost nobody is buying them.

aaron-lebo 10y ago

It's not that exactly. It's that investors are more interested in making money than "ideas". And they feel that people who have a good track record of delivering results are more likely to make them money than unknown an team with a great idea. This is post-hoc justification. Google, Facebook, Reddit, and Twitter have been worth billions (Reddit the exception) for more than a decade. They've collectively innovated how much since 2005? They have a bunch of small improvements that anyone could have anticipated and purchased many of the good ideas that have come along (Occulus). Some are floundering in spite of having massive reach (Twitter), some can't anticipate uses of their platform until after it happens (Facebook). Some are dead and their founders have joined the VC game (Digg). Did Kevin Rose not look like a pretty sure bet in 2006? Whatever happened to Milk? Yet according to the "they know how to deliver" logic, they should be knocking new ideas out of the park. Where are they? Of course they have some successes but you could have some successes too if you have billions of dollars to subsidize yourself and an existing social network to support yourself and advertise your success. You throw ideas at a wall and the ones that work are evidence of know how. It's a broken metric. Honestly, there is no evidence these companies are well run except for the fact that they won, but they effectively won a lottery at which point money starts flowing in. And that's the entire VC game - you'll have some moderate successes, mostly failures, and some unicorns. As long as you hit jackpot a few times you are ok. Meanwhile, part of the VC job is selling the idea that they know what they are doing, too. And with hundreds of thousands of the world's smartest kids being funneled through the top colleges each year, you've got a lot of lottery tickets. I think it's interesting that all of these authors are at Stanford or MIT. Seems similar to the backgrounds of a lot of tech talent: Gates (Harvard), Zuckerberg (Harvard), Brin and Page (Stanford), Reddit guys (Cambridge area) you could go on and on. Maybe there would be more diversity of ideas if the people behind them weren't all coming from similar backgrounds and self-selecting to certain locales...

nine_k 10y ago
I suspect that buying something that is a good idea and bring it to commercial success is what an accomplished founder should be best at doing. A successful founder is usually good at telling a better idea from a worse idea ahead of time, when the competition hasn't yet done the same. A successful founder is usually good at execution, so the next logical step is to bring the idea to fruition. OTOH coming up with a new and worthy idea by oneself is much harder: most good-looking ideas do not survive a contact with the reality. This is why Google came up with Maps and Android, both hugely successful, by acquisition. This is why Facebook got its iconic "Like" functionality by acquisition. As you noted, coming up with an idea and following it through to making millions off it is a lottery. Acquiring a good idea in a semi-product shape and making millions off it is also a lottery, but with much better odds. Guess what an intelligent person would choose more often, given the choice.

jondubois 10y ago

I think the fact that people with good track records are more likely to get a good ROI is mostly a self-fulfilling prophecy. Everyone buys into the same illusion; that because someone succeeded before, that means they must have the secret sauce for success. In doing so, they forget the thing that actually matters; the product/service.

dv_dt 10y ago

We should also have a concern that "investment grade" filtering selects for relatively short windows to yield return.