3 ms·

Using that heuristic, I'll predict a couple more things. One is that investors will increasingly be unable to wait for startups to have "traction" before they p

Using that heuristic, I'll predict a couple more things. One is that investors will increasingly be unable to wait for startups to have "traction" before they put in significant money. To an outsider, this sounds like a small-scale version of the events that caused the Dot-com bubble: Investors race to fund ever-shorter rounds of companies that might someday be valuable, but have nothing right now but a sales pitch and a website. This arrangement would benefit a company like YCombinator, who seem to successfully fund companies based on little more than gut feel. But taking away "success as a predictor of success" from the VCs' playbook, would they have another strategy that beats random guessing? The Dot-com bubble suggests "no." Hopefully the small average investment really does turn the math on its head!

rguzman 16y ago
That's sort of the point: investors will need to know more than just how to evaluate pitches in order to make good investments. I'm not sure that there is a "strategy" to evaluate startups very early. What needs be done depends heavily on the situation. However, it seems that it is possible to beat random guessing.
donaldc 16y ago
This is why it will be important as an investor to actually understand the business area that the startup is getting into. The problem with the dotcom bubble wasn't that there was pressure for investors to make a decision; the problem was that many investors put in their money without any clue as to even what the companies they were investing in actually did.
- mattmanser 16y ago
  I think you miss the point, there's a massive gap between understanding a market and successfully capturing it. Regardless of a VCs understanding of it, if the founders can't capitalize on it, but can talk the talk, it's gonna fail. Some successful sales actually prove a basic level of competence. It also shows the founders have a whole host of other skills, they can run a basic company, have some sort of idea how to market let alone gain traction, there really is a market for the product rather than vague projections, etc.
pg 16y ago
There was more driving the Bubble than investors deciding early which startups to fund. For one thing there was another entire layer of guessing, as noob LPs poured money into venture funds created by noob VCs. That's not happening now. In fact the situation is the opposite; the VC business is contracting.

rguzman 16y ago

That's sort of the point: investors will need to know more than just how to evaluate pitches in order to make good investments. I'm not sure that there is a "strategy" to evaluate startups very early. What needs be done depends heavily on the situation. However, it seems that it is possible to beat random guessing.

donaldc 16y ago

This is why it will be important as an investor to actually understand the business area that the startup is getting into. The problem with the dotcom bubble wasn't that there was pressure for investors to make a decision; the problem was that many investors put in their money without any clue as to even what the companies they were investing in actually did.

mattmanser 16y ago
I think you miss the point, there's a massive gap between understanding a market and successfully capturing it. Regardless of a VCs understanding of it, if the founders can't capitalize on it, but can talk the talk, it's gonna fail. Some successful sales actually prove a basic level of competence. It also shows the founders have a whole host of other skills, they can run a basic company, have some sort of idea how to market let alone gain traction, there really is a market for the product rather than vague projections, etc.

pg 16y ago

There was more driving the Bubble than investors deciding early which startups to fund. For one thing there was another entire layer of guessing, as noob LPs poured money into venture funds created by noob VCs. That's not happening now. In fact the situation is the opposite; the VC business is contracting.