5 ms·
That's extremely interesting, thanks for sharing. Think about the decision that he had to make in 2016. He had to choose between admiting his mistake and doubl
by fwdpropaganda 9y ago
That's extremely interesting, thanks for sharing.
Think about the decision that he had to make in 2016. He had to choose between admiting his mistake and doubling down. The downside of admitting his mistake is that he's guaranteed to get negative points; the upside is that it will minimise futures downsides. By dubling down, he's guaranteed to reduce his negative points in 2016 but exposes himself to magnified upsides (if he's proven right) and downsides (if he's proven wrong) in the future.
Now think rationally how you'd choose. The second strategy is a lot riskier so it better have better return as well! But the second strategy can only have higher reward if you either believe high probability of future upsides (i.e. Theranos might be faking till you make it, but they'll make it) or low probability of future downsides (i.e. I'm not sure what's going on, but definitely not fraud). I submit that the only way that you could come to believe either is if you're hugely misinformed about the company.
I.e. that guy is just a bit incompetent.
- taurath 9y agoMy understanding is that competence only matters when other people are giving you money, and doesn't matter at all when you're giving people money. I think you're really overestimating the downsides.
- fwdpropaganda 9y agoReputation is everything in this business. I think you're underestimating the downsides.
- taurath 9y agoEvery VC has 100s of failures. He just proved that he will go to bat for his startups even if they're doing fishy stuff :P
- nradov 9y agoThose kind of decisions are made on a purely emotional, reactive basis without going through the rational game theory analysis you laid out. Most wealthy investors are no more rational than the rest of us.
- jjoonathan 9y agoAn iterated game will tune emotional responses to achieve the same end. Draper has no doubt had many chances in his life to provide negative but true and positive but false comments on his investments. If society punishes negative but true comments he's damn well going to notice and make fewer of them. If society further fails to punish positive but false comments about his investments, he's not going to invest the mental resources that would be required to avoid them. A little experience substitutes for a lot of strategy.
- fwdpropaganda 9y agoWhat do you mean, "than the rest of us". That's how I think, so I have no reason to believe that other people can't do the same.
- nradov 9y agoHow sure are you that you really think that way? Most people make decisions based on emotion and intuition, then rationalize those decisions after the fact and fool themselves into believing they were rational from the start. Since human memory is so unreliable it's almost impossible to accurately determine which decision making process you actually followed.
- sulam 9y agoI think you're ignoring the iterated nature of the game he plays. He is looking for founders to fund -- deal flow is the lifeblood of any VC. This is a signal like many other, and what it says is "As an early stage investor I absolutely have your back."
- jonny_eh 9y agoSeems fine for entrepreneurs running scams. Honest founders would rather work with honest VCs.
- iopuy 9y agoJust curious where you heard the phrase "deal flow is the lifeblood of any VC". I read that exact line last night from a book.
- sulam 9y agoFunny. I didn’t know I was quoting anything - this may just be an obvious statement to people who have investigated the economics of venture capital.