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I appreciate Fred's candor in this post and I find his position reasonable. This seems to be a response to PG's essay about superangels, including this section

by px 16y ago

I appreciate Fred's candor in this post and I find his position reasonable. This seems to be a response to PG's essay about superangels, including this section of it: "So I think VC funds are seriously threatened by the super-angels. But one thing that may save them to some extent is the uneven distribution of startup outcomes: practically all the returns are concentrated in a few big successes. The expected value of a startup is the percentage chance it's Google. So to the extent that winning is a matter of absolute returns, the super-angels could win practically all the battles for individual startups and yet lose the war, if they merely failed to get those few big winners." Recent blogs have taken issue with this claim, but I would like to see more throw their hats into the ring and specifically address the shifting dynamics among VCs, superangels, and founders.

krschultz 16y ago
True, but there have been other people arguing with more force for bimodal. pg's paragraph is fairly resonable, otheres have been more hysterical. Unfortunately, I can't dig up the links at the moment.
nandemo 16y ago
Huh? That quote doesn't say that returns are bimodal at all. Saying that "practically all the returns are concentrated in a few big successes" is consistent with a power law distribution. And saying that angels can "win battles" implies that some companies are successful without bringing huge returns.
wisty 16y ago
Another issue - backing the next google may not be as profitable as you think. The founders keep a large portion of the shares, and the IPO will raise a lot but that goes into new servers or acquisitions. Then those pesky employees want stock options. The VC firms who backed google brag about how they got 25% of a company that's now worth $600B. They don't like to mention that they were diluted (by both the IPO and employee stock options). I think they made a 100X return, which is certainly very good, but it's not as great as they make it sound. Andy Bechtolsheim, the angel who gave them $100,000 made out like a bandit though. Something like a 10,000X return, I think.
- rgrieselhuber 16y ago
  > backing the next google may not be as profitable as you think No, I'm sure it's pretty damn profitable, if you're lucky enough to invest.
  - wisty 16y ago
    My numbers might be wrong. But I think they make 100X, not 10,000X their investment. Which is still magnificent, but not enough to say that the only investement that matters is the one that turn into the next Google.

by px 16y ago

krschultz 16y ago

True, but there have been other people arguing with more force for bimodal. pg's paragraph is fairly resonable, otheres have been more hysterical. Unfortunately, I can't dig up the links at the moment.

nandemo 16y ago

Huh? That quote doesn't say that returns are bimodal at all. Saying that "practically all the returns are concentrated in a few big successes" is consistent with a power law distribution. And saying that angels can "win battles" implies that some companies are successful without bringing huge returns.

wisty 16y ago

Another issue - backing the next google may not be as profitable as you think. The founders keep a large portion of the shares, and the IPO will raise a lot but that goes into new servers or acquisitions. Then those pesky employees want stock options. The VC firms who backed google brag about how they got 25% of a company that's now worth $600B. They don't like to mention that they were diluted (by both the IPO and employee stock options). I think they made a 100X return, which is certainly very good, but it's not as great as they make it sound. Andy Bechtolsheim, the angel who gave them $100,000 made out like a bandit though. Something like a 10,000X return, I think.

rgrieselhuber 16y ago
> backing the next google may not be as profitable as you think No, I'm sure it's pretty damn profitable, if you're lucky enough to invest.
- wisty 16y ago
  My numbers might be wrong. But I think they make 100X, not 10,000X their investment. Which is still magnificent, but not enough to say that the only investement that matters is the one that turn into the next Google.