8 ms·

I feel like when ever you need to put that much money into an idea, it’s likely not an effecient use of money. For instance, if you invest in 200 startups at $

I feel like when ever you need to put that much money into an idea, it’s likely not an effecient use of money. For instance, if you invest in 200 startups at $5m each, you’re more likely to get better returns, than betting almost $1b on a single company. There’s higher risk with the one company (probably). Further, and to the point on efficiency. There is diminishing returns to the effectiveness of investment, in most cases. You can get to MVP for most companies with very little, if any capital. Then the product in most cases should sell itself (needing less investment). At $1b you’re either artificially propping the market, blundering around for an idea, or have a high capital intensive industry like building rockets or railroad tracks. I understand they may be building autonomous vehicles, but certainly the winner of that race is going to Win using technology, not manufacturing the vehicle. Perhaps I’m wrong, idk.

gomox 8y ago
Liquidation preferences make it so that usually the large investment is a lot less risky than the smaller ones. It's also a lot less likely to have outsized returns (50x?), but at those levels of capital, almost no investment is able to.
- plouffy 8y ago
  It's also a capital issue. Softbank has so much money, that looking at $5m companies is just not worth their time.
izzydata 8y ago
Wouldn't there be problems with investing in 200 competing businesses?
GistNoesis 8y ago
Investing money disproportionately also have a self-fulfilling prophecy effect. It gives your player such a disproportionate advantage over the others, that others probably won't be able to compete, therefore improving your odds of success.
- jamestimmins 8y ago
  Presumably it also ensures that competitors will have an incredibly hard time raising money.
- subjectHarold 8y ago
  It really doesn't. You may be able to push up the price but higher prices mean lower returns. What you are hoping for is that you will pile money in, for some unknown reason other people will panic and try to bid, and then you sell to them. Just fyi though: I have worked in markets for about ten years...I have seen this over and over. I studied economic history...I have read about this over and over. And the subject almost never makes it out alive. Usually, this is psychological. Most people get involved with clear heads but that clarity doesn't survive the rush of the bull market/greed...they want more, they start to believe their own bullshit, they end up fully invested at the top...they get carried out of the market.
- kkotak 8y ago
  Cases in point Groupon, Uber, Magic leap, Instacart, Theranos.
iooi 8y ago
Perhaps there is a (small) chance that the people in charge of managing SVF's $100 billion fund have a better idea of how to manage that volume of money than you. The overhead of sourcing and dealing with 200 investments is not small: they've only managed to invest $50 billion of their fund. Their minimum check size is $100 million. [1] [1] https://www.axios.com/softbank-vision-fund-1517515371-c269cc95-dbb9-4457-8ac3-f7e444d10570.html https://www.axios.com/softbank-vision-fund-1517515371-c269cc...
- fierro 8y ago
  is there a word for this misstep or bias or whatever it would be called? When you make an un-credentialed analysis/criticism of another entity's action when that entity specializes in and is ostensible optimized for that action? I see this on HN all the time, it's quite tiresome.
  - eanzenberg 8y ago
    Fanboyism
  - camdenlock 8y ago
    Dunning-Kruger effect?
  - mhb 8y ago
    Arrogance
  - delish 8y ago
    Other people are using words like "arrogance", "fanboyism", but there's a fun, short, free book on the question, "Under what circumstances are you justified in choosing to avoid epistemic modesty and assert that you know better than experts?" It's Inadequate Equilibria by Eliezer Yudkowsky: https://equilibriabook.com/inadequacy-and-modesty/ https://equilibriabook.com/inadequacy-and-modesty/ Yudkowsky agreed with a small group of economists, and disagreed with the Japanese equivalent of the Federal Reserve. You might think, "The Japanese Federal Reserve has every incentive and resource to be correct about growth policies, and this small group of economists has no insight they don't have," but the story is more complicated than that.
fipple 8y ago
200 companies at $5m is only a billion dollars. Softbank is deploying close to 100 times that, so they write checks 100 times the size.
bluGill 8y ago
Some things are fundamentally harder (more expensive) than others. Anyone here can make an autonomous car in a couple days (raspberry pi, GPS, some stepper motors...) - fortunately we are all smart enough to know that if we put it on public roads it would kill someone and so we don't. There are vast orders of magnitude more effort required to make the above contraption safe. I don't know how much it takes to build a safe autonomous car - and nobody else does either as it is uncharted territory. Google and a few others have made progress but they have limits which they are still trying to figure out.
maxxxxx 8y ago
Managing investments in 200 companies is a lot of work though.
stanfordkid 8y ago
> I feel like when ever you need to put that much money into ?an idea, it’s likely not an effecient use of money. For instance, if you invest in 200 startups at $5m each, you’re more likely to get better returns, than betting almost $1b on a single company. There’s higher risk with the one company (probably). There are fewer entities that can place bets like that, which means that it is unexplored and likely has more opportunities. Seed funds with $20mm are a dime a dozen. With this being said the failures are much more catastrophic when such investments are done blindly, without fundamental market / technology forces (e.g take a look at Theranos or Better Place). I believe this is what you are alluding to. Good investments in this $100mm + category are precisely justified in terms of demand and precisely justified in proof of technology execution -- they are largely for scaling technology to fit a known demand. A fundamental paradigm shift happened in the past decade which Peter Thiel describes as "moving from the world of bits to the world of atoms" ... this necessitates larger capex to win. With software the scaling costs are constant, with atoms -- they become linear. This paradigm shift was driven by mobile technology and AI ... so the world is completely different from the days when spreading 10 $1mm bets was a solid strategy. One of the fundamental problems with applying past intelligence is that it was built on top of a different world.
mikekchar 8y ago
Sometimes I think Softbank is actually just parking money. For example, their Uber investment doesn't make any sense to me except that they have preference. If you've got billions it's probably hard to find opportunities with potential upside but limited downside. I also vaguely wonder about their connection with Saudi Arabia. My understanding is that the money isn't just available -- it comes available as investment opportunities arise. In other words, they need to find opportunities to spend a couple of billion here or there, but where it's a quick pitch to the investors who are fronting the money. I have no idea if this investment is part of that "Vision Fund", though, and it's pure speculation on my part.

gomox 8y ago

Liquidation preferences make it so that usually the large investment is a lot less risky than the smaller ones. It's also a lot less likely to have outsized returns (50x?), but at those levels of capital, almost no investment is able to.

plouffy 8y ago
It's also a capital issue. Softbank has so much money, that looking at $5m companies is just not worth their time.

izzydata 8y ago

Wouldn't there be problems with investing in 200 competing businesses?

GistNoesis 8y ago

Investing money disproportionately also have a self-fulfilling prophecy effect. It gives your player such a disproportionate advantage over the others, that others probably won't be able to compete, therefore improving your odds of success.

jamestimmins 8y ago
Presumably it also ensures that competitors will have an incredibly hard time raising money.
subjectHarold 8y ago
It really doesn't. You may be able to push up the price but higher prices mean lower returns. What you are hoping for is that you will pile money in, for some unknown reason other people will panic and try to bid, and then you sell to them. Just fyi though: I have worked in markets for about ten years...I have seen this over and over. I studied economic history...I have read about this over and over. And the subject almost never makes it out alive. Usually, this is psychological. Most people get involved with clear heads but that clarity doesn't survive the rush of the bull market/greed...they want more, they start to believe their own bullshit, they end up fully invested at the top...they get carried out of the market.
kkotak 8y ago
Cases in point Groupon, Uber, Magic leap, Instacart, Theranos.

iooi 8y ago

Perhaps there is a (small) chance that the people in charge of managing SVF's $100 billion fund have a better idea of how to manage that volume of money than you. The overhead of sourcing and dealing with 200 investments is not small: they've only managed to invest $50 billion of their fund. Their minimum check size is $100 million. [1] [1] https://www.axios.com/softbank-vision-fund-1517515371-c269cc95-dbb9-4457-8ac3-f7e444d10570.html https://www.axios.com/softbank-vision-fund-1517515371-c269cc...

fierro 8y ago
is there a word for this misstep or bias or whatever it would be called? When you make an un-credentialed analysis/criticism of another entity's action when that entity specializes in and is ostensible optimized for that action? I see this on HN all the time, it's quite tiresome.
- eanzenberg 8y ago
  Fanboyism
- camdenlock 8y ago
  Dunning-Kruger effect?
- mhb 8y ago
  Arrogance
- delish 8y ago
  Other people are using words like "arrogance", "fanboyism", but there's a fun, short, free book on the question, "Under what circumstances are you justified in choosing to avoid epistemic modesty and assert that you know better than experts?" It's Inadequate Equilibria by Eliezer Yudkowsky: https://equilibriabook.com/inadequacy-and-modesty/ https://equilibriabook.com/inadequacy-and-modesty/ Yudkowsky agreed with a small group of economists, and disagreed with the Japanese equivalent of the Federal Reserve. You might think, "The Japanese Federal Reserve has every incentive and resource to be correct about growth policies, and this small group of economists has no insight they don't have," but the story is more complicated than that.

fipple 8y ago

200 companies at $5m is only a billion dollars. Softbank is deploying close to 100 times that, so they write checks 100 times the size.

bluGill 8y ago

Some things are fundamentally harder (more expensive) than others. Anyone here can make an autonomous car in a couple days (raspberry pi, GPS, some stepper motors...) - fortunately we are all smart enough to know that if we put it on public roads it would kill someone and so we don't. There are vast orders of magnitude more effort required to make the above contraption safe. I don't know how much it takes to build a safe autonomous car - and nobody else does either as it is uncharted territory. Google and a few others have made progress but they have limits which they are still trying to figure out.

maxxxxx 8y ago

Managing investments in 200 companies is a lot of work though.

stanfordkid 8y ago

> I feel like when ever you need to put that much money into ?an idea, it’s likely not an effecient use of money. For instance, if you invest in 200 startups at $5m each, you’re more likely to get better returns, than betting almost $1b on a single company. There’s higher risk with the one company (probably). There are fewer entities that can place bets like that, which means that it is unexplored and likely has more opportunities. Seed funds with $20mm are a dime a dozen. With this being said the failures are much more catastrophic when such investments are done blindly, without fundamental market / technology forces (e.g take a look at Theranos or Better Place). I believe this is what you are alluding to. Good investments in this $100mm + category are precisely justified in terms of demand and precisely justified in proof of technology execution -- they are largely for scaling technology to fit a known demand. A fundamental paradigm shift happened in the past decade which Peter Thiel describes as "moving from the world of bits to the world of atoms" ... this necessitates larger capex to win. With software the scaling costs are constant, with atoms -- they become linear. This paradigm shift was driven by mobile technology and AI ... so the world is completely different from the days when spreading 10 $1mm bets was a solid strategy. One of the fundamental problems with applying past intelligence is that it was built on top of a different world.

mikekchar 8y ago

Sometimes I think Softbank is actually just parking money. For example, their Uber investment doesn't make any sense to me except that they have preference. If you've got billions it's probably hard to find opportunities with potential upside but limited downside. I also vaguely wonder about their connection with Saudi Arabia. My understanding is that the money isn't just available -- it comes available as investment opportunities arise. In other words, they need to find opportunities to spend a couple of billion here or there, but where it's a quick pitch to the investors who are fronting the money. I have no idea if this investment is part of that "Vision Fund", though, and it's pure speculation on my part.