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The only pattern is "resourceful" founders and plenty of money. Saying there is science behind investing in early stage startups is like saying there is science

The only pattern is "resourceful" founders and plenty of money. Saying there is science behind investing in early stage startups is like saying there is science in finding out successful humans. It's all hogwash. Market size, MRR, ARR TAM, PAM, CAM, WHAM are all absolutely irrelevant and just straws that investors like to clutch to when they have no idea what to do. (Microsoft started writing basic programs with just few thousand basic programmers, facebook was hotornot app, google was a search app etc etc) What really matters is how obstinate the founders are. And equally important is how much money they have. It's much more predictable to invest in stocks even if they are the sum of human emotions.

awb 7y ago
> The only pattern is "resourceful" founders and plenty of money. The market is pretty important too.
- AznHisoka 7y ago
  What are some ways to determine how big a market is currently and how big it will be?
  - awb 7y ago
    For mature industries you can probably look at published government stats or aggregate the financials of leading companies. For new industries, it's a ballpark guess. For example, no one knew the market size of social media before Facebook. The best you can do is look at related industries like online search advertising and guess as to how much more people might pay to target ads based on a social media profile versus a Google search.
  - lincolnq 7y ago
    Ooh, good question. (How big a market is currently is a matter of simple research, so I’m mostly interested in trying to guess about how a market will change.) I think the way most investors do it is probably by maintaining a “story” about how the world will change that most people haven’t realized, and then matching that story up with ideas they hear. I’m not sure if there is a more robust or rational approach that actually works. The ideal investment plan would evaluate each idea/“potential market” on the expected value of market size, averaging various plausible scenarios according to their probabilities. But I don’t think many people can run a process like that without injecting a ton of priors about how the world will evolve... it all seems to devolve into an argument over which macro trends matter in the next 10 years or so.
    - AznHisoka 7y ago
      What types of data would one look at to try and back up that story?
      - pge 7y ago
        talk to potential customers. Don’t ask them if they like the product idea. Try to understand if the problem it solves is a burning problem.
  - streetcat1 7y ago
    open-source projects from big companies. But when they are young. For example, TensorFlow 0.5, etc. Also, look at the early access features of cloud offerings. Those companies have 10's of product managers that listen to 10000's of customers. And, they will not get into a market that is not 10B.
mdorazio 7y ago
I don't really agree with the first part. The world is packed with startup founders who are obstinately cranking away on ideas years after it's become obvious to everyone that it will never work. Things that increase the small chance of success are addressable market size, timing, founder track record, and product-market fit. I agree with you on available capital since it enables teams to pivot multiple times, try things that might not work, and scale quickly at massive deficits by undercutting competitors and spending heavily on marketing.
- ganeshkrishnan 7y ago
  This is why I quoted "resourceful" because this is not intelligence or anything quantifiable. Success has almost nothing to do with intelligence, if intelligence can even be precisely defined. I remember the CEO of Redhat quoting that he decided to do a startup because he thought he was not intelligent enough for working. "Resourceful" is switching plans and finding a way to make it work. Addressable market and market fit changes as startup evolves. And founder track record only works because of network connections , VCs trusting you with money and the founder already being rich. As with everything hamfisting money into startup increases it's chances. Uber for dog walking? electric scooters? What's the saying.. When the wind blows hard enough, even chickens can fly.
thorwasdfasdf 7y ago
Market is far more important than founders or how much money they have. How much money they have is almost irrelevant because if there's an opportunity there they can get traction and if they get traction, they can always get more money. Start ups don't fail because they didn't have enough runway, they fail because they don't get traction. Market is by far the most important factor. You can't do anything at all if no one wants to buy what you've made. Even founders without much experience will do quite well if there's market demand for what they're building.

awb 7y ago

> The only pattern is "resourceful" founders and plenty of money. The market is pretty important too.

AznHisoka 7y ago
What are some ways to determine how big a market is currently and how big it will be?
- awb 7y ago
  For mature industries you can probably look at published government stats or aggregate the financials of leading companies. For new industries, it's a ballpark guess. For example, no one knew the market size of social media before Facebook. The best you can do is look at related industries like online search advertising and guess as to how much more people might pay to target ads based on a social media profile versus a Google search.
- lincolnq 7y ago
  Ooh, good question. (How big a market is currently is a matter of simple research, so I’m mostly interested in trying to guess about how a market will change.) I think the way most investors do it is probably by maintaining a “story” about how the world will change that most people haven’t realized, and then matching that story up with ideas they hear. I’m not sure if there is a more robust or rational approach that actually works. The ideal investment plan would evaluate each idea/“potential market” on the expected value of market size, averaging various plausible scenarios according to their probabilities. But I don’t think many people can run a process like that without injecting a ton of priors about how the world will evolve... it all seems to devolve into an argument over which macro trends matter in the next 10 years or so.
  - AznHisoka 7y ago
    What types of data would one look at to try and back up that story?
    - pge 7y ago
      talk to potential customers. Don’t ask them if they like the product idea. Try to understand if the problem it solves is a burning problem.
- streetcat1 7y ago
  open-source projects from big companies. But when they are young. For example, TensorFlow 0.5, etc. Also, look at the early access features of cloud offerings. Those companies have 10's of product managers that listen to 10000's of customers. And, they will not get into a market that is not 10B.

mdorazio 7y ago

I don't really agree with the first part. The world is packed with startup founders who are obstinately cranking away on ideas years after it's become obvious to everyone that it will never work. Things that increase the small chance of success are addressable market size, timing, founder track record, and product-market fit. I agree with you on available capital since it enables teams to pivot multiple times, try things that might not work, and scale quickly at massive deficits by undercutting competitors and spending heavily on marketing.

ganeshkrishnan 7y ago
This is why I quoted "resourceful" because this is not intelligence or anything quantifiable. Success has almost nothing to do with intelligence, if intelligence can even be precisely defined. I remember the CEO of Redhat quoting that he decided to do a startup because he thought he was not intelligent enough for working. "Resourceful" is switching plans and finding a way to make it work. Addressable market and market fit changes as startup evolves. And founder track record only works because of network connections , VCs trusting you with money and the founder already being rich. As with everything hamfisting money into startup increases it's chances. Uber for dog walking? electric scooters? What's the saying.. When the wind blows hard enough, even chickens can fly.

thorwasdfasdf 7y ago

Market is far more important than founders or how much money they have. How much money they have is almost irrelevant because if there's an opportunity there they can get traction and if they get traction, they can always get more money. Start ups don't fail because they didn't have enough runway, they fail because they don't get traction. Market is by far the most important factor. You can't do anything at all if no one wants to buy what you've made. Even founders without much experience will do quite well if there's market demand for what they're building.