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> I've tried to explain this to VC firms. Instead of making one $2 million investment, make five $400k investments. Would that mean sitting on too many boards?

> I've tried to explain this to VC firms. Instead of making one $2 million investment, make five $400k investments. Would that mean sitting on too many boards? Don't sit on their boards. Would that mean too much due diligence? Do less. If you're investing at a tenth the valuation, you only have to be a tenth as sure. This turned out to be absolutely right, and the < $2M checks have ballooned in volume. They are invested by firms that do not take board seats and do comparatively less due diligence. That said with the benefit of more hindsight I think the reason there are no more Googles is that FAANG has a stronghold on the largest technology markets.

chrisco255 6y ago
Well, yes, but do they have that stronghold on the future of technology markets? I'm less convinced of that.
- adamsmith 6y ago
  Super interesting question. I don't know. I suspect they will dominate all the largest technology markets for the long run, unless the government intervenes. I might be wrong. They may not dominate the future of "technology markets", though, if the sum of the long tail dominates. Right now FAANG is 42% of the NASDAQ Composite 100.
- praptak 6y ago
  They filled the feasible niches for "internet-based monopoly". The next Google will have to find another way to get big.
  - lixtra 6y ago
    I remember a time when altavista was a the only serious search engine around. I recently switched from google to ddg on mobile because I got sick of clicking away the privacy waiver in private mode. If ddg would deliver better search results then google search would be in serious trouble (although it may take twice as long as yahoo to die). Of course it’s unlikely because if the talent google attracts, but that was true for IBM in the 80s as well.
- andrewjl 6y ago
  I don't think they do, at least in the long term. In the short and medium term its arguable either way. We're still at the very beginning of the era of truly distributed computing and what it tends to do when it spreads is replace centralized entities with protocols. If this sounds like a very played out line of thinking, that's because we're now in the trough of disappointment of the hype cycle. You can't expect any fundamental new tech to live up to its hype only a few decades after invention. Also not all the pieces needed have been invented yet.
benlivengood 6y ago
> That said with the benefit of more hindsight I think the reason there are no more Googles is that FAANG has a stronghold on the largest technology markets. And the FAANGs are willing to pay very large amounts of cash to acquire promising startups. EDIT: Also why is it that the majority of the large tech companies are essentially marketplaces? Is there really that much friction in traditional markets (physical goods, movies, books, ads[!], apps) to fund their spectacular rise?
- laurent92 6y ago
  Isn’t it Paul Graham who also wrote a blogpost saying “How to make a trillion dollars? Build a platform.” ?
- PakG1 6y ago
  I would say yes. Ronald Coase did some excellent work to explain how transaction costs get in the way of optimizing economic activity among and within firms. Traditional marketplaces would clearly have higher transaction costs than these newer marketplaces. Search costs are much higher, coordination costs are much higher, and data analysis is much harder. Tech has a huge advantage in making all three of these things much lower and thereby making transaction costs much lower. Heck, just by not accepting cash, I bet they make transaction costs significantly lower than the traditional marketplaces. Heck, just by not having to operate point-of-sale card swiping devices, I bet they significantly lower the transaction costs too. He won a Nobel Prize if that matters. I think his two seminal works, “The Nature of the Firm” and “The Problem of Social Cost” do really well to explain why tech is winning so much compared to traditional marketplaces. Especially “The Problem of Social Cost”, which explains how externalization of transaction costs creates advantageous and unfair effects.
  - brownbat 6y ago
    I like the Coasean analysis. Now someone needs to build the Uber for unifying affected populations to demand rents for suffered negative externalities.
    - 6y ago
eismcc 6y ago
They also have a stronghold on a lot of the talent that would make the next big thing.
- mtgx 6y ago
  As in they buy them out. There should be a more laws preventing this from happening for large corporations. We now see that Google Search is turning more and more to AI. Perhaps if Google didn't buy DeepMind, but some other smaller competitor did, they could've turned that into an advantage against Google. Either way, it was a loss for the market for DeepMind to be bought by Google instead of forcing Google to come-up with its internal competitor. Companies with billions in profit should be "incentivized" to use that money to create their own competitors against threats - not buy them all out (often just to kill them). I think we can all argue that large companies buying out small competitors is a net negative for the economy at large.
  - BlueTemplar 6y ago
    No, companies that have billions in profit have grown too big : they can just use regulatory capture to ward off real threats. The only thing that can be done is to prevent them from getting that big (economic incentives ? limited company life ?) or to shut them down completely (which needs enough popular support for a politician to do this kind of a risky move).
    - NineStarPoint 6y ago
      Regulatory capture only works if we vote in people who let them do it. It’s not a much different issue to enforcement of rules that stop companies from getting too big or shut them down. The same thing that does or doesn’t let regulatory capture happen also stands in the way of any other government attempt to control the companies.
      - BlueTemplar 6y ago
        I've noticed that regulatory capture by lobbies generally happens as a long-term process. Public opinion quickly gets tired/bored of a specific issue, while lobbyists never stop pushing. On the other hand, a politician that makes one of his/her main goals to shut down (or block if not in US) the GAFAMs (or any other giant company), might be actually able to make a real and long-lasting change. (Or the other way, to change a few of the most important laws that describe how ALL companies can function – also could be a main policy point.)
baxtr 6y ago
This seems to be in stark contrast to some of Peter Thiel’s theses. Would love to know if someone can clarify that. He argues since returns are distributed by a power law, more due diligence and fewer invests make more sense for VCs.
- CuriouslyC 6y ago
  The truth is that regardless of how well put together a firm is, break-out success is a crap shoot. A VC strategy that maximizes potential revenue (by heavy due diligence) is almost always going to end up with lower actual revenue than a VC strategy that attempts to maximize actual revenue, by having a larger, diversified basket. If the terms of the initial funding give the VC first crack/options for later rounds, all the better.
ricksunny 6y ago
Which firms filled the $400-$500k gap Paul Graham outlined the niche for? Not asking for a friend.
- ekanes 6y ago
  I would expect it's the category known as "micro-VC".
hobby-coder-guy 6y ago
>FAANG Where is Microsoft?
VikingCoder 6y ago
Gee this sounds like the argument against managed funds, in favor of index funds.
ineedasername 6y ago
Yes, thought I think the smaller $ amounts have also been helped along by reduced startup costs. Heck, a startup can literally get $100,000 of AWS credit for free. In manufacturing terms that's like getting the factory for free, you just have to configure the assembly line to build your specific product. So $400,000 will go a lot further these days than it would have 20 years ago.
- jbay808 6y ago
  20 years ago, you'd be competing with much smaller salaries from the big tech companies, which would make recruiting much easier. If you meet some smart people in college, you could more easily convince each other to try building something together, especially if they're averse to corporate 9-5 culture. Whereas now it's pretty likely that they'll have their eyes on FAANG jobs.
  - ineedasername 6y ago
    Good point, that's true. The lack of FAANG dominance at the time meant that labor cost would have been cheaper even before inflation. On the other hand, founders & early employees of startups often accept little or very reduced salaries on the prospect of large gains on exit, especially after the bubble burst & Y2K went away, leaving excess talent unused. It would be interesting to analyze the difference between the lowered infrastructure costs against increased salary costs to see what the net $ effect was in terms of funding a comparable startup. If you were willing to ignore the increased cost of scaling if/when you hit the hockey stick growth and simply opt for a few co-located dedicated servers running a LAMP stack, maybe infrastructure costs would still have been low enough that the difference would be negligible. Although you might still have needed more dedicated expertise in dev ops to manage it, increasing salary... I'm not sure. I was in college 20 years ago and not very caught up in following startup culture until a few years later.

chrisco255 6y ago

Well, yes, but do they have that stronghold on the future of technology markets? I'm less convinced of that.

adamsmith 6y ago
Super interesting question. I don't know. I suspect they will dominate all the largest technology markets for the long run, unless the government intervenes. I might be wrong. They may not dominate the future of "technology markets", though, if the sum of the long tail dominates. Right now FAANG is 42% of the NASDAQ Composite 100.
praptak 6y ago
They filled the feasible niches for "internet-based monopoly". The next Google will have to find another way to get big.
- lixtra 6y ago
  I remember a time when altavista was a the only serious search engine around. I recently switched from google to ddg on mobile because I got sick of clicking away the privacy waiver in private mode. If ddg would deliver better search results then google search would be in serious trouble (although it may take twice as long as yahoo to die). Of course it’s unlikely because if the talent google attracts, but that was true for IBM in the 80s as well.
andrewjl 6y ago
I don't think they do, at least in the long term. In the short and medium term its arguable either way. We're still at the very beginning of the era of truly distributed computing and what it tends to do when it spreads is replace centralized entities with protocols. If this sounds like a very played out line of thinking, that's because we're now in the trough of disappointment of the hype cycle. You can't expect any fundamental new tech to live up to its hype only a few decades after invention. Also not all the pieces needed have been invented yet.

benlivengood 6y ago

> That said with the benefit of more hindsight I think the reason there are no more Googles is that FAANG has a stronghold on the largest technology markets. And the FAANGs are willing to pay very large amounts of cash to acquire promising startups. EDIT: Also why is it that the majority of the large tech companies are essentially marketplaces? Is there really that much friction in traditional markets (physical goods, movies, books, ads[!], apps) to fund their spectacular rise?

laurent92 6y ago
Isn’t it Paul Graham who also wrote a blogpost saying “How to make a trillion dollars? Build a platform.” ?
PakG1 6y ago
I would say yes. Ronald Coase did some excellent work to explain how transaction costs get in the way of optimizing economic activity among and within firms. Traditional marketplaces would clearly have higher transaction costs than these newer marketplaces. Search costs are much higher, coordination costs are much higher, and data analysis is much harder. Tech has a huge advantage in making all three of these things much lower and thereby making transaction costs much lower. Heck, just by not accepting cash, I bet they make transaction costs significantly lower than the traditional marketplaces. Heck, just by not having to operate point-of-sale card swiping devices, I bet they significantly lower the transaction costs too. He won a Nobel Prize if that matters. I think his two seminal works, “The Nature of the Firm” and “The Problem of Social Cost” do really well to explain why tech is winning so much compared to traditional marketplaces. Especially “The Problem of Social Cost”, which explains how externalization of transaction costs creates advantageous and unfair effects.
- brownbat 6y ago
  I like the Coasean analysis. Now someone needs to build the Uber for unifying affected populations to demand rents for suffered negative externalities.
  - 6y ago

eismcc 6y ago

They also have a stronghold on a lot of the talent that would make the next big thing.

mtgx 6y ago
As in they buy them out. There should be a more laws preventing this from happening for large corporations. We now see that Google Search is turning more and more to AI. Perhaps if Google didn't buy DeepMind, but some other smaller competitor did, they could've turned that into an advantage against Google. Either way, it was a loss for the market for DeepMind to be bought by Google instead of forcing Google to come-up with its internal competitor. Companies with billions in profit should be "incentivized" to use that money to create their own competitors against threats - not buy them all out (often just to kill them). I think we can all argue that large companies buying out small competitors is a net negative for the economy at large.
- BlueTemplar 6y ago
  No, companies that have billions in profit have grown too big : they can just use regulatory capture to ward off real threats. The only thing that can be done is to prevent them from getting that big (economic incentives ? limited company life ?) or to shut them down completely (which needs enough popular support for a politician to do this kind of a risky move).
  - NineStarPoint 6y ago
    Regulatory capture only works if we vote in people who let them do it. It’s not a much different issue to enforcement of rules that stop companies from getting too big or shut them down. The same thing that does or doesn’t let regulatory capture happen also stands in the way of any other government attempt to control the companies.
    - BlueTemplar 6y ago
      I've noticed that regulatory capture by lobbies generally happens as a long-term process. Public opinion quickly gets tired/bored of a specific issue, while lobbyists never stop pushing. On the other hand, a politician that makes one of his/her main goals to shut down (or block if not in US) the GAFAMs (or any other giant company), might be actually able to make a real and long-lasting change. (Or the other way, to change a few of the most important laws that describe how ALL companies can function – also could be a main policy point.)

baxtr 6y ago

This seems to be in stark contrast to some of Peter Thiel’s theses. Would love to know if someone can clarify that. He argues since returns are distributed by a power law, more due diligence and fewer invests make more sense for VCs.

CuriouslyC 6y ago
The truth is that regardless of how well put together a firm is, break-out success is a crap shoot. A VC strategy that maximizes potential revenue (by heavy due diligence) is almost always going to end up with lower actual revenue than a VC strategy that attempts to maximize actual revenue, by having a larger, diversified basket. If the terms of the initial funding give the VC first crack/options for later rounds, all the better.

ricksunny 6y ago

Which firms filled the $400-$500k gap Paul Graham outlined the niche for? Not asking for a friend.

ekanes 6y ago
I would expect it's the category known as "micro-VC".

hobby-coder-guy 6y ago

>FAANG Where is Microsoft?

VikingCoder 6y ago

Gee this sounds like the argument against managed funds, in favor of index funds.

ineedasername 6y ago

Yes, thought I think the smaller $ amounts have also been helped along by reduced startup costs. Heck, a startup can literally get $100,000 of AWS credit for free. In manufacturing terms that's like getting the factory for free, you just have to configure the assembly line to build your specific product. So $400,000 will go a lot further these days than it would have 20 years ago.

jbay808 6y ago
20 years ago, you'd be competing with much smaller salaries from the big tech companies, which would make recruiting much easier. If you meet some smart people in college, you could more easily convince each other to try building something together, especially if they're averse to corporate 9-5 culture. Whereas now it's pretty likely that they'll have their eyes on FAANG jobs.
- ineedasername 6y ago
  Good point, that's true. The lack of FAANG dominance at the time meant that labor cost would have been cheaper even before inflation. On the other hand, founders & early employees of startups often accept little or very reduced salaries on the prospect of large gains on exit, especially after the bubble burst & Y2K went away, leaving excess talent unused. It would be interesting to analyze the difference between the lowered infrastructure costs against increased salary costs to see what the net $ effect was in terms of funding a comparable startup. If you were willing to ignore the increased cost of scaling if/when you hit the hockey stick growth and simply opt for a few co-located dedicated servers running a LAMP stack, maybe infrastructure costs would still have been low enough that the difference would be negligible. Although you might still have needed more dedicated expertise in dev ops to manage it, increasing salary... I'm not sure. I was in college 20 years ago and not very caught up in following startup culture until a few years later.