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There are two points that come to mind here. The first is that, in the most literal sense, maybe 99.9% of the work/insight/decisions of such a capital allocato

by Bakary 6y ago

There are two points that come to mind here. The first is that, in the most literal sense, maybe 99.9% of the work/insight/decisions of such a capital allocator are going to be utterly useless since the creation of value will come from those rare investments that balloon out of proportion. I might be paraphrasing here as I recall a high-profile VC mentioning this exact concept. Maybe it was Altman himself? The second is that even in an optimal case, it's up for debate how exceptional capital allocators are. If 99.9% of their qualities amount to nothing, are they really useful or actually gambling middlemen that could be excised from the process? We could imagine for the sake of argument that they do in fact contribute quite a bit and generate the insight necessary for that fateful 0.01% to happen (in similar fashion to the apocryphal tale of the specialist charging $1 for the hammer and $9,999 for having learned where to smash it), but it's unclear that a moderately energetic and highly but not superbly intelligent individual couldn't also do the same if given the opportunity to do so. Even then, following the most charitable interpretation of the work of an allocator, is it efficient to give them the lion's share of the profits compared to those who do the actual work? I can't say I have the answers to these questions, nor am I advocating for an immediate Marxist revolution, but I am generally skeptical of the culture fostered in the tech world around this topic.

scottLobster 6y ago
Even the best business plan with the most competent people behind it is a wild gamble filled with idiosyncratic risk and its success or failure will hinge on a substantial amount of luck. If professional hedge funds can't consistently beat a passive index fund, what makes VCs and bankers special? Steps to being a VC: 1. Have lots of money 2. Establish procedures that filter out the obvious losers, increasing odds of success from 1 in a million to maybe 1 in a thousand. 3. Leverage said money and procedures such that you statistically make money on that 1 in a thousand. It's the same way someone with infinite money can keep going back to the Casino until they hit the jackpot (assuming no house limits, this is why house limits exist actually), or buy up all the lottery tickets until they find the winning ticket. So anyone who privately funds businesses out of their own pocket is gambling, but they can't be removed because where else is the funding going to come from? Maybe you can crowd source if you have really good marketing and a popular idea. Beyond that nothing really exists on the scale of what VCs offer. If you hypothetically created a government office with a large enough budget to replicate the various VCs, perhaps it would be slightly more fair in terms of who gets access, but it would just be bureaucrats doing the gambling with taxpayer dollars instead of private entities out of their own budget, which wouldn't necessarily be any better if you look at the current state of government contracting/grants. So sadly, their money and willingness to gamble is largely their use and why they're entitled to profits. The system isn't fair and it rewards the lucky more than the deserving, but without said system a lot of cool, revolutionary stuff would never have happened. Even SpaceX and Tesla are indirect effects of the success of Paypal, which was initially funded by Peter Thiel.

by Bakary 6y ago

scottLobster 6y ago

Even the best business plan with the most competent people behind it is a wild gamble filled with idiosyncratic risk and its success or failure will hinge on a substantial amount of luck. If professional hedge funds can't consistently beat a passive index fund, what makes VCs and bankers special? Steps to being a VC: 1. Have lots of money 2. Establish procedures that filter out the obvious losers, increasing odds of success from 1 in a million to maybe 1 in a thousand. 3. Leverage said money and procedures such that you statistically make money on that 1 in a thousand. It's the same way someone with infinite money can keep going back to the Casino until they hit the jackpot (assuming no house limits, this is why house limits exist actually), or buy up all the lottery tickets until they find the winning ticket. So anyone who privately funds businesses out of their own pocket is gambling, but they can't be removed because where else is the funding going to come from? Maybe you can crowd source if you have really good marketing and a popular idea. Beyond that nothing really exists on the scale of what VCs offer. If you hypothetically created a government office with a large enough budget to replicate the various VCs, perhaps it would be slightly more fair in terms of who gets access, but it would just be bureaucrats doing the gambling with taxpayer dollars instead of private entities out of their own budget, which wouldn't necessarily be any better if you look at the current state of government contracting/grants. So sadly, their money and willingness to gamble is largely their use and why they're entitled to profits. The system isn't fair and it rewards the lucky more than the deserving, but without said system a lot of cool, revolutionary stuff would never have happened. Even SpaceX and Tesla are indirect effects of the success of Paypal, which was initially funded by Peter Thiel.