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Screw the Black Swans: Ichiro is our role model, not Barry Bonds.

183 points by relation 14y ago

pclark 14y ago
"If you set your goals ridiculously high and it’s a failure, you will fail above everyone else’s success"
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- billboebel 14y ago
  There is no startup investing strategy that can ever be considered the "right one". The best VCs and angels intimately understand their personal strengths and develop a strategy they can execute leveraging those strengths. And even more importantly and almost always overlooked is they market the hell out of that strategy, even if they don't always stick to it. PG and DM are terrific at this.
staunch 14y ago
I think the main reason 500 could work even without home runs is that they do follow on investments in the most promising companies. YC doesn't do that because it would screw every company they didn't follow on in at Demo Day. It would also probably result in less home runs if they did this because (as PG stated) the very most promising ideas already often have the hardest time at Demo Day (Fred Wilson + Airbnb). 500 startups may actually be strangling their home runs in the crib with the follow on strategy. A self-fulfilling prophecy.
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- davemthrowaway 14y ago
  Think of VCs as institutional investors who have a mandate to invest in a particular asset class. The sports metaphors do almost nothing to clarify.
  - 001sky 14y ago
    institutional investors who have a mandate to invest in a particular asset class Is a set: <large>, of which VC is: <small>. To the point of likewise meaninglesness.
    - davemthrowaway 14y ago
      The (deleted) comment that I was responding to referenced the new England patriots as an investment strategy. Do you actually think the patriots and nfl draft picks have more to offer a discussion of venture strategies than the concepts of equity investing and portfolio management which are common to many institutional investors? As another commenter pointed out, 1000x variations in returns actually happen in venture investments, they don't happen in sports.
      - 001sky 14y ago
        Understood, the parent comment is deleted. Also, understood the gist of what you are saying. But the words, as they are written, as a counter argument fail. And by that, I mean his over-broad statement you are replacing with another overbroad statement. What is left, lacks the resolution to differentiate. There is no insight into what makes a good X. One thing that does make a good X is talent scouting, and being a mentor to a professional going through a rapid growth/maturity curve. There is an art to finding talent and building relationships. There is an art to segueing those relatinships to finding the right fit for talent Z within the developmet system. Art dealers or A&R reps have similar dynamics, its not particular to sport. So, while this was latent information, it is much more powerful and interesting to determinig the performance of X than your proposed alternate formulation ("think of them as [...]"). The baby goes out with the bathwater. Institutional investors as a class are not expert at all in this. Institutional investors as a class talent spot from 3-5 top MBA programs. Institutional investors as a class know about working in the system. They may or may not know shit about running a company, disrupting the system, shoestring budget, etc. In general, VCs are not like Institutional Investors as a class. The parts that are similar are hidden from the day to day workings of the founders, etc. Where you do have merit, however, is in benchmarking perfomance returns. In that case, IIs as a class are relevant. So, ignoring how you generate returns. How big do they need to be to propogate the Firm? You can measure that. But in reality, This is just a threshold metric. Theres not much insight to this. Its not the feasible upper bound if you are studying that, etc. 20% after everything annualized? GTG. Though in context here, this is not totally irrelevant. So in maths, you might say...how many 10,000x do I need if threshold is only 1.2^n? Etc. Its not clear only one strategy is either feasible or optimal, etc. But: a strategy can be set in theory to reach 1.2^n. How do you know the probability of achieving it? If you don't understand the interdynamics of the strategy with the day to day of what makes a good X and what I can execute on as X at threshold probability...you're in trouble. And if you don't know what makes a good X...thats a problem. And so combine: Path X and Prob X = expected return. So, to understand Vc you need to understand this problem. PGs post talked alot about this. What is the path and what is the probability to sucess. What do those data look like? what are the hurdles? What are the characteristics of the athletes, etc. [And for the avoidance of doubt, this is not an opinion on any one strategy or the other, or which of the essays was better, etc. This is how to think about frameworks with enough resolution to be useful for thinking clearly]. ____________
davemthrowaway 14y ago
This is breathless nonsense. What is Dave trying to say? The only thing I gathered from this is that in his mind 500 startups can't attract or afford the most sought after yc companies and founders and.. That's ok, We're global! The math on this just doesn't make sense. By definition, the moment a fund has an investment which is a "black swan" that investment will make all the singles and "on base hits" (or whatever) insignificant to the total returns. I get that he is successful and has a lot of hutzpah but if I was an LP I wouldnt be thrilled by this.
- frinxor 14y ago
  I think pg's whole point (and Taleb's) of a black swan is that they are not identifiable. Over the long term and after many investments, pg is pointing out that its the presence of these black swans that made YC successful (dropbox, airbnb), and extending that to other VCs, its random luck that will make or break them. You can't avoid investing in black swans, because you don't know which ones they are/will be.
  - davemthrowaway 14y ago
    That wasn't how I read the black swan farming piece. From what I remember he pointed out how total returns for the fund are dominated by the black swans. Then he discussed what yc would (theoretically) look like if they were going to try to optimize for black swans but conceded that they wouldn't really want to run yc that way. In a way I think the piece flouted the concept of black swans by saying they were something you could optimize for (which I think taleb would disagree with). Regardless, the unpredictability of black swans and their potential impact on a fund's returns show the ridiculousness of Dave trying to frame this discussion as "Barry bonds vs ichiro".
    - btilly 14y ago
      Taleb not only believes that you can optimize for black swans, but he runs a fund called Universa that does exactly that. Most years it loses money. But in 2008 it had over 100% returns.
dbul 14y ago
but our MISSION is to groom ugly ducklings. Then why do you make it so hard to touch base?[1] [1] http://500.co http://500.co
- pbreit 14y ago
  If you think it's hard to touch base with 500 Startups you are hopeless.
  - dbul 14y ago
    First, your comment is vacuous. Second, your account is over 1900 days old and it seems you are making personal attacks? Is this true, or have I mistaken "you" for a you general. Third, my original comment was rhetorical. If someone thinks it is hard to touch base with 500 Startups then it doesn't mean anything other than the person thinks it is hard to touch base with 500 Startups. There are plenty of good investors out there, and if you are going to invest in technology then it only makes sense to, you know, use technology to make it easy to collect potential investments (which as I pointed out, 500.co sucks at doing).
    - pbreit 14y ago
      Touche on the personal attacks. Am I supposed to go into depth about how easy it is to touch base with 500 Startups (which is more than Dave) and that despite how easy it is, Dave still encourages people wanting to touch base to go through an intermediary as sort of a social proof exercise? I don't understand what you are trying to communicate in the third paragraph.
  - prateekdayal 14y ago
    I met Dave at an event in Singapore and tried talking to him. He refused to talk unless we got recommended by two people in his network. Not 'refusing to fund unless I get recommendations'. Refusing to even talk or hear our story. The same thing happened in Startup Chile Demo day as well with their other partner Bedy who was there to listen to pitches.
pg 14y ago
This is such nonsense. We like hustlers too. Every investor does. It's good if they're also good hackers. But (as I've said over and over) we learned early that determination matters more than intelligence in this business, and that's what we look for. He seems to be trying to give the impression that 500 Startups is for plucky underdogs, and YC isn't. It would certainly be in his interest to have founders believe that. But the fact is that when the black swans show up on our doorstep, they don't seem like they're going to be black swans. That was the whole point of my essay; that's why I refer to them as black swans, and why I say that "we're in a business where we need to pick unpromising-looking outliers."
- deleted 14y ago
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- TheBiv 14y ago
  It appears like he is going after the message that YC is for pretentious founders, and 500 is for practical founders.
  - davemc500hats 14y ago
    no, that wasn't it at all.
- jsherry 14y ago
  Whether or not it was his intention, Dave McClure successfully framed 500 in the discussion of the premier accelerator program - YC. And he also sent a battle cry to his portfolio, pitting them as the underdogs. I'd say this post was pretty well done regardless of whether you agree with his points.
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  - tstyle 14y ago
    I think pg recognizes the post for it's marketing brilliance, which is why he is calling bs. It was interesting that aside from having the scrappy image, many of the athletes used in the analogy(Ichiro, Nash, and Dirk) happens to be foreign. The post is an attempt to differentiate from a leading competitor for talent on multiple fronts(Home Run vs Singles/Globalization vs Valley/Hackers vs Marketers).
thetabyte 14y ago
Everyone seems to be completely missing something PG made abundantly clear. Black swan farming is not what YC tries to do. They don't only swing for the fences. PG simply illustrated why and how it makes the most business sense. He says, explicitly, multiple times, that it is not YC's primary objective, they don't reject teams based on this criteria, and they aim to help all of their teams. His essay just documented the interesting truth that venture firms are better off with the unintuitive process of focusing on big winners.
dave1619 14y ago
> It would seem from PG’s post this is most definitely YC’s mission – to find the biggest & baddest startup founders, and get them to swing for the fences. Not to mention get them the highest possible valuations at demo day. I'd like to hear PG's perspective on this. What is YC's mission?
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ecmendenhall 14y ago
Ichiro and Steve Nash are wonderful role models, but I don't think they're very good models, which this essay seems to overlook. "Black Swan Farming" is about the enormous, counterintuitive variance of returns to startup investments. Sports just isn't in the same domain: a batter with 1000x more hits than the league average is inconceivable, but 1000x variations in startup outcomes are quite common.
- Evbn 14y ago
  Being slightly better player than the rest is enough to turn a losing team into a champion, generating 1000x return.
johnrob 14y ago
What if 500 Startups has the "misfortune" of landing a black swan? With the firm's then increased valuation, how do they grow that with base hits? I read PGs essay to mean that black swans are like an addiction: once you have one, you need another to get any kind of growth.
- davemc500hats 14y ago
  there's no misfortune if we have black swans. and we probably already did find one with 9GAG last summer. the point i was making was about whether that's the focus, or simply a result.
majormajor 14y ago
I don't think the sports analogy serves their argument (and I'm not sure I really see what they do all that differently than YC). I don't know Michelle Kwan's story, but of the other three they mention: Ichiro got a nice 17M/year contract. Nash has a couple of MVPs and was the 15th overall pick in the draft. Iverson was a number one draft pick and led the NBA in scoring several times. Ichiro came from Japan instead of the traditional draft/Latin America -> minor leagues route, but considering the Mariners paid $13M just for the rights to negotiate with him, he wasn't exactly an ugly duckling by the time he came over. Really, all those guys are more like a phenomenally successful startup than not. There are countless prospects in sports—this is most obvious in baseball with the huge minor league pro leagues, in basketball the NCAA serves a similar role—and only a very, very few of those players turn out to be stars. And frequently scouting for them in advance (like at the HS level) is a crapshoot. If you were an up-and-coming agent and happened to land a Nash, Ichiro, or Iverson, he'd likely be worth more to you than all your other clients combined.
- j-kidd 14y ago
  He lost me at "put in their hours at the gym" and Allen Iverson: http://www.youtube.com/watch?v=eGDBR2L5kzI http://www.youtube.com/watch?v=eGDBR2L5kzI
  - davemc500hats 14y ago
    AI might not have a traditional view of "PRACTICE" but i bet he put in a helluva lotta time shooting hoops, one way or another. besides, not all metaphors have to work perfectly... it's the story that counts.
- stonemetal 14y ago
  I don't know Michelle Kwan's story, She has won a couple of Olympic medals for figure skating(98 and 02). He is probably referring to the fact that in 1996 she came in second in the US championships(which usually gets you on the Olympic team), but they gave Kwan's spot to Nancy Kerrigan. This happened because Tonya Harding(who came in first at that championship) had Kerrigan beaten so Kerrigan couldn't compete.
seanx 14y ago
This post would have made a lot more sense if I had the slightest idea who any of the sports players or teams were.
hooande 14y ago
You shouldn't declare yourself to be the underdog, it shows a lack of confidence. Other people will do that for you. Everyone loves a David vs Goliath story, but this seems like an unnecessary concession. And you can't say "screw black swans", it doesn't work that way. The whole point of "black swan" is a completely unpredictable event. Even if 500 Startups accepted only d-list players, they wouldn't decrease their odds of unforeseeable success.
- josephlord 14y ago
  Portraying yourself as the underdog does have some advantages provided you still believe you can win. It can inspire greater effort to beat the odds, it can remove some pressure of expectation and place that on the other side. It can also free you to take risks as you have less to lose. There are disadvantages too if it gives the opposition healthy confidence of if you don't actually believe that you can win. I'm British so maybe my attitude to underdogs is a bit different to the US one.
kliao 14y ago
The whole analogy to sports players is confusing and unnecessary, though it probably attracts more views. He claims that 500 Startups focuses more on teaching rather than finding the best talent, yet Ichiro was already a huge star in Japan before he came over to the Seattle Mariners for a sizeable posting fee. Then, the point about consistently "hitting singles" and getting on base more often as opposed to hitting homeruns is strange considering Barry Bonds has one of highest on-base percentages in league history. The steroid issue that clouded the legitimacy of Bonds's career also muddles the message the blog post is trying to convey; in comparing Bonds with YC, casts YC in a negative light, though probably unintentionally.
- davemc500hats 14y ago
  >>analogy to sports players is confusing and unnecessary >>though it probably attracts more views. umm... you aren't in marketing, are you? "probably attracts more views" -> not confusing, necessary also: yeah, of course Ichiro was big in Japan, and Bonds was one of the greatest at getting walks. doesn't detract from a good story.
salimmadjd 14y ago
‎"YC made Fire. 500 stole it.", this is a greate punch line, true or not. You got to give Dave credit for not shying away from conterversy and in fact using it to brining 500 into the discussion
- ivankirigin 14y ago
  But he loses credibility to anyone paying attention. This isn't some press hit to get users. His goal should be to make people think he is a good partner, and even if his point was valid, his approach doesn't help. Do I really want an investor who enjoys controversy? Note that pure controversy isn't the same thing as saying something you think is true that makes others uncomfortable. That is what PG's essay did, along with many others of his. That is what makes PG good: incisive ideas.
  - davemc500hats 14y ago
    ivan: i don't think i was creating or enjoying controversy. there's no controversy in clarifying differences between 500 & YC, that's just simple transparency. my goal was to clarify and differentiate 500 in the eyes of potential future founders, and perhaps some press and/or influencers who would carry that story to them as well. don't really care whether i ruffle feathers from some folks as long as the message was loud & clear. pretty sure i did that.
    - ivankirigin 14y ago
      > as long as the message was loud & clear I actually do think there is a kernel of something interesting in your post, but the way you said it and a lot of your actual content got in the way. First, PG was making an observation about the finances, but said "For better or worse that's never going to be more than a thought experiment. We could never stand it." In other words, YC is like 500 with respect to mission and values. Second, are your returns following a powerlaw? It seems like they are. So regardless of your strategy, the financial observation PG is making seems to apply to 500 as well. In that context, "Screw Black Swans" doesn't belong in your title. Separately, I'm pretty sure your international strategy is a stronger Black Swan strategy. That is actually a really interesting idea, but when couched in a needlessly contrarian post, it is lost. Ironically, in developing my own strategy as I begin angel investing in earnest hopefully next year, I think we'd agree on a lot. What if the median investment had a 2X return instead of the typical (1/3 gone, 1/3 1X, 1/3 huge) distribution?
j_col 14y ago
He probably just lost the non-US audience with all those baseball references (certainly lost me).
- davemc500hats 14y ago
  the baseball / moneyball metaphor was important. i know that some folks who don't know baseball won't get it, but the references because of the book & movie were somewhat essential.
lifeisstillgood 14y ago
To 500hats: 1. Please take a note from pg. He writes clearly, edits his essays and it is almost always clear what he means. I am afraid I read your note twice and still missed some of it's core message(s) (I mean this kindly and politely) 2. If you are serious about external to USA investments and families, please please stop using US only sporting analogies that need Wikipedia articles to unpick. I am glad you love your sports. Now stop it. Say what you mean. Analogies are for lazy HNers like me, otherwise you are bowling googlies on a sticky wicket. To pg and 500hats This may or may not be a spat, but it looks suspiciously like when two tribes who were happily expanding across virgin tundra suddenly find they are jostling each other for space. As you guys are at the leading edge of us it start ups, is this a warning sign of an imminent contraction ahead - have you guys run out of room?
- IsaacL 14y ago
  "This may or may not be a spat, but it looks suspiciously like when two tribes who were happily expanding across virgin tundra suddenly find they are jostling each other for space." Speaking of analogies, that's a great one. I'll have to remember it and use it myself!
  - lifeisstillgood 14y ago
    Yes, avoiding using analogies is like ....
- bambax 14y ago
  > 2. If you are serious about external to USA investments and families, please stop using US only sporting analogies Thanks for pointing this out. Not everyone who reads English understands those. While I have a (very faint) idea what the Yankees are, I have never even heard of the "Oakland A" or any of the players he mentions. This is a very US-centric post; the line about how their investing team "speaks Mandarin, Japanese, Portuguese, Spanish, Hebrew, Korean, Hindi, Punjabi, French, German, and will probably speak Arabic and Russian sometime next year" sounds forced. Can he explain the rules of baseball in Russian?
SoftwareMaven 14y ago
YC's class sizes have been growing every session. Given the importance of the networking between YC companies, is there a maximum size of a YC class (Dunbar's number[1] being the first thing I thought of)? Is there a point that YC and/or its classes become too large? 1. http://en.wikipedia.org/wiki/Dunbar%27s_number http://en.wikipedia.org/wiki/Dunbar%27s_number

183 points by relation 14y ago

pclark 14y ago

"If you set your goals ridiculously high and it’s a failure, you will fail above everyone else’s success"

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billboebel 14y ago
There is no startup investing strategy that can ever be considered the "right one". The best VCs and angels intimately understand their personal strengths and develop a strategy they can execute leveraging those strengths. And even more importantly and almost always overlooked is they market the hell out of that strategy, even if they don't always stick to it. PG and DM are terrific at this.

staunch 14y ago

I think the main reason 500 could work even without home runs is that they do follow on investments in the most promising companies. YC doesn't do that because it would screw every company they didn't follow on in at Demo Day. It would also probably result in less home runs if they did this because (as PG stated) the very most promising ideas already often have the hardest time at Demo Day (Fred Wilson + Airbnb). 500 startups may actually be strangling their home runs in the crib with the follow on strategy. A self-fulfilling prophecy.

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davemthrowaway 14y ago
Think of VCs as institutional investors who have a mandate to invest in a particular asset class. The sports metaphors do almost nothing to clarify.
- 001sky 14y ago
  institutional investors who have a mandate to invest in a particular asset class Is a set: <large>, of which VC is: <small>. To the point of likewise meaninglesness.
  - davemthrowaway 14y ago
    The (deleted) comment that I was responding to referenced the new England patriots as an investment strategy. Do you actually think the patriots and nfl draft picks have more to offer a discussion of venture strategies than the concepts of equity investing and portfolio management which are common to many institutional investors? As another commenter pointed out, 1000x variations in returns actually happen in venture investments, they don't happen in sports.
    - 001sky 14y ago
      Understood, the parent comment is deleted. Also, understood the gist of what you are saying. But the words, as they are written, as a counter argument fail. And by that, I mean his over-broad statement you are replacing with another overbroad statement. What is left, lacks the resolution to differentiate. There is no insight into what makes a good X. One thing that does make a good X is talent scouting, and being a mentor to a professional going through a rapid growth/maturity curve. There is an art to finding talent and building relationships. There is an art to segueing those relatinships to finding the right fit for talent Z within the developmet system. Art dealers or A&R reps have similar dynamics, its not particular to sport. So, while this was latent information, it is much more powerful and interesting to determinig the performance of X than your proposed alternate formulation ("think of them as [...]"). The baby goes out with the bathwater. Institutional investors as a class are not expert at all in this. Institutional investors as a class talent spot from 3-5 top MBA programs. Institutional investors as a class know about working in the system. They may or may not know shit about running a company, disrupting the system, shoestring budget, etc. In general, VCs are not like Institutional Investors as a class. The parts that are similar are hidden from the day to day workings of the founders, etc. Where you do have merit, however, is in benchmarking perfomance returns. In that case, IIs as a class are relevant. So, ignoring how you generate returns. How big do they need to be to propogate the Firm? You can measure that. But in reality, This is just a threshold metric. Theres not much insight to this. Its not the feasible upper bound if you are studying that, etc. 20% after everything annualized? GTG. Though in context here, this is not totally irrelevant. So in maths, you might say...how many 10,000x do I need if threshold is only 1.2^n? Etc. Its not clear only one strategy is either feasible or optimal, etc. But: a strategy can be set in theory to reach 1.2^n. How do you know the probability of achieving it? If you don't understand the interdynamics of the strategy with the day to day of what makes a good X and what I can execute on as X at threshold probability...you're in trouble. And if you don't know what makes a good X...thats a problem. And so combine: Path X and Prob X = expected return. So, to understand Vc you need to understand this problem. PGs post talked alot about this. What is the path and what is the probability to sucess. What do those data look like? what are the hurdles? What are the characteristics of the athletes, etc. [And for the avoidance of doubt, this is not an opinion on any one strategy or the other, or which of the essays was better, etc. This is how to think about frameworks with enough resolution to be useful for thinking clearly]. ____________

davemthrowaway 14y ago

This is breathless nonsense. What is Dave trying to say? The only thing I gathered from this is that in his mind 500 startups can't attract or afford the most sought after yc companies and founders and.. That's ok, We're global! The math on this just doesn't make sense. By definition, the moment a fund has an investment which is a "black swan" that investment will make all the singles and "on base hits" (or whatever) insignificant to the total returns. I get that he is successful and has a lot of hutzpah but if I was an LP I wouldnt be thrilled by this.

frinxor 14y ago
I think pg's whole point (and Taleb's) of a black swan is that they are not identifiable. Over the long term and after many investments, pg is pointing out that its the presence of these black swans that made YC successful (dropbox, airbnb), and extending that to other VCs, its random luck that will make or break them. You can't avoid investing in black swans, because you don't know which ones they are/will be.
- davemthrowaway 14y ago
  That wasn't how I read the black swan farming piece. From what I remember he pointed out how total returns for the fund are dominated by the black swans. Then he discussed what yc would (theoretically) look like if they were going to try to optimize for black swans but conceded that they wouldn't really want to run yc that way. In a way I think the piece flouted the concept of black swans by saying they were something you could optimize for (which I think taleb would disagree with). Regardless, the unpredictability of black swans and their potential impact on a fund's returns show the ridiculousness of Dave trying to frame this discussion as "Barry bonds vs ichiro".
  - btilly 14y ago
    Taleb not only believes that you can optimize for black swans, but he runs a fund called Universa that does exactly that. Most years it loses money. But in 2008 it had over 100% returns.

dbul 14y ago

but our MISSION is to groom ugly ducklings. Then why do you make it so hard to touch base?[1] [1] http://500.co http://500.co

pbreit 14y ago
If you think it's hard to touch base with 500 Startups you are hopeless.
- dbul 14y ago
  First, your comment is vacuous. Second, your account is over 1900 days old and it seems you are making personal attacks? Is this true, or have I mistaken "you" for a you general. Third, my original comment was rhetorical. If someone thinks it is hard to touch base with 500 Startups then it doesn't mean anything other than the person thinks it is hard to touch base with 500 Startups. There are plenty of good investors out there, and if you are going to invest in technology then it only makes sense to, you know, use technology to make it easy to collect potential investments (which as I pointed out, 500.co sucks at doing).
  - pbreit 14y ago
    Touche on the personal attacks. Am I supposed to go into depth about how easy it is to touch base with 500 Startups (which is more than Dave) and that despite how easy it is, Dave still encourages people wanting to touch base to go through an intermediary as sort of a social proof exercise? I don't understand what you are trying to communicate in the third paragraph.
- prateekdayal 14y ago
  I met Dave at an event in Singapore and tried talking to him. He refused to talk unless we got recommended by two people in his network. Not 'refusing to fund unless I get recommendations'. Refusing to even talk or hear our story. The same thing happened in Startup Chile Demo day as well with their other partner Bedy who was there to listen to pitches.

pg 14y ago

This is such nonsense. We like hustlers too. Every investor does. It's good if they're also good hackers. But (as I've said over and over) we learned early that determination matters more than intelligence in this business, and that's what we look for. He seems to be trying to give the impression that 500 Startups is for plucky underdogs, and YC isn't. It would certainly be in his interest to have founders believe that. But the fact is that when the black swans show up on our doorstep, they don't seem like they're going to be black swans. That was the whole point of my essay; that's why I refer to them as black swans, and why I say that "we're in a business where we need to pick unpromising-looking outliers."

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TheBiv 14y ago
It appears like he is going after the message that YC is for pretentious founders, and 500 is for practical founders.
- davemc500hats 14y ago
  no, that wasn't it at all.
jsherry 14y ago
Whether or not it was his intention, Dave McClure successfully framed 500 in the discussion of the premier accelerator program - YC. And he also sent a battle cry to his portfolio, pitting them as the underdogs. I'd say this post was pretty well done regardless of whether you agree with his points.
- deleted 14y ago
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- tstyle 14y ago
  I think pg recognizes the post for it's marketing brilliance, which is why he is calling bs. It was interesting that aside from having the scrappy image, many of the athletes used in the analogy(Ichiro, Nash, and Dirk) happens to be foreign. The post is an attempt to differentiate from a leading competitor for talent on multiple fronts(Home Run vs Singles/Globalization vs Valley/Hackers vs Marketers).

thetabyte 14y ago

Everyone seems to be completely missing something PG made abundantly clear. Black swan farming is not what YC tries to do. They don't only swing for the fences. PG simply illustrated why and how it makes the most business sense. He says, explicitly, multiple times, that it is not YC's primary objective, they don't reject teams based on this criteria, and they aim to help all of their teams. His essay just documented the interesting truth that venture firms are better off with the unintuitive process of focusing on big winners.

dave1619 14y ago

> It would seem from PG’s post this is most definitely YC’s mission – to find the biggest & baddest startup founders, and get them to swing for the fences. Not to mention get them the highest possible valuations at demo day. I'd like to hear PG's perspective on this. What is YC's mission?

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ecmendenhall 14y ago

Ichiro and Steve Nash are wonderful role models, but I don't think they're very good models, which this essay seems to overlook. "Black Swan Farming" is about the enormous, counterintuitive variance of returns to startup investments. Sports just isn't in the same domain: a batter with 1000x more hits than the league average is inconceivable, but 1000x variations in startup outcomes are quite common.

Evbn 14y ago
Being slightly better player than the rest is enough to turn a losing team into a champion, generating 1000x return.

johnrob 14y ago

What if 500 Startups has the "misfortune" of landing a black swan? With the firm's then increased valuation, how do they grow that with base hits? I read PGs essay to mean that black swans are like an addiction: once you have one, you need another to get any kind of growth.

davemc500hats 14y ago
there's no misfortune if we have black swans. and we probably already did find one with 9GAG last summer. the point i was making was about whether that's the focus, or simply a result.

majormajor 14y ago

I don't think the sports analogy serves their argument (and I'm not sure I really see what they do all that differently than YC). I don't know Michelle Kwan's story, but of the other three they mention: Ichiro got a nice 17M/year contract. Nash has a couple of MVPs and was the 15th overall pick in the draft. Iverson was a number one draft pick and led the NBA in scoring several times. Ichiro came from Japan instead of the traditional draft/Latin America -> minor leagues route, but considering the Mariners paid $13M just for the rights to negotiate with him, he wasn't exactly an ugly duckling by the time he came over. Really, all those guys are more like a phenomenally successful startup than not. There are countless prospects in sports—this is most obvious in baseball with the huge minor league pro leagues, in basketball the NCAA serves a similar role—and only a very, very few of those players turn out to be stars. And frequently scouting for them in advance (like at the HS level) is a crapshoot. If you were an up-and-coming agent and happened to land a Nash, Ichiro, or Iverson, he'd likely be worth more to you than all your other clients combined.

j-kidd 14y ago
He lost me at "put in their hours at the gym" and Allen Iverson: http://www.youtube.com/watch?v=eGDBR2L5kzI http://www.youtube.com/watch?v=eGDBR2L5kzI
- davemc500hats 14y ago
  AI might not have a traditional view of "PRACTICE" but i bet he put in a helluva lotta time shooting hoops, one way or another. besides, not all metaphors have to work perfectly... it's the story that counts.
stonemetal 14y ago
I don't know Michelle Kwan's story, She has won a couple of Olympic medals for figure skating(98 and 02). He is probably referring to the fact that in 1996 she came in second in the US championships(which usually gets you on the Olympic team), but they gave Kwan's spot to Nancy Kerrigan. This happened because Tonya Harding(who came in first at that championship) had Kerrigan beaten so Kerrigan couldn't compete.

seanx 14y ago

This post would have made a lot more sense if I had the slightest idea who any of the sports players or teams were.

hooande 14y ago

You shouldn't declare yourself to be the underdog, it shows a lack of confidence. Other people will do that for you. Everyone loves a David vs Goliath story, but this seems like an unnecessary concession. And you can't say "screw black swans", it doesn't work that way. The whole point of "black swan" is a completely unpredictable event. Even if 500 Startups accepted only d-list players, they wouldn't decrease their odds of unforeseeable success.

josephlord 14y ago
Portraying yourself as the underdog does have some advantages provided you still believe you can win. It can inspire greater effort to beat the odds, it can remove some pressure of expectation and place that on the other side. It can also free you to take risks as you have less to lose. There are disadvantages too if it gives the opposition healthy confidence of if you don't actually believe that you can win. I'm British so maybe my attitude to underdogs is a bit different to the US one.

kliao 14y ago

The whole analogy to sports players is confusing and unnecessary, though it probably attracts more views. He claims that 500 Startups focuses more on teaching rather than finding the best talent, yet Ichiro was already a huge star in Japan before he came over to the Seattle Mariners for a sizeable posting fee. Then, the point about consistently "hitting singles" and getting on base more often as opposed to hitting homeruns is strange considering Barry Bonds has one of highest on-base percentages in league history. The steroid issue that clouded the legitimacy of Bonds's career also muddles the message the blog post is trying to convey; in comparing Bonds with YC, casts YC in a negative light, though probably unintentionally.

davemc500hats 14y ago
>>analogy to sports players is confusing and unnecessary >>though it probably attracts more views. umm... you aren't in marketing, are you? "probably attracts more views" -> not confusing, necessary also: yeah, of course Ichiro was big in Japan, and Bonds was one of the greatest at getting walks. doesn't detract from a good story.

salimmadjd 14y ago

‎"YC made Fire. 500 stole it.", this is a greate punch line, true or not. You got to give Dave credit for not shying away from conterversy and in fact using it to brining 500 into the discussion

ivankirigin 14y ago
But he loses credibility to anyone paying attention. This isn't some press hit to get users. His goal should be to make people think he is a good partner, and even if his point was valid, his approach doesn't help. Do I really want an investor who enjoys controversy? Note that pure controversy isn't the same thing as saying something you think is true that makes others uncomfortable. That is what PG's essay did, along with many others of his. That is what makes PG good: incisive ideas.
- davemc500hats 14y ago
  ivan: i don't think i was creating or enjoying controversy. there's no controversy in clarifying differences between 500 & YC, that's just simple transparency. my goal was to clarify and differentiate 500 in the eyes of potential future founders, and perhaps some press and/or influencers who would carry that story to them as well. don't really care whether i ruffle feathers from some folks as long as the message was loud & clear. pretty sure i did that.
  - ivankirigin 14y ago
    > as long as the message was loud & clear I actually do think there is a kernel of something interesting in your post, but the way you said it and a lot of your actual content got in the way. First, PG was making an observation about the finances, but said "For better or worse that's never going to be more than a thought experiment. We could never stand it." In other words, YC is like 500 with respect to mission and values. Second, are your returns following a powerlaw? It seems like they are. So regardless of your strategy, the financial observation PG is making seems to apply to 500 as well. In that context, "Screw Black Swans" doesn't belong in your title. Separately, I'm pretty sure your international strategy is a stronger Black Swan strategy. That is actually a really interesting idea, but when couched in a needlessly contrarian post, it is lost. Ironically, in developing my own strategy as I begin angel investing in earnest hopefully next year, I think we'd agree on a lot. What if the median investment had a 2X return instead of the typical (1/3 gone, 1/3 1X, 1/3 huge) distribution?

j_col 14y ago

He probably just lost the non-US audience with all those baseball references (certainly lost me).

davemc500hats 14y ago
the baseball / moneyball metaphor was important. i know that some folks who don't know baseball won't get it, but the references because of the book & movie were somewhat essential.

lifeisstillgood 14y ago

To 500hats: 1. Please take a note from pg. He writes clearly, edits his essays and it is almost always clear what he means. I am afraid I read your note twice and still missed some of it's core message(s) (I mean this kindly and politely) 2. If you are serious about external to USA investments and families, please please stop using US only sporting analogies that need Wikipedia articles to unpick. I am glad you love your sports. Now stop it. Say what you mean. Analogies are for lazy HNers like me, otherwise you are bowling googlies on a sticky wicket. To pg and 500hats This may or may not be a spat, but it looks suspiciously like when two tribes who were happily expanding across virgin tundra suddenly find they are jostling each other for space. As you guys are at the leading edge of us it start ups, is this a warning sign of an imminent contraction ahead - have you guys run out of room?

IsaacL 14y ago
"This may or may not be a spat, but it looks suspiciously like when two tribes who were happily expanding across virgin tundra suddenly find they are jostling each other for space." Speaking of analogies, that's a great one. I'll have to remember it and use it myself!
- lifeisstillgood 14y ago
  Yes, avoiding using analogies is like ....
bambax 14y ago
> 2. If you are serious about external to USA investments and families, please stop using US only sporting analogies Thanks for pointing this out. Not everyone who reads English understands those. While I have a (very faint) idea what the Yankees are, I have never even heard of the "Oakland A" or any of the players he mentions. This is a very US-centric post; the line about how their investing team "speaks Mandarin, Japanese, Portuguese, Spanish, Hebrew, Korean, Hindi, Punjabi, French, German, and will probably speak Arabic and Russian sometime next year" sounds forced. Can he explain the rules of baseball in Russian?

SoftwareMaven 14y ago

YC's class sizes have been growing every session. Given the importance of the networking between YC companies, is there a maximum size of a YC class (Dunbar's number[1] being the first thing I thought of)? Is there a point that YC and/or its classes become too large? 1. http://en.wikipedia.org/wiki/Dunbar%27s_number http://en.wikipedia.org/wiki/Dunbar%27s_number