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VCs tend to break investments into two classes: "Better, faster, cheaper" and "Brave New World" The "Brave New World" ideas put 25 year olds on equal/better f

VCs tend to break investments into two classes: "Better, faster, cheaper" and "Brave New World" The "Brave New World" ideas put 25 year olds on equal/better footing than 50 year olds, since they tend to be everything new. The "Better Faster Cheaper" ideas leave the 50 year-olds with the advantage: They have a better sense of what the market wants, and what features are important/not important, since they've been working in the field about 6 times as long. There's difference which is much bigger though: VC's can take much bigger advantage of a 25 year old than a 50 year old. Edit: Notice the article was about an iPhone EKG (better, faster, cheaper) + 50 yo who used his own money.

analyst74 13y ago
> There's difference which is much bigger though: VC's can take much bigger advantage of a 25 year old than a 50 year old. This deserves more attention, in light of ageism concerns. If a 50 yo founder has used his time wisely, built up connections, deep domain knowledge, general know-how, decent bank account, there is little reason for him to take external investments. Even in the rare occasions he does, he is well aware of his value, and demand favorable term sheets. On the other hand, if a 50 yo founder doesn't have the confidence, connection or personal wealth to fund his own venture without a good reason. He is looked much less favorable than a 20 yo in the same state. In short, the older you are, the more is expected of you.
orangethirty 13y ago
And that's the fucking truth right there: VCs love to find young stupid (but bright) kids. They are easy to fool, will jump at any opportunity, and most importantly, don't know shit about money. Meaning that they can get them to work for peanuts. That is why the tech industry likes them young.
pg 13y ago
VC's can take much bigger advantage of a 25 year old than a 50 year old This is a persistent myth, but if you examine the math it doesn't work out. A VC firm could improve their returns by at most 2x or 3x by extracting really good terms from an inexperienced founder. But that's rounding error compared to the 100x difference between a big success and a small one. This is a subset of the more general rule that there is no "value investing" in startups. All the returns are concentrated in a few big hits, and a VC does well iff they invest in them, regardless of the terms. The empirical evidence confirms this. Google and Facebook are among the biggest recent hits for VCs. Both had young founders. But the reason VCs made so much from these deals is not that they extracted unusually good terms from the founders. In fact, the founders extracted unusually good terms from the VCs. The VCs made a lot despite that, because the companies were so successful.
- jules 13y ago
  > This is a persistent myth, but if you examine the math it doesn't work out. A VC firm could improve their returns by at most 2x or 3x by extracting really good terms from an inexperienced founder. But that's rounding error compared to the 100x difference between a big success and a small one. Can you explain this? If by some method you can get overall 2x the returns, why does it matter that most of the income is in the big hits? 2x is 2x regardless.
  - meric 13y ago
    You could've put your money in a company that made 200x instead. (VC's don't have unlimited capital.)
  - InclinedPlane 13y ago
    The point pg is making is that it's not an averages game, it's a lottery game. Say there are two different people playing the lottery. Every day they buy a number of tickets. Person A buys tickets in a pool along with someone else. Person B buys tickets on their own. Thus, if Person A wins the lottery they'll have to split their winnings, whereas Person B gets to keep it all. OK, so who ends up being better off? The answer to that is entirely decoupled from their share of the lottery winnings, what matters is entirely whether or not they won the lottery. In terms of VC financing, the RoI from "winning the lottery" by hitching your horse to a small company that grows until a multi-billion dollar enterprise in a few years is going to dwarf any other aspect of investing and returns. Thus it's vastly more important to ensure that you are doing everything possible to maximize "winning the lottery" rather than trying to maximize the share of the prize you'll get. 2x or 3x may seem like a lot, but it's nothing compared to the 100x, 1000x, or 10000x that you'll get from being on the ground floor of the next big thing. For example, Horace Rackham was an early investor in Ford and he received a 1300x RoI, Peter Thiel received a 3000x RoI on his investment in Facebook, while Kleiner and Sequoia capital each turned $12.5 million into $2 billion through their investments in google.
    - jules 13y ago
      If strategy A is buying lottery tickets at $5 and strategy B is buying the lottery tickets at $10, A is twice as good off. It doesn't matter that the earnings are dominated by one single winning lottery ticket; strategy A is always twice as good as strategy B. So getting terms that are twice as good for a VC will double their expected earnings. Sure, if you just consider the winning ticket, it doesn't matter whether you are paying $5 or $10 for it. The thing is that you don't know whats the winning ticket, and it does matter whether you are paying $5 or $10 for each.

analyst74 13y ago

> There's difference which is much bigger though: VC's can take much bigger advantage of a 25 year old than a 50 year old. This deserves more attention, in light of ageism concerns. If a 50 yo founder has used his time wisely, built up connections, deep domain knowledge, general know-how, decent bank account, there is little reason for him to take external investments. Even in the rare occasions he does, he is well aware of his value, and demand favorable term sheets. On the other hand, if a 50 yo founder doesn't have the confidence, connection or personal wealth to fund his own venture without a good reason. He is looked much less favorable than a 20 yo in the same state. In short, the older you are, the more is expected of you.

orangethirty 13y ago

And that's the fucking truth right there: VCs love to find young stupid (but bright) kids. They are easy to fool, will jump at any opportunity, and most importantly, don't know shit about money. Meaning that they can get them to work for peanuts. That is why the tech industry likes them young.

pg 13y ago

VC's can take much bigger advantage of a 25 year old than a 50 year old This is a persistent myth, but if you examine the math it doesn't work out. A VC firm could improve their returns by at most 2x or 3x by extracting really good terms from an inexperienced founder. But that's rounding error compared to the 100x difference between a big success and a small one. This is a subset of the more general rule that there is no "value investing" in startups. All the returns are concentrated in a few big hits, and a VC does well iff they invest in them, regardless of the terms. The empirical evidence confirms this. Google and Facebook are among the biggest recent hits for VCs. Both had young founders. But the reason VCs made so much from these deals is not that they extracted unusually good terms from the founders. In fact, the founders extracted unusually good terms from the VCs. The VCs made a lot despite that, because the companies were so successful.

jules 13y ago
> This is a persistent myth, but if you examine the math it doesn't work out. A VC firm could improve their returns by at most 2x or 3x by extracting really good terms from an inexperienced founder. But that's rounding error compared to the 100x difference between a big success and a small one. Can you explain this? If by some method you can get overall 2x the returns, why does it matter that most of the income is in the big hits? 2x is 2x regardless.
- meric 13y ago
  You could've put your money in a company that made 200x instead. (VC's don't have unlimited capital.)
- InclinedPlane 13y ago
  The point pg is making is that it's not an averages game, it's a lottery game. Say there are two different people playing the lottery. Every day they buy a number of tickets. Person A buys tickets in a pool along with someone else. Person B buys tickets on their own. Thus, if Person A wins the lottery they'll have to split their winnings, whereas Person B gets to keep it all. OK, so who ends up being better off? The answer to that is entirely decoupled from their share of the lottery winnings, what matters is entirely whether or not they won the lottery. In terms of VC financing, the RoI from "winning the lottery" by hitching your horse to a small company that grows until a multi-billion dollar enterprise in a few years is going to dwarf any other aspect of investing and returns. Thus it's vastly more important to ensure that you are doing everything possible to maximize "winning the lottery" rather than trying to maximize the share of the prize you'll get. 2x or 3x may seem like a lot, but it's nothing compared to the 100x, 1000x, or 10000x that you'll get from being on the ground floor of the next big thing. For example, Horace Rackham was an early investor in Ford and he received a 1300x RoI, Peter Thiel received a 3000x RoI on his investment in Facebook, while Kleiner and Sequoia capital each turned $12.5 million into $2 billion through their investments in google.
  - jules 13y ago
    If strategy A is buying lottery tickets at $5 and strategy B is buying the lottery tickets at $10, A is twice as good off. It doesn't matter that the earnings are dominated by one single winning lottery ticket; strategy A is always twice as good as strategy B. So getting terms that are twice as good for a VC will double their expected earnings. Sure, if you just consider the winning ticket, it doesn't matter whether you are paying $5 or $10 for it. The thing is that you don't know whats the winning ticket, and it does matter whether you are paying $5 or $10 for each.