10 ms·
Tell Sam Altman: I will take your bet
Sam,
I will take your bet.
I run a VC fund called Immaculate Conception Ventures, I am a TechStars Boston mentor, and I like to invest in TechStars alumni companies.
Michael de la Maza
Immaculate Conception Ventures LLC
- ddorian43 12y ago...what bet ?
- hydrazine 12y agohttp://blog.samaltman.com/bubble-talk http://blog.samaltman.com/bubble-talk https://news.ycombinator.com/item?id=9258798 https://news.ycombinator.com/item?id=9258798
- ltnately 12y agoDirectly from link To win, I have to be right on all three propositions. 1) The top 6 US companies at http://fortune.com/2015/01/22/the-age-of-unicorns/ http://fortune.com/2015/01/22/the-age-of-unicorns/ (Uber, Palantir, Airbnb, Dropbox, Pinterest, and SpaceX) are currently worth just over $100B. I am leaving out Snapchat because I couldn’t get verification of its valuation. Proposition 1: On January 1st, 2020, these companies will be worth at least $200B in aggregate. 2) Stripe, Zenefits, Instacart, Mixpanel, Teespring, Optimizely, Coinbase, Docker, and Weebly are a selection of mid-stage YC companies currently worth less than $9B in aggregate. Proposition 2: On January 1st, 2020, they will be worth at least $27B in aggregate. 3) Proposition 3: The current YC Winter 2015 batch—currently worth something that rounds down to $0—will be worth at least $3B on Jan 1st, 2020.
- jumby 12y ago(3) will be the clincher for this guy.
- prawn 12y agoThere are a lot of potential home runs in the current batch IMO - medical startups, etc. If someone like Stripe faces too much competition (as I'm certain Instacart will), I think (2) is his best option. Most of the rest of those names don't scream megacorp to me, but then I imagine Sam is privy to the interesting future plans of all of them.
- tacos 12y agoIronically a basic statistics class indicates that cherry picking companies that deliver 2x, 3x and ... whatever the fuck that third pick is ... as a guaranteed return over 5 years is indicative of the overenthusiastic hype that historically surrounds bubble valuations. #3 is a die roll. #2 is the killer. And I might take the bet on just #1.
- dvanduzer 12y ago#3 isn't just a die roll, it's the entire basis of early stage investment. If he loses on #3, YC will either be a shadow of its former self, or Sam will have given himself enough rope to hang himself (as president of YC). This is exactly the sort of thing that everyone making press about investment capital should be willing to do. Sam isn't making a bet about money here, he's making a bet about his reputation as a forecaster/analyst.
- fleitz 12y agoThat's not true, YC could just have a bad batch, or the economy could be in a serious downturn in 2020. A number of reasonably likely events could cause #3 to be false without any catastrophic loss to YC.
- mbreese 12y agoOr, 5 years isn't that long from now... for comparison (from CrunchBase) Dropbox was part of the Summer 2007 batch. So, in the context of this bet, they would have had to have had a valuation of 3B in 2012 (assuming the rest of the batch failed). As of Jan 1, 2012, their most recent funding would have been a Series B round for $250M at ~ $4B. So, in this case, Sam would have won. In my opinion, #3 is a little unfair, just because there are significantly more startups in these YC batches than in years past. I wouldn't be surprised if the entire W15 batch hit $3B in total valuation by the end of the year. There are roughly 100 in this batch, so they would only need an average of $30M in valuation for Sam to win #3.
- tacos 12y agoExactly. I admire Sam's balls but the externalities here are immense. The greatest financial mind of our time built Berkshire Hathaway to $350B over 50 years. GE is worth $250B. Microsoft $340B. To believe Sam's motley list of companies can either hold onto valuations approaching those "real" companies for five more years, let alone actually generate viable earnings and go public (even at goofy P/E multiples) in line with what GE, Microsoft, or Buffett's candy, ketchup and mac'n'cheese subsidiaries alone make seems ... optimistic at best. If he loses, might I suggest the book title? "Oops! Brands Aren't Businesses!" by Samuel H. Altman.
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- davmar 12y agoboy this is an awkward post.
- shepardrtc 12y agoAwkward or not, $100,000 will be going to a charity at the end of this. I think we can all put up with it for that alone.
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- kmeves 12y agoI think it's pompous for both you and Sam Altman to be wasting our threads with these bets.
- ilyanep 12y agoAre they more pompous or less pompous than the articles that show up every so often claiming that Tech is a bubble that's about to pop any moment now?
- untog 12y agoer, yes? How is an article like that pompous?
- ilyanep 12y agoIf the implication here is that Sam Altman and OP are pompous enough to think we care what they think about the state of the Tech economy, then wouldn't the same logic apply to the authors who write "the Tech bubble is bursting! The world is ending!" articles?
- untog 12y agoSam Altman and the OP posted their own content to Hacker News. The articles are usually posted by a totally different person than the one that wrote it.
- icebraining 12y agoNo, Sam Altman's post was submitted by another user as well.
- untog 12y agoHuh, apologies, could have sworn he did. In any case, there is a difference between writing bombastically about a situation you are financially involved in and a journalist writing an article about tech.
- iamcurious 12y agoI wonder how this works, is it necessary for Sam to acknowledge the bet? What happens if more than one person wants to take the same bet?
- hydrazine 12y agoThe bet is only open to the first VC to publicly take it I believe.
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- an4rchy 12y agoIt would great if there are multiple bets on both sides (crowdfunding for each side). I'd question the legality of this but more money for charity would be great! If there's enough demand, it might make sense to make a site/app and pick a side (maybe use Stripe to put money into some sort of escrow account).
- diego 12y agoI'm curious which one of his propositions do you think has a higher chance of not happening, and why. #3 can be phrased as "there is at least one unicorn among these 114 companies" so betting against that is rolling dice. I imagine you're either bearish on 1 and/or 2, or are betting on a macroeconomic event that would bring all valuations down. Could you elaborate?
- NhanH 12y agoBetting against 3 isn't just rolling dice. In a sense, betting against 3 is betting against YC itself (albeit a slightly weaker version, with the variance in startup, it will probably takes a few batches in aggregate to make a strong bet). From Sam's point of view, 3) is probably the safest one. Likewise, 1) seems to be the most risky one.
- pash 12y agoNote that the bet is the conjunction of those three propositions, so you don't have to think any one of them is particularly unlikely to think that all three of them together are. For example, if you consider the propositions to be roughly independent, you might believe each one of them is individually nearly 80% likely to occur, yet you'd rationally believe Sam would be more likely than not to lose the bet, since 0.5^(1/3) = 0.794.
- unholiness 12y agoThe whole point of the particular three propositions is that they're highly correlated. Each condition involves an aggregate of many companies. If any of the conditions is true it says more about the general tech climate than it does about the luck of any particular company. Personally, I might put the odds of each at 60%, 70%, and 90%, respectively. Independently, that gives me a mere 37.8% chance of losing. However, I also think that condition 1 succeeding is highly indicative that the others will succeed too. So, if it were really $100,000 at stake, I wouldn't take the bet. The real conundrum is that stakes of winning aren't $100,000. The loser's money goes to charity, and the winner's takings are the publicity gained from being right. No doubt both participants feel that the publicity is worth more than $100,000. They don't need to have even 50% confidence to take the bet.
- louisswiss 12y ago2) and 3) seem like a given, but looking at the companies in 1), I think Sam might have his work cut out for him...
- adrianpike 12y agoSpaceX alone makes me not want to bet against Sam on point #1.
- snowwrestler 12y agoSpaceX is dependent on government contracts for their business, which is risky. Government contracts could go away, or get reduced, for a bunch of different reasons--some of which have nothing to do with how good you are.
- GeneT 12y agoWhile they are dependant on government contracts they are also in a industry with huge barriers of entry. On top of that their main competition had a rocket explode earlier tho year, so I would say their outlook is pretty positive.
- lettergram 12y agoPretty confident Sam will win, given the current track record, and baring a complete market collapse.
- MCRed 12y agoThat's the nature of bubbles. This is a bet about whether there's a bubble or not. IF there is a bubble, of course it's going to look like Sam has a slam dunk win here-- until the bubble pops and then it looks obvious that Sam could not have won. This is irrespective of the bubble popping in 2019 and thus Sam losing the bet and 2021 - where Sam wins the bet but loses the point. The problem with bubbles is that when you're in them, it's very hard to know you're in a bubble and thus crazy things seem perfectly rational. I'm not saying we're in a bubble or not in early stage investment--- I'm just pointing out the nature of bubbles.
- nemo44x 12y agoThe funny thing is, this is the first time I remember everyone speculating on if we are in a bubble or not. Once bitten, twice shy I suppose. But, I also think that although there is a lot of optimism a lot of it rightfully there. Technology has been creating a revolution in communication, media, entertainment and just about every other industry. The internet finally arrived for the masses in the mid-2000's followed by the smart phone revolution followed by tablets and smart devices. There's simply a lot of opportunity out there. I don't think we are in a bubble so much as in the middle of a rare technological revolution. So many things are happening at once between computer systems becoming so powerful and networks becoming so large and fast, etc. Old industries are dying while new, more profitable companies take over.
- lettergram 12y agoA bubble would require an investment firm to make an intentionally risky investment with the intention of selling off at the IPO prior to the collapse of the company. This is what we saw in 2000 and in the 2009 housing bubble. The current state of affairs has companies being bought in cash by other large companies such as Google, Apple, etc. So the public never gets the chance to purchase overly valued stock. Further, of the companies that did have an IPO (Facebook, Groupon, Google) none of them had outrageously high growth. In fact, most of the companies stock values dropped after an IPO (at least initially). All of those are clear signs we are not in a bubble, as it is financially impossible at this point, regardless of the "nature of bubbles." However, 5 years from now, who knows! The bet was for 2020, not 2016.
- gautamnarula 12y agoUnrelated, but are you the same Michael de la Maza who wrote Rapid Chess Improvement?
- mdlm 12y agoYes.
- gautamnarula 12y agoI didn't follow the program exactly, but it was influential in my training (and quick improvement) during my teen years. It's a shame you stopped playing. I'm sure it would've been interesting to see how the program would have to adapt as you aimed for 2200 and beyond.
- smt88 12y agoI googled this guy, and both the author of that book and this guy seem to have gone to MIT. So unless it's a huge coincidence, I'd say the answer is yes.
- davidcgl 12y agoContext: http://blog.samaltman.com/bubble-talk http://blog.samaltman.com/bubble-talk
- samstave 12y agoThanks, I have been off HN for the last week or so - and had no context.
- jforman 12y agoWhen I moved from SF to Boston (after co-founding Inkling six years ago), the top two things I was worried about are a) a less pro-startup culture, and b) less available early-stage money. This really doesn't help either point. We need more early-stage money here and more optimism, not less.
- ghc 12y agoUnderstandable. The seed environment in Boston is sub-optimal. But hopefully it will continue to change as more people like me band together with friends to start seed stage VC firms. The market is just too good to not take advantage while there's no competition and no crazy valuations.
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- sama 12y agoI sort of love that the person willing to take the other side of this is a Boston-area VC :) I accept subject to verification that you really qualify as a VC, and I can't find a website for Immaculate Conception Ventures. What investments have you made and how large is your fund? If terms from the blog post are acceptable I will enter into longbets.
- ealfert 12y agoI found the following... https://angel.co/michael-de-la-maza https://angel.co/michael-de-la-maza 7 confirmed investments of $25K
- foobarqux 12y agoEh, I would be cautious, you might be getting played for publicity. If that's the case it wouldn't serve the purpose of the bet because the other side doesn't have any conviction about the outcome and only wants to raise their profile in the VC world. $100k is probably cheap to get your name in many major news outlets.
- javabank 12y ago$100k is going to a charity one way or another. That's a good thing no matter how you cut it.
- foobarqux 12y agoIt doesn't serve the main purpose of the bet which is to find someone with a strong enough conviction about the specific terms to risk $100k.
- fleitz 12y agoThat's welsher talk, if you make a bet and a person accepts then you have to take the bet or STFU. If you believe the person will not follow through that's one thing, maybe both parties should put $100K in escrow, talking about the purpose of the bet is weak.
- nicklovescode 12y agoHi Michael, would you mind explaining your rationale? In particular, why would you believe his bet and still be a VC?
- vikp 12y agoI'm also curious about the general case of people believing that we're in a bubble giving advice to startups. Do they advise that startups keep a really low burn rate and wait it out, or go for broke and raise as much as possible now? Do they advocate certain business models that do better in recessions?
- nostrademons 12y agoBoth. When the last bubble hit, the advice given to startups was: 1.) If you're in a position to raise capital, raise money now, because the funding window may not be open for a long time. 2.) Cut burn rates immediately. 3.) Get to cash-flow positive. 4.) Cut non-essential features, and focus on customers that are willing and able to pay. It's usually not practical for a startup to change its entire business model (although LoudCloud did it in the first dot-com bust), but they can trim fat, and stop doing activities that aren't absolutely essential to generating revenue. http://venturebeat.com/2008/10/10/the-sequoia-rip-good-times-presentation-get-your-copy-here/ http://venturebeat.com/2008/10/10/the-sequoia-rip-good-times...
- foobarqux 12y agoAfter the bet has been finalized, please post your rationale for the "against" case.
- TimSchumann 12y agoI'm surprised at someone actually taking the other side of this bet as I thought Sam was _very_ conservative on his projections. 1) Any one of those companies (besides Pinterest IMO) could conceivably achieve a market valuation of $200B by Jan 1, 2020. 2) Again any one of those companies (besides Teespring IMO) could conceivably achieve a market valuation of $27B by Jan 1, 2020. 3) Easy win for Sam.
- gitah 12y ago1) Do you really think Dropbox, with all the big co competition, can grow past its current valuation? Snapchat would have been a better choice in this list.
- TimSchumann 12y agoDropbox would have been my next closest to the bottom on that list, and while I think a $200B valuation on its own for Dropbox is a bit outlandish, it's conceivable. I thought about it like this... Would I bet that every company on this list will do worse than doubling their valuation over the next 5 years?
- dkrich 12y agoSeriously? As I write this, Microsoft, the largest purveyor of enterprise software in the world, is worth roughly $340 billion. Oracle? Less than $200 billion. Hell, Amazon, the company that Dropbox runs on isn't worth $200 billion. You honestly believe that any one of those companies, none of which has been around for more than ten years, could reach a market cap of $200B within 5 years? Either you are incredibly bearish on the dollar or we are officially in bubble times.
- bmelton 12y ago> You honestly believe that any one of those companies, none of which has been around for more than ten years, could reach a market cap of $200B within 5 years? That's not the bet. The bet is that they will, in aggregate be worth $200B. "Proposition 1: On January 1st, 2020, these companies will be worth at least $200B in aggregate." Edit: Can't read. The parent is in response to the grandparent, not the bet.
- MCRed 12y agoI have no idea how this bet will come out but I was not pursuaded by Sam's argument because he did not address the root cause of the bubble. Put another way, he's sitting on the surface of a bubble and pointing out that there's not a bubble rising from that surface. He's saying that there's innovation and the innovation makes these companies more valuable-- on that we can all agree. Whether VC investments are correctly valuing companies or not at various stages, I don't even think that's an issue, so I will take his general assertion that they reasonably are. To the extent that people think that the nature of a the "bubble" is unrealistic valuations, I think it's silly to say there's a bubble. That's not the bubble. The actual bubble causes these high valuations but has nothing to do with VC judgement -- who are all acting based on the pricing information they're getting from the market-- so that they are being irrational is due to the irrational pricing info they are getting, not due to having lost their senses. The irrational pricing info is that the cost of money is way too cheap. The bubble is not a startup funding bubble, it's a dollar bubble. The main argument for us being in a bubble is not that we're in a bubble of VC expectations for companies-- though that is a side argument that VCs expect google and Facebook to buy everything whatever the quality. The main argument is that since 2001 and especially since 2008 the money spigot has been opened wide. Helicopter Ben is in full effect. The 2008 bubble was a direct consequence of that spigot being open, combined with interest rates being held below the cost of money and the Clinton era "not loaning money to people who can't repay is racist" agenda and changes to the CRA that forced banks to make bad loans. Everything else that happened in 2002-2007 was secondary effects. When 2008 happened the spigots were opened even wider, the interest rates forced lower ,and now, instead of having an open market for T-bills the federal reserve itself is buying them. Totally distorting the market. The short description of what that means is that money is really cheap-- really cheap for the institutional types that have a lot of it already, and especially really cheap for anyone who can go to the federal reserve window. EG Banks. T he banks have all this money and have to put it somewhere that earns a return over the borrowing cost (carry)... which from the Fed is even cheaper than the money you lend them in your savings and checking accounts. The way the money spigot works is it filter thru tiers of the economy. Banks lend as much as they can which produces economic growth (though not without cost, hence the whole misrepresenting this system as Keynesian-- keynes recognized the cost and danger of this, but everyone who claims to be "keynesian" since then and advocates this system seems to ignore the cost and danger.).... and a lot of it hits the stock market and then even more risky ventures. All this money in the VC pockets chasing startups is originating at the federal reserve as they shove money into the economy. Sam talks about "interest rates rising". Well, interest rates would have risen, but the fed is providing unlimited demand for T-bills so that's distorting a market signal. The FOMC is providing unlimited money to paper short gold, so that's distorting another market signal. I don't know how it will break-- just as I wasn't sure how the housing crisis would break in 2008, even though I knew there was a bubble (and at that time, by the way, everyone said there wasn't a bubble. They also said there wasn't a bubble in 1999. How old was Sam in 1999? I honestly don't know but I'm guessing he was not 18.) And all of this is on top of a hundred years (since the founding of the federal reserve) of exporting the effects of US dollar inflation onto other economies-- most of which were weaker than us but now are reaching parity and don't need the dollar to back their currencies so much anymore. The bubble is not a startup funding bubble, it's a dollar bubble. I'm certain we are in one. I have no idea if it will bust in the next 5 years. But when it does, it will be worse than 2008, 1999 and the 1930s combined.
- bbcbasic 12y agoI think Michael will almost certainly lose the bet. I also think this is a very shrewd move by Michael. It is pure genius to accept that bet. (No sarcasm)
- xxcode 12y ago1. Dropbox: NPV is less than 10B. Will probably get brought for 3-4B by bigco if bigco can transcend internal politics. Not sure who will buy them - most probably Microsoft under Ndella. 2. Palantir: I have some experience with working with Palantir FDEs who were marketed to BigCo as 'gift from god to solve all problems'. They were pretty useless. I think Palantir is basically shit. Wait and watch.
- cylinder 12y agoThere are a LOT of hyped startups that deliver hugely mediocre products/services. From consumer (HomeJoy, FlyCleaners etc) to enterprise software, there's a lot of nonsense out there.
- 300bps 12y agoWill probably get brought for 3-4B by bigco if bigco can transcend internal politics. Not sure who will buy them - most probably Microsoft under Ndella. I'm asking in all sincerity - what does Dropbox have that Microsoft would want? Their OneDrive technology is "good enough" for the vast majority of users. Latest statistics I could find were that DropBox has 200,000,000 users and that 96% of them were free user accounts. That means DropBox has about 8,000,000 paying users. Instead of buying the company for $4 billion they could instead pay each paying DropBox customer $500 to switch. Or they could spend $4 billion on marketing / giving away their free 1 TB of OneDrive space with purchase of an Office 365 subscription for $6.99 per month. I'm probably missing something?
- MichaelGG 12y agoSame reasons MS ended up buying Skype, despite having a near decade lead in tech (NetMeeting before MSN Messenger), 300M active users, etc. etc.? MS even had VoIP-to-PSTN in the 90s, albeit via a poor partnership with MCI. Same reasons MS ended up investing in FB, instead of turning Messenger (think: you've already got everyone and their friends using it!) into a good social network?
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- jtruk 12y agoDo you guys need someone to act as escrow? makes call-me handsign
- discardorama 12y agoWell, with Amazon's "unlimited storage" announcement today, you can bet some wind got knocked out of Dropbox's sails...
- wpietri 12y agoHi! I'm delighted to see you'll be using Long Bets: http://longbets.org/ http://longbets.org/ As the programmer behind that, I'm glad to introduce you to the folks at the Long Now that can expedite that.
- scottydelta 12y agoI would like to bet on proposition 3 but damn I don't have that kind of money!
- choppaface 12y agosama and mdlm: since you're effectively going to lock up $100k each for 5 years, how about you both give the interest on that capital to charity?
- dmabram 12y agoThe great irony of Sam's bet is that, win or lose, the terms themselves prove a bubble mentality. Every one of the terms is focused on valuation, with no mention of revenue, much less profit or cash flow. In the short term the valuation of a company is a popularity contest, in the long term it is a direct reflection of the discounted value of the cash one can expect to extract or reinvest. This is true for all investments, stocks, bonds, public, private, and even unicorns. I have no idea if Sam wins this bet. It's quite possible that within the next five years enough of these companies are acquired at inflated prices to satisfy Sam's terms. What I do know is when industry leaders start to use valuation itself as a metric to demonstrate that we are not in a bubble, without even the most casual mention of underlying fundamentals necessary to justify valuation, then we are in a bubble.
- ndamiano 12y agoThis is a nice way to get publicity for relatively cheap. Should I be disturbed that our YC batch ended up being just a bet? I feel like I'm in the Silicon Valley version of "She's All That."