4 ms·

Much like tech hiring, investors prefer to optimize for false negative over false positives. Especially because the power dynamic is still skewed in their way,

by GuiA 11y ago

Much like tech hiring, investors prefer to optimize for false negative over false positives. Especially because the power dynamic is still skewed in their way, which allows them to say things like "call us back when you get to a series A" - none of the risk, all of the upside. Kind of like that girl who rejected me in high school but said "if in 10 years we both haven't found someone, maybe we can get together".

curiousjorge 11y ago
Yeah that one really irked me. Hey, call us when you are a billionaire and we'll talk about investing. Yeah I'll marry you when it's in the prenup. I'd immediately pull out my funds as an investor out if I found out the names of the people writing these rejection letters. It would also be bad for street cred. "hey these guys missed out on the deal of the century, who else did they reject?" 150k is like peanuts to these firms with millions of dollars to throw. Hell, I'd bought out of the money put options near expiry if it meant there was a slight chance it would have potentially unlimited returns.
- BadassFractal 11y ago
  Sure, except there are thousands of companies out there asking for that firm's 150k, each year. They can't spray and pray, they have to at least find a reason to believe their decision is based on sound logic, otherwise they might as well make themselves self-service.
  - curiousjorge 11y ago
    If there's an airbnb in there then I think it's worth betting more. 15 million spread across 100 startups, is that too much? I expect most to fail but the point is I have limited downside risk for unlimited return. the overdiversification argument is moot here because you are not optimizing for total portfolio return but maximizing your exposure to upside. Who says you have to do it all in one go? Keep moving and make bite sized bets but not being married to your ideas. Also how can you be sure that your sound logic isn't going to hurt you in the end like those guys writing rejection letters? I'm sure they have done,some introspection. And like that guy who said he's going to see nd me a business plan in an hour, I've yet to hear from. One clear distinction is that I am also investing in the person, and if they can't hold up their end or if they think it's an easy way to swindle a years salary they are fucked in the head. I'm here to make bets not run a fucking charity, excuse ma francais.
- bigtunacan 11y ago
  I think you are reading too much into it. Different investment funds, angels, syndicates have vastly differing strategies, goals, and funds available. A smaller fund might invest across a series of funds, but not have deep enough pockets to follow the money even if they have pro rata rights. In comes the larger investment firm with lower risk tolerance (potentially) for the series A. Win win win.
  - curiousjorge 11y ago
    No you are right about that. I was a bit overdramatic but I'm skeptical when a vc can say oh we don't do travels or hey just not really our specialty be cause there's no way that all 7 of them would have the exact same policy. Some hedge funds,or pension fund has one clear strategy they are legally bound to but all 7 vc in this case displayed the same response or none at all. Clearly there was someone that did end up investing in them and to be fair if they didn't respond it doesn't mean anything. They could've been just very busy or slow at typing emails, just follow up until they reply with a yes or no.
- ams6110 11y ago
  Were you buying AAPL in 2001?
- frostmatthew 11y ago
  > hey these guys missed out on the deal of the century When you figure out how to determine that before the fact I'm sure there are plenty of VC firms who would love to hire you. > who else did they reject? They rejected countless startups that have since failed (and surely some other that have succeeded). VCs are human, you can't expect them to have the clairvoyance required to only invest in eventually successful companies and only turn down eventual failures.
  - curiousjorge 11y ago
    >When you figure out how to determine that before the fact I'm sure there are plenty of VC firms who would love to hire you. My email is in my profile (if anyone wants to hire me). I've described a strategy that involves making small bets across large number of startups and not focusing on making judgements or even attempting to figure out how much this startup is going to be worth (as you say VC are human, why introduce that inherent bias to a numbers game?) because like we witnessed with the guys who rejected Airbnb, their own bias towards safety incurred a huge opportunity cost. > They rejected countless startups that have since failed (and surely some other that have succeeded). VCs are human, you can't expect them to have the clairvoyance required to only invest in eventually successful companies and only turn down eventual failures. Exactly, which is why I feel like they should ignore their own instincts and thought processes. Even if they were able to land a few successful ones, how can we be certain that it was not the work of dice rolling? Studies show that most money managers perform no better than buying the index or throwing darts, what makes you think VC's suddenly have improved odds?
    - umanwizard 11y ago
      Wait -- so you'll invest in a startup blind, regardless of fundamentals, without trying to ballpark its valuation? Give me an hour to come up with a business plan, and I'll shoot you an e-mail :P
      - curiousjorge 11y ago
        If that's what you got then no, I think you should check with your local donation institutions because I'm not running a charity. Another red flag actually, because I checked my email and I didn't find a business plan in my inbox and 2 hours has passed. If you were serious I would've read it and rejected you because the first thing I would do is not read the business plan but talk about your experience and see if you have a history of being non punctual or any thing that would suggest dishonesty.
dhaivatpandya 11y ago
How does "call us back when you get to series A" entail "none of the risk, all of the upside"? The risk is that the fund has to pay a higher valuation for the same company, they might not callback, etc. and the upside is that you're...not taking on the risk right now? Secondly, for tech hiring, a few bad hires can ruin a company. But, angel investors and small funds generally invest in a wide range of startups knowing full-well that most of them won't succeed. But, one success is all that's needed to 10x the value of the fund. Given the payout probability and payout value of startups, it's a pretty different game from tech hiring.
- solve 11y ago
  Extremely inefficient markets. Traditionally, VCs have been able to collude together to prevent startups from increasing in valuation "too fast". Unlike more efficient and less manipulated markets, which tend move in fast discontinuous jumps, VCs have been able to slow the top-performing companies to a slower exponential curve. Because they've typically been able to slow this curve, waiting until the next round usually hasn't caused them to lose nearly as much upside loss as it would, were the market more efficient. With IPOs being pushed back, and more sophisticated IB investors moving into much earlier rounds now though, this is finally starting to change. Keep this in mind whenever you hear VCs shouting "bubble", just because some top startups aren't following the smooth exponential curve in valuations, that any competent trader or economist could tell you should never exist in an efficient market.

by GuiA 11y ago

curiousjorge 11y ago

Yeah that one really irked me. Hey, call us when you are a billionaire and we'll talk about investing. Yeah I'll marry you when it's in the prenup. I'd immediately pull out my funds as an investor out if I found out the names of the people writing these rejection letters. It would also be bad for street cred. "hey these guys missed out on the deal of the century, who else did they reject?" 150k is like peanuts to these firms with millions of dollars to throw. Hell, I'd bought out of the money put options near expiry if it meant there was a slight chance it would have potentially unlimited returns.

BadassFractal 11y ago
Sure, except there are thousands of companies out there asking for that firm's 150k, each year. They can't spray and pray, they have to at least find a reason to believe their decision is based on sound logic, otherwise they might as well make themselves self-service.
- curiousjorge 11y ago
  If there's an airbnb in there then I think it's worth betting more. 15 million spread across 100 startups, is that too much? I expect most to fail but the point is I have limited downside risk for unlimited return. the overdiversification argument is moot here because you are not optimizing for total portfolio return but maximizing your exposure to upside. Who says you have to do it all in one go? Keep moving and make bite sized bets but not being married to your ideas. Also how can you be sure that your sound logic isn't going to hurt you in the end like those guys writing rejection letters? I'm sure they have done,some introspection. And like that guy who said he's going to see nd me a business plan in an hour, I've yet to hear from. One clear distinction is that I am also investing in the person, and if they can't hold up their end or if they think it's an easy way to swindle a years salary they are fucked in the head. I'm here to make bets not run a fucking charity, excuse ma francais.
bigtunacan 11y ago
I think you are reading too much into it. Different investment funds, angels, syndicates have vastly differing strategies, goals, and funds available. A smaller fund might invest across a series of funds, but not have deep enough pockets to follow the money even if they have pro rata rights. In comes the larger investment firm with lower risk tolerance (potentially) for the series A. Win win win.
- curiousjorge 11y ago
  No you are right about that. I was a bit overdramatic but I'm skeptical when a vc can say oh we don't do travels or hey just not really our specialty be cause there's no way that all 7 of them would have the exact same policy. Some hedge funds,or pension fund has one clear strategy they are legally bound to but all 7 vc in this case displayed the same response or none at all. Clearly there was someone that did end up investing in them and to be fair if they didn't respond it doesn't mean anything. They could've been just very busy or slow at typing emails, just follow up until they reply with a yes or no.
ams6110 11y ago
Were you buying AAPL in 2001?
frostmatthew 11y ago
> hey these guys missed out on the deal of the century When you figure out how to determine that before the fact I'm sure there are plenty of VC firms who would love to hire you. > who else did they reject? They rejected countless startups that have since failed (and surely some other that have succeeded). VCs are human, you can't expect them to have the clairvoyance required to only invest in eventually successful companies and only turn down eventual failures.
- curiousjorge 11y ago
  >When you figure out how to determine that before the fact I'm sure there are plenty of VC firms who would love to hire you. My email is in my profile (if anyone wants to hire me). I've described a strategy that involves making small bets across large number of startups and not focusing on making judgements or even attempting to figure out how much this startup is going to be worth (as you say VC are human, why introduce that inherent bias to a numbers game?) because like we witnessed with the guys who rejected Airbnb, their own bias towards safety incurred a huge opportunity cost. > They rejected countless startups that have since failed (and surely some other that have succeeded). VCs are human, you can't expect them to have the clairvoyance required to only invest in eventually successful companies and only turn down eventual failures. Exactly, which is why I feel like they should ignore their own instincts and thought processes. Even if they were able to land a few successful ones, how can we be certain that it was not the work of dice rolling? Studies show that most money managers perform no better than buying the index or throwing darts, what makes you think VC's suddenly have improved odds?
  - umanwizard 11y ago
    Wait -- so you'll invest in a startup blind, regardless of fundamentals, without trying to ballpark its valuation? Give me an hour to come up with a business plan, and I'll shoot you an e-mail :P
    - curiousjorge 11y ago
      If that's what you got then no, I think you should check with your local donation institutions because I'm not running a charity. Another red flag actually, because I checked my email and I didn't find a business plan in my inbox and 2 hours has passed. If you were serious I would've read it and rejected you because the first thing I would do is not read the business plan but talk about your experience and see if you have a history of being non punctual or any thing that would suggest dishonesty.

dhaivatpandya 11y ago

How does "call us back when you get to series A" entail "none of the risk, all of the upside"? The risk is that the fund has to pay a higher valuation for the same company, they might not callback, etc. and the upside is that you're...not taking on the risk right now? Secondly, for tech hiring, a few bad hires can ruin a company. But, angel investors and small funds generally invest in a wide range of startups knowing full-well that most of them won't succeed. But, one success is all that's needed to 10x the value of the fund. Given the payout probability and payout value of startups, it's a pretty different game from tech hiring.

solve 11y ago
Extremely inefficient markets. Traditionally, VCs have been able to collude together to prevent startups from increasing in valuation "too fast". Unlike more efficient and less manipulated markets, which tend move in fast discontinuous jumps, VCs have been able to slow the top-performing companies to a slower exponential curve. Because they've typically been able to slow this curve, waiting until the next round usually hasn't caused them to lose nearly as much upside loss as it would, were the market more efficient. With IPOs being pushed back, and more sophisticated IB investors moving into much earlier rounds now though, this is finally starting to change. Keep this in mind whenever you hear VCs shouting "bubble", just because some top startups aren't following the smooth exponential curve in valuations, that any competent trader or economist could tell you should never exist in an efficient market.