First, quotes, to set the mood.
The total value of the companies we've funded is around 10 billion, give or take a few. But just two companies, Dropbox and Airbnb, account for about three quarters of it.
In startups, the big winners are big to a degree that violates our expectations about variation. I don't know whether these expectations are innate or learned, but whatever the cause, we are just not prepared for the 1000x variation in outcomes that one finds in startup investing.
A startup's success at fundraising is a function of two things: what they're selling and how good they are at selling it. And while we can teach startups a lot about how to appeal to investors, even the most convincing pitch can't sell an idea that investors don't like. I was genuinely worried that Airbnb, for example, would not be able to raise money after Demo Day. I couldn't convince Fred Wilson to fund them. They might not have raised money at all but for the coincidence that Greg Mcadoo, our contact at Sequoia, was one of a handful of VCs who understood the vacation rental business, having spent much of the previous two years investigating it.
Both from Farming Black Swans, a thoroughly hubric piece.
I never heard of that airbnb thingee, but I did follow the link on Fred Wilson's name. It takes one to another article also on Graham's site, which starts with
Yesterday Fred Wilson published a remarkable post about missing Airbnb. VCs miss good startups all the time, but it's extraordinarily rare for one to talk about it publicly till long afterward. So that post is further evidence what a rare bird Fred is. He's probably the nicest VC I know.
Ok, so what is this airbnb thing then ?
Today is December the 20th, I guess not a very good time for vacation arrangements, and the start-up which together with some other accounts for two thirds of ten billion or something counts exactly one visitor : me. I'm not there to rent from them, I'm there to investigate what the fuck is wrong with Graham.
This site is lame, and what's more, this site is useless. It may seem like it does something, but it does not. Is is one of those hype things so prevalent today that a muchly inflated bubble produces (and yes, the start-up scene is by now pretty much pop culture, thoroughly worthless, thoroughly mind numbing idiocy working its way towards the sitcom in the same exact way legions of talentless hacks would be working their way through "acting" towards the loving embrace of the porn industry).
Here's a succint explanation of what the problem is :
History tends to get rewritten by big successes, so that in retrospect it seems obvious they were going to make it big. For that reason one of my most valuable memories is how lame Facebook sounded to me when I first heard about it. A site for college students to waste time? It seemed the perfect bad idea: a site (1) for a niche market (2) with no money (3) to do something that didn't matter.
One could have described Microsoft and Apple in exactly the same terms.
It doesn't matter that Facebook managed to line up a billion idiots and sold itself for a hundred billion dollars. It is still the perfect bad idea, and exactly for the reasons listed. The fact Bernie Madoff managed to siphon huge sums of money off gullible "investors" does not make his Ponzi anything but a failure. The fact Mark Zuckerberg managed to siphon huge sums of money off gullible "investors" doesn't make his lame site anything but a failure.i
A quote from the same article, to seal the deal :
Everyone would agree that YC had jumped the shark. We ourselves would feel that YC had jumped the shark. And yet we'd all be wrong.
This is true. No endeavour seeded by YC will ever do anything useful from this point forward. The shark has been jumped.———
- It's trading at 27 now, and the only way it ever touches IPO levels is through the continued good offices of Fairy Godmother Bernanke. On its own strength, Facebook is worth about about fifty to a hundred thousand dollars, and in general the entire experiment was already tried. Back then the scam was called Myspace, and it nigh-on sunk Time Warner with its billion-and-change shareholder's equity destruction. [↩]