
Don’t Try To “Pull An Instagram.” Here’s Why … - wheels
http://www.bothsidesofthetable.com/2012/04/14/dont-try-to-pull-an-instagram-heres-why/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+BothSidesOfTheTable+%28Both+Sides+of+the+Table%29
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csallen
Charlie Munger (Warren Buffett's partner) has kept a long-running list of
psychological tendencies that commonly affect people's judgment. There's one
item on this list that he's termed "Availability-Misweighing Tendency." In a
nutshell, it's an observation that people tend to overweigh extra-vivid
evidence, which (necessarily) means _under-weighing_ evidence that isn't so
vivid.

In this case, the extra-vivid evidence is the Instagram acquisition. It's been
analyzed, or at least covered, by every blog and news network I can think of.
I'm sure it's clogging most of our Twitter feeds. I even have friends and
relatives who know nothing about tech but want to talk about it. It doesn't
get much more vivid than that. And even if it wasn't receiving so much
coverage, a billion dollars is enough money to be vivid in-and-of itself.

The point is, if you're re-thinking your business strategy or personal goals
based on this news, you should tread carefully. The remedy to overweighing
extra-vivid evidence is to always make it a point to seek out other side of
the story. So I agree with Mark when he encourages "all other companies to do
the harder work of finding out what happens in the 99.9% case, which is what
is often never written in the annals of the tech news media."

~~~
unimpressive
>Charlie Munger (Warren Buffett's partner) has kept a long-running list of
psychological tendencies that commonly affect people's judgment. There's one
item on this list that he's termed "Availability-Misweighing Tendency." In a
nutshell, it's an observation that people tend to overweigh extra-vivid
evidence, which (necessarily) means under-weighing evidence that isn't so
vivid.

<http://en.wikipedia.org/wiki/Availability_heuristic>

>a long-running list of psychological tendencies that commonly affect people's
judgment.

These are usually called cognitive biases. Wikipedia has a long list, though
Charlie's may be longer. (I haven't seen it.)

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csallen
Wikipedia's list (<http://en.wikipedia.org/wiki/List_of_cognitive_biases>) is
indeed longer. Charlie claims to have about 100 models that he makes use of,
but he's only published the ones he finds the most useful, and only a handful
of those are cognitive biases.

~~~
alecco
A great book on the subject is Thinking Fast and Slow.

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dmk23
The post is missing the most important point.

Instagram would not be worth $1B to Facebook if it has not raised a large
round. Without the resources to fuel the expansion, build out the product,
develop an application platform, invest in revenue team and so on Instagram
would be in no position to threaten Facebook. As soon as the funding closed
Facebook was suddenly facing a viable threat in mobile vs. just another
resource-starved startup hanging onto dear life.

So it is pretty questionable to assume that Instagram itself "pulled an
Instagram". They raised Series B because that was the deal that could happen
first. Once it happened the environment changed and Facebook saw the need to
take Instagram off the table.

If anything, the point is to avoid trying to pull "uncertain multi-step
transactions". Use various strategic alternatives to create urgency / better
terms for other alternatives, choose between the options you can get and focus
on optimizing your immediate next step.

~~~
larrys
"As soon as the funding closed Facebook was suddenly facing a viable threat in
mobile vs. just another resource-starved startup hanging onto dear life."

You are stating that like it's a fait accompli that the threat is real and a
done deal as opposed to a mountain that they have to continue to climb and
achieve with all sorts of things that could cause the dream (after $500m
funding) to not even happen.

Perhaps it's the same bias on the part of Facebook that caused them to make
this acquisition and overreact (possibly - and of course we'll never know the
answer) to Instagram's funding.

And what about the fact that they waited until they were funded as opposed to
having a system in place to identify the threat from "just another resource-
starved startup hanging onto dear life" and getting involved before that?

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jen_h
One thing I haven't seen anyone mention is that, depending on the stock vs.
cash split (I guess we'll see in the S-1 eventually), the acquisition not only
knocks out a potentual competitor/keeps bigger competitors away from
Instagram, gains a talented team and a cool product, but also acts as a pre-
IPO liquidation event. Instagram now has at least ~10% of Facebook's 2011
revenue banked.

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johngalt
A more detailed way of saying: "Taking too much VC money will close more doors
than it opens, and you should know which ones are closing"

I'd assign weight 0 to 'interested acquirers' opinions. Until there is a deal
on the table, there is no reason to risk running out of cash and being bought
at fire sale prices.

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lusr
The economics of tech startups are really puzzling to me. What is the
obsession with raising all of this money?

If your business is profitable then raising money shouldn't be a concern,
especially if you have something just sitting in cyberspace with no real
meatspace components bleeding cash. Really, what the hell is this kind of
money even being spent on? Servers and staff cannot be that expensive, and few
of these services I'm thinking of bother with advertising.

And if your business isn't profitable then why the hell is anybody investing
in you?

Or is it more to do with capturing a share of the world's eyeballs and having
an exit strategy of holding out for a strategic acquisition by a company
unwilling to lose those eyeballs to a competitor, such that the amounts
"raised" in these deals is more about establishing a stake in the final
acquisition amount in exchange for giving the founders an immediate payoff?

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rikacomet
point is that instagram cashed it, and facebook nailed a competitor.

Bottom line: VC's are good for ultrapreneurs, but not for those entrepreneurs
who want to take the risk of giving facebook a push from the side.

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rokhayakebe
My contention is Instagram already decided to sell to FB prior to the
investement. However Mark, being the Zuckester he is, wanted to do the large
majority of the deal using stocks only (that's gangster). Instagram raised
money so the founders and team would have cash, and the investors get a chance
to have more pre-IPO FB stock.

Note: Maybe this is what the post is about. I have not read t yet.

~~~
blhack
Totally, totally gangster.

(seriously, what?)

