Ask PG: Is There A Startup You Regret Not Funding? (Like Fred and AirBnB) - npguy
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pg
A couple. I can't name names though because I feel like we're obliged to keep
applications confidential.

When we miss a good startup, we always go back and figure out what went wrong
and try to fix it. One advantage of all the other incubators that have arisen
is that when we miss a good company, we at least find out about it. We've
changed our application process several times in response to misses.

(Strangely enough, it might actually be net beneficial to YC to have so many
competitors, because they're training our filter.)

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pwendell
Does it always mean that something went wrong if you passed on an eventually
successful startup? That seems like an assumption baked into the question and
your answer.

At the end of the day you are taking a calculated risk. The interesting
question isn't whether you wished you had funded them, because that is asking
you to make a risk-free (in hindsight) decision. The real questions is how you
decide whether a missed opportunity indicates a lapse in the way you
calculated risk/reward, or simply a bet you ended up on the wrong side of
despite it being the right bet at the time.

That's the question I'd really be interested in hearing the answer to. How do
you decide whether a missed opportunity represents an error in your process?

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pg
As far as we're concerned, missing a good startup is by definition an error in
our process. We may never get our error rate down to zero, but we can try. And
it's reasonable to assume we have a lot of room to, considering how early we
are.

Having funded 465 startups over 7 years may not sound early, and I suppose it
isn't in a relative sense, but it is in an absolute one. Society in general
and we in particular are still learning how to predict which startups will
succeed.

~~~
pwendell
But surely there are success stories which are outliers/anomalies/red
herrings, that you really don't want to try and replicate?

To say that every missed opportunity is a failure is like saying that every CA
lottery I didn't buy a ticket for was a mistake. That strategy risks over-
fitting to successful fluke's, to people who made bad bets that happened to
work out. There is enough loose money floating around today that some people
out there are going to make bad bets and succeed.

I don't see why you/YC wouldn't focus on bets where you have an unfair
advantage over the market and feel fine passing those up where you don't, even
if they have some non-zero probability of success.

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david_shaw
I'm neither Paul Graham, nor a venture capitalist. I've never invested in a
startup.

However, I _have_ been involved in the process with potential investors
deciding whether or not to invest in a company -- on both sides of the table.
I can't answer your question, but I might be able to lend some relevant
conversation on the topic.

Investors, especially those who specialize in early-stage startups, take a lot
of risks. We all know that most startups will fail -- and those that don't are
not always wildly successful. There are plenty of ramen-profitable startups
that will piddle out, and plenty more that never even get to that point.

Because of the inherent risk involved with investing in general, it makes
sense to take as risk-averse an approach as possible. That's why YC-backed
companies are built on such solid, great ideas (the best foundation possible)
-- and even many of those, even with Y Combinator's full support, still fail.

Whether or not pg has regrets is a question that only Paul himself can answer
(and I hope he will), but my opinion is that his approach is the same that I
take towards my investment portfolio: maybe a slight tinge of missed
opportunity, but the decision whether or not to put money into a company is
calculated rationally. Because of this, there's no real regret to be had.

~~~
klochner
and you slept at a Holiday Inn last night?

[edit] I meant Holiday Inn _Express_

~~~
chmike
Could you explain your comment ? It don't understand the relation with the
comment you responded to.

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klochner
It's an american joke, my apologes for both using a cultural reference and
making a pretty snarky comment.

A more "HN-spirited" comment would have been:

    
    
       You aren't speaking from any real authority or 
       experience, and your 5 paragraphs could have been summed 
       up with the following: "when you gamble you don't expect 
       to win them all, so regret is baked into the equation".
       Please be more concise with your comments and get to the 
       point.

~~~
Confusion
tl;dr the only way to catch them all is to fund them all

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jaredsohn
Here's Fred Wilson's post about passing on AirBnB:
<http://www.avc.com/a_vc/2011/03/airbnb.html>

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lifeisstillgood
My next one ;-)

Edit: joking aside, I cannot comment for pg but there are a number of startups
I regret not funding - funding with _my_ time and effort. Whatever strategies
or not people use to invest in _others_ companies we can all invest in one -
our next one.

I am minimising my regrets, by investing in me.

(I do worry about that management team though !)

~~~
rolandal
I feel like this is a common problem - we all get presented with many
opportunities to join startups that become great.

I remember reading a similar post that was about how an engineer felt about
turning down the opportunity to be a 1-10 employee at Facebook

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tomasien
I think a MUCH better question is "Are there any companies that didn't
ultimately reach exits that you regret funding: I.E. companies who you believe
YC itself would have made the essential difference in their success"

This would be a company who got grew initial growth but, for lack of proper
guidance and mentoring, made really bad decisions that killed them. Perhaps a
company that had a chance to be huge, did well initially, but didn't have the
proper connections to scale after that.

That to me is a harder but ultimately much more valuable question.

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tomasien
More valuable because of COURSE PG had some misses. If he didn't have misses,
he wouldn't be human. But where it gets really interesting is in his
estimation of the YC effect, which I think is estimable: what companies would
have been billion dollar companies with the YC effect but aren't because they
don't have it?

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paulsutter
Surely they wish they were able to allow the n+1'th team to join a given
class, but they're busy enough with the n they do select that I'm sure they
dont give it a lot of thought. Certainly not regret.

YC's investment is primarily about time and effort, not money anyway.

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andrewhillman
i think they rejected sendgrid, but not 100% sure.

