
Screw the Black Swans: Ichiro is our role model, not Barry Bonds. - relation
http://500hats.com/screw-the-black-swans
======
pg
This is such nonsense. We like hustlers too. Every investor does. It's good if
they're also good hackers. But (as I've said over and over) we learned early
that determination matters more than intelligence in this business, and that's
what we look for.

He seems to be trying to give the impression that 500 Startups is for plucky
underdogs, and YC isn't. It would certainly be in his interest to have
founders believe that. But the fact is that when the black swans show up on
our doorstep, they don't seem like they're going to be black swans. That was
the whole point of my essay; that's why I refer to them as black swans, and
why I say that "we're in a business where we need to pick unpromising-looking
outliers."

~~~
jsherry
Whether or not it was his intention, Dave McClure successfully framed 500 in
the discussion of the premier accelerator program - YC. And he also sent a
battle cry to his portfolio, pitting them as the underdogs. I'd say this post
was pretty well done regardless of whether you agree with his points.

~~~
tstyle
I think pg recognizes the post for it's marketing brilliance, which is why he
is calling bs.

It was interesting that aside from having the scrappy image, many of the
athletes used in the analogy(Ichiro, Nash, and Dirk) happens to be foreign.
The post is an attempt to differentiate from a leading competitor for talent
on multiple fronts(Home Run vs Singles/Globalization vs Valley/Hackers vs
Marketers).

~~~
GBond
"Law of the Ladder" strategy of the post is a good play.

Another point about the scrappy image: one of the points of PGs essay was to
state that sometime the non-obvious guy/gal wins the biggest the end. 500 is
saying they are that non-obvious accelerator.

------
lifeisstillgood
To 500hats:

1\. Please take a note from pg. He writes clearly, edits his essays and it is
almost always clear what he means. I am afraid I read your note twice and
still missed some of it's core message(s) (I mean this kindly and politely)

2\. If you are serious about external to USA investments and families, please
please stop using US only sporting analogies that need Wikipedia articles to
unpick. I am glad you love your sports. Now stop it. Say what you mean.
Analogies are for lazy HNers like me, otherwise you are bowling googlies on a
sticky wicket.

To pg and 500hats

This may or may not be a spat, but it looks suspiciously like when two tribes
who were happily expanding across virgin tundra suddenly find they are
jostling each other for space.

As you guys are at the leading edge of us it start ups, is this a warning sign
of an imminent contraction ahead - have you guys run out of room?

~~~
bambax
> _2\. If you are serious about external to USA investments and families,
> please stop using US only sporting analogies_

Thanks for pointing this out. Not everyone who reads English understands
those. While I have a (very faint) idea what the Yankees are, I have never
even heard of the "Oakland A" or any of the players he mentions.

This is a very US-centric post; the line about how their investing team
_"speaks Mandarin, Japanese, Portuguese, Spanish, Hebrew, Korean, Hindi,
Punjabi, French, German, and will probably speak Arabic and Russian sometime
next year"_ sounds forced. Can he explain the rules of baseball in Russian?

~~~
lifeisstillgood
I only know the Oakland As after watching Moneyball (recommend it for post
midnight slumping), but yes I have a couple of rules for mixed culture teams

1\. Writing is best _first_. Skype is great but really unless English your
first language communication with words is easier, because you can take your
time and point to code

2\. Polite is vital

3\. Encourage the weakest communicators This is generally true anyway, but the
isolation that can accrue from not being able to make yourself understood a
thousand miles away can become crippling to a otherwise useful team member

4\. Kiss - keep it simple - everything needs to be simple

5\. Pair up - no not pair programming although that's useful but have a
"liason" for each remote person at the head office. This way there is a good
link for catching misunderstandings etc

6\. Be wary of jokes

7\. On simplicity - this usually gets difficult when the requirements are not
clear - if it's hard to feet a good programmer with bad English to understand
what you want the fault is probably in the requirements not the programmer

to be fair that last rule has never failed me with any developer who has
enough English to hold a conversation about their favourite sports team. Which
is not much really.

------
thetabyte
Everyone seems to be completely missing something PG made abundantly clear.
Black swan farming _is not what YC tries to do_. They don't only swing for the
fences. PG simply illustrated why and how it _makes the most business sense_.
He says, explicitly, multiple times, that it is not YC's primary objective,
they don't reject teams based on this criteria, and they aim to help all of
their teams. His essay just documented the interesting truth that venture
firms are better off with the unintuitive process of focusing on big winners.

------
majormajor
I don't think the sports analogy serves their argument (and I'm not sure I
really see what they do all that differently than YC). I don't know Michelle
Kwan's story, but of the other three they mention: Ichiro got a nice 17M/year
contract. Nash has a couple of MVPs and was the 15th overall pick in the
draft. Iverson was a number one draft pick and led the NBA in scoring several
times. Ichiro came from Japan instead of the traditional draft/Latin America
-> minor leagues route, but considering the Mariners paid $13M just for the
rights to negotiate with him, he wasn't exactly an ugly duckling by the time
he came over.

Really, all those guys are more like a phenomenally successful startup than
not. There are countless prospects in sports—this is most obvious in baseball
with the huge minor league pro leagues, in basketball the NCAA serves a
similar role—and only a very, very few of those players turn out to be stars.
And frequently scouting for them in advance (like at the HS level) is a
crapshoot. If you were an up-and-coming agent and happened to land a Nash,
Ichiro, or Iverson, he'd likely be worth more to you than all your other
clients combined.

~~~
j-kidd
He lost me at "put in their hours at the gym" and Allen Iverson:

<http://www.youtube.com/watch?v=eGDBR2L5kzI>

~~~
davemc500hats
AI might not have a traditional view of "PRACTICE" but i bet he put in a
helluva lotta time shooting hoops, one way or another.

besides, not all metaphors have to work perfectly... it's the story that
counts.

------
seanx
This post would have made a lot more sense if I had the slightest idea who any
of the sports players or teams were.

------
dbul
_but our MISSION is to groom ugly ducklings._

Then why do you make it so hard to touch base?[1]

[1] <http://500.co>

~~~
pbreit
If you think it's hard to touch base with 500 Startups you are hopeless.

~~~
prateekdayal
I met Dave at an event in Singapore and tried talking to him. He refused to
talk unless we got recommended by two people in his network.

Not 'refusing to fund unless I get recommendations'. Refusing to even talk or
hear our story. The same thing happened in Startup Chile Demo day as well with
their other partner Bedy who was there to listen to pitches.

~~~
djt
I think the problem here is that you were at an "event", very little time to
meet with people that he already probably had meetings planned with.

I would suggest that you find a way outside of that OR look for 2 people in
your network to introduce you.

------
davemthrowaway
This is breathless nonsense. What is Dave trying to say?

The only thing I gathered from this is that in his mind 500 startups can't
attract or afford the most sought after yc companies and founders and.. That's
ok, We're global!

The math on this just doesn't make sense. _By definition_ , the moment a fund
has an investment which is a "black swan" that investment will make all the
singles and "on base hits" (or whatever) insignificant to the total returns.

I get that he is successful and has a lot of hutzpah but if I was an LP I
wouldnt be thrilled by this.

~~~
frinxor
I think pg's whole point (and Taleb's) of a black swan is that they are not
identifiable. Over the long term and after many investments, pg is pointing
out that its the presence of these black swans that made YC successful
(dropbox, airbnb), and extending that to other VCs, its random luck that will
make or break them. You can't avoid investing in black swans, because you
don't know which ones they are/will be.

~~~
davemthrowaway
That wasn't how I read the black swan farming piece. From what I remember he
pointed out how total returns for the fund are dominated by the black swans.
Then he discussed what yc would (theoretically) look like if they were going
to try to optimize for black swans but conceded that they wouldn't really want
to run yc that way. In a way I think the piece flouted the concept of black
swans by saying they were something you could optimize for (which I think
taleb would disagree with).

Regardless, the unpredictability of black swans and their potential impact on
a fund's returns show the ridiculousness of Dave trying to frame this
discussion as "Barry bonds vs ichiro".

~~~
btilly
Taleb not only believes that you can optimize for black swans, but he runs a
fund called Universa that does exactly that. Most years it loses money. But in
2008 it had over 100% returns.

~~~
tatsuke95
Universa is run by Mark Spitznagel; Taleb is only loosely associated. Because
it's a closed, private fund that isn't required to produce audited financials,
nobody on the outside really knows what kind of returns it has produced.

Taleb and his theory make for a good story in the wake of the financial
meltdown, but the tangible application is sometimes exaggerated [1].

[1][http://www.businessinsider.com/wait-before-you-invest-in-
nas...](http://www.businessinsider.com/wait-before-you-invest-in-nassim-
talebs-new-fund-2009-6)

~~~
btilly
That's what I get for skimming to remind myself of facts instead of reading.

I got Universa from the Google search blurb from Wikipedia. I got the over
100% figure from [http://www.bloomberg.com/news/2011-10-06/black-swan-money-
ma...](http://www.bloomberg.com/news/2011-10-06/black-swan-money-manager-
returning-23-anticipating-bear-market.html) which quoted "a person familiar
with the matter" as saying that the fund brought in 115% during 2008.

However if I read either closely it was obvious that Taleb does not run
Universa.

~~~
tatsuke95
I wouldn't fret; Spitznagel is open about the fact that the firm's strategy is
based off of economic "Black Swans" and Taleb's work, and there's definitely
an association.

As far as the returns, the 100% figure wouldn't surprise me, really; more than
a few bearish funds crushed it during 2008. It just seems like that number is
the financial media echo chamber in action. It's repeated over and over in
article after article (just look at the citations for it on the Universa
wikipedia page). And yet, it always comes from an unnamed source or someone
"familiar" with the fund. If there's anything I've learned from the financial
crisis, it's that hedge fund managers aren't particularly trustworthy; even
less so when they're talking their own book!

------
staunch
I think the main reason 500 could work even without home runs is that they do
follow on investments in the most promising companies. YC doesn't do that
because it would screw every company they didn't follow on in at Demo Day.

It would also probably result in less home runs if they did this because (as
PG stated) the very most promising ideas already often have the hardest time
at Demo Day (Fred Wilson + Airbnb).

500 startups may actually be strangling their home runs in the crib with the
follow on strategy. A self-fulfilling prophecy.

------
j_col
He probably just lost the non-US audience with all those baseball references
(certainly lost me).

~~~
davemc500hats
the baseball / moneyball metaphor was important.

i know that some folks who don't know baseball won't get it, but the
references because of the book & movie were somewhat essential.

------
hooande
You shouldn't declare yourself to be the underdog, it shows a lack of
confidence. Other people will do that for you. Everyone loves a David vs
Goliath story, but this seems like an unnecessary concession.

And you can't say "screw black swans", it doesn't work that way. The whole
point of "black swan" is a completely unpredictable event. Even if 500
Startups accepted only d-list players, they wouldn't decrease their odds of
unforeseeable success.

~~~
josephlord
Portraying yourself as the underdog does have some advantages provided you
still believe you can win. It can inspire greater effort to beat the odds, it
can remove some pressure of expectation and place that on the other side. It
can also free you to take risks as you have less to lose.

There are disadvantages too if it gives the opposition healthy confidence of
if you don't actually believe that you can win.

I'm British so maybe my attitude to underdogs is a bit different to the US
one.

------
salimmadjd
‎"YC made Fire. 500 stole it.", this is a greate punch line, true or not. You
got to give Dave credit for not shying away from conterversy and in fact using
it to brining 500 into the discussion

~~~
ivankirigin
But he loses credibility to anyone paying attention. This isn't some press hit
to get users. His goal should be to make people think he is a good partner,
and even if his point was valid, his approach doesn't help.

Do I really want an investor who enjoys controversy?

Note that pure controversy isn't the same thing as saying something you think
is true that makes others uncomfortable. That is what PG's essay did, along
with many others of his. That is what makes PG good: incisive ideas.

~~~
davemc500hats
ivan: i don't think i was creating or enjoying controversy.

there's no controversy in clarifying differences between 500 & YC, that's just
simple transparency.

my goal was to clarify and differentiate 500 in the eyes of potential future
founders, and perhaps some press and/or influencers who would carry that story
to them as well.

don't really care whether i ruffle feathers from some folks as long as the
message was loud & clear.

pretty sure i did that.

~~~
ivankirigin
> as long as the message was loud & clear

I actually do think there is a kernel of something interesting in your post,
but the way you said it and a lot of your actual content got in the way.

First, PG was making an observation about the finances, but said "For better
or worse that's never going to be more than a thought experiment. We could
never stand it."

In other words, YC is like 500 with respect to mission and values.

Second, are your returns following a powerlaw? It seems like they are. So
regardless of your strategy, the financial observation PG is making seems to
apply to 500 as well.

In that context, "Screw Black Swans" doesn't belong in your title.

Separately, I'm pretty sure your international strategy is a stronger Black
Swan strategy. That is actually a really interesting idea, but when couched in
a needlessly contrarian post, it is lost.

Ironically, in developing my own strategy as I begin angel investing in
earnest hopefully next year, I think we'd agree on a lot. What if the median
investment had a 2X return instead of the typical (1/3 gone, 1/3 1X, 1/3 huge)
distribution?

------
kliao
The whole analogy to sports players is confusing and unnecessary, though it
probably attracts more views. He claims that 500 Startups focuses more on
teaching rather than finding the best talent, yet Ichiro was already a huge
star in Japan before he came over to the Seattle Mariners for a sizeable
posting fee. Then, the point about consistently "hitting singles" and getting
on base more often as opposed to hitting homeruns is strange considering Barry
Bonds has one of highest on-base percentages in league history. The steroid
issue that clouded the legitimacy of Bonds's career also muddles the message
the blog post is trying to convey; in comparing Bonds with YC, casts YC in a
negative light, though probably unintentionally.

~~~
davemc500hats
>>analogy to sports players is confusing and unnecessary >>though it probably
attracts more views.

umm... you aren't in marketing, are you?

"probably attracts more views" -> not confusing, necessary

also: yeah, of course Ichiro was big in Japan, and Bonds was one of the
greatest at getting walks. doesn't detract from a good story.

------
ecmendenhall
Ichiro and Steve Nash are wonderful role models, but I don't think they're
very good models, which this essay seems to overlook. "Black Swan Farming" is
about the enormous, counterintuitive variance of returns to startup
investments. Sports just isn't in the same domain: a batter with 1000x more
hits than the league average is inconceivable, but 1000x variations in startup
outcomes are quite common.

~~~
Evbn
Being slightly better player than the rest is enough to turn a losing team
into a champion, generating 1000x return.

------
pclark
"If you set your goals ridiculously high and it’s a failure, you will fail
above everyone else’s success"

------
johnrob
What if 500 Startups has the "misfortune" of landing a black swan? With the
firm's then increased valuation, how do they grow that with base hits?

I read PGs essay to mean that black swans are like an addiction: once you have
one, you need another to get any kind of growth.

~~~
davemc500hats
there's no misfortune if we have black swans. and we probably already did find
one with 9GAG last summer.

the point i was making was about whether that's the focus, or simply a result.

------
SoftwareMaven
YC's class sizes have been growing every session. Given the importance of the
networking between YC companies, is there a maximum size of a YC class
(Dunbar's number[1] being the first thing I thought of)? _Is_ there a point
that YC and/or its classes become too large?

1\. <http://en.wikipedia.org/wiki/Dunbar%27s_number>

------
dave1619
> _It would seem from PG’s post this is most definitely YC’s mission – to find
> the biggest & baddest startup founders, and get them to swing for the
> fences. Not to mention get them the highest possible valuations at demo
> day._

I'd like to hear PG's perspective on this.

What is YC's mission?

