
Tell Sam Altman: I will take your bet - mdlm
Sam,<p>I will take your bet.<p>I run a VC fund called Immaculate Conception Ventures, I am a TechStars Boston mentor, and I like to invest in TechStars alumni companies.<p>Michael de la Maza
Immaculate Conception Ventures LLC
======
sama
I sort of love that the person willing to take the other side of this is a
Boston-area VC :)

I accept subject to verification that you really qualify as a VC, and I can't
find a website for Immaculate Conception Ventures. What investments have you
made and how large is your fund?

If terms from the blog post are acceptable I will enter into longbets.

~~~
foobarqux
Eh, I would be cautious, you might be getting played for publicity. If that's
the case it wouldn't serve the purpose of the bet because the other side
doesn't have any conviction about the outcome and only wants to raise their
profile in the VC world.

$100k is probably cheap to get your name in many major news outlets.

~~~
javabank
$100k is going to a charity one way or another. That's a good thing no matter
how you cut it.

~~~
foobarqux
It doesn't serve the main purpose of the bet which is to find someone with a
strong enough conviction about the specific terms to risk $100k.

~~~
nostrademons
Pretty much everything a startup does is find resources that are underutilized
and then utilize them for something outside their main purposes. If it is
someone who's donating $100K to charity for publicity...well, that's a pretty
neat hack, and one that everybody wins from.

~~~
foobarqux
Fine, well done. But no one should care that Sam Altman bet that we are not in
a bubble against someone who doesn't care much one way or the other but wants
his name in the paper.

~~~
mod
I doubt anyone really does care.

The only thing I'm really interested in is why sama decided the other bettor
had to be a VC. That's a pretty silly requirement.

Anyway this isn't a ballsy bet at all, really. Guys on 2p2 (poker forums)
routinely make huge proposition bets that are more fun, interesting, and risky
than this--occasionally for charity, as well (though not that often).

Losing this bet will likely do no more to either bettor than losing a $5 bar
wager would do to me. Pony up the cash, shake victor's hand, move on with my
day and forget about it.

~~~
tibbetts
I agree, this bet would make more sense if the other party was a hedge fund
manager or someone else with a professional interest in being bearish on tech
innovators. No active serious VC who's might have raise a fund or invest at a
high valuation is going to bet publicly against the unicorns. Might as well
just retire.

------
davidcgl
Context: [http://blog.samaltman.com/bubble-
talk](http://blog.samaltman.com/bubble-talk)

~~~
samstave
Thanks, I have been off HN for the last week or so - and had no context.

------
wpietri
Hi! I'm delighted to see you'll be using Long Bets:
[http://longbets.org/](http://longbets.org/)

As the programmer behind that, I'm glad to introduce you to the folks at the
Long Now that can expedite that.

~~~
anaskar
Didn't know this service existed. Just registered and tossed it up onto
product hunt --> [http://www.producthunt.com/posts/long-
bets](http://www.producthunt.com/posts/long-bets)

looking forward to see this play out.

~~~
wpietri
Thanks!

------
dmabram
The great irony of Sam's bet is that, win or lose, the terms themselves prove
a bubble mentality. Every one of the terms is focused on valuation, with no
mention of revenue, much less profit or cash flow.

In the short term the valuation of a company is a popularity contest, in the
long term it is a direct reflection of the discounted value of the cash one
can expect to extract or reinvest. This is true for all investments, stocks,
bonds, public, private, and even unicorns.

I have no idea if Sam wins this bet. It's quite possible that within the next
five years enough of these companies are acquired at inflated prices to
satisfy Sam's terms.

What I do know is when industry leaders start to use valuation itself as a
metric to demonstrate that we are not in a bubble, without even the most
casual mention of underlying fundamentals necessary to justify valuation, then
we are in a bubble.

------
diego
I'm curious which one of his propositions do you think has a higher chance of
not happening, and why. #3 can be phrased as "there is at least one unicorn
among these 114 companies" so betting against that is rolling dice. I imagine
you're either bearish on 1 and/or 2, or are betting on a macroeconomic event
that would bring all valuations down. Could you elaborate?

~~~
pash
Note that the bet is the conjunction of those three propositions, so you don't
have to think any one of them is particularly unlikely to think that all three
of them together are.

For example, if you consider the propositions to be roughly independent, you
might believe each one of them is individually nearly 80% likely to occur, yet
you'd rationally believe Sam would be more likely than not to lose the bet,
since 0.5^(1/3) = 0.794.

~~~
unholiness
The whole point of the particular three propositions is that they're highly
correlated. Each condition involves an aggregate of many companies. If any of
the conditions is true it says more about the general tech climate than it
does about the luck of any particular company.

Personally, I might put the odds of each at 60%, 70%, and 90%, respectively.
Independently, that gives me a mere 37.8% chance of losing. However, I also
think that condition 1 succeeding is _highly_ indicative that the others will
succeed too. So, if it were really $100,000 at stake, I wouldn't take the bet.

The real conundrum is that stakes of winning aren't $100,000. The loser's
money goes to charity, and the winner's takings are the publicity gained from
being right. No doubt both participants feel that the publicity is worth more
than $100,000. They don't need to have even 50% confidence to take the bet.

------
gautamnarula
Unrelated, but are you the same Michael de la Maza who wrote Rapid Chess
Improvement?

~~~
mdlm
Yes.

~~~
gautamnarula
I didn't follow the program exactly, but it was influential in my training
(and quick improvement) during my teen years.

It's a shame you stopped playing. I'm sure it would've been interesting to see
how the program would have to adapt as you aimed for 2200 and beyond.

------
xxcode
1\. Dropbox: NPV is less than 10B. Will probably get brought for 3-4B by bigco
if bigco can transcend internal politics. Not sure who will buy them - most
probably Microsoft under Ndella.

2\. Palantir: I have some experience with working with Palantir FDEs who were
marketed to BigCo as 'gift from god to solve all problems'. They were pretty
useless.

I think Palantir is basically shit. Wait and watch.

~~~
300bps
_Will probably get brought for 3-4B by bigco if bigco can transcend internal
politics. Not sure who will buy them - most probably Microsoft under Ndella._

I'm asking in all sincerity - what does Dropbox have that Microsoft would
want? Their OneDrive technology is "good enough" for the vast majority of
users.

Latest statistics I could find were that DropBox has 200,000,000 users and
that 96% of them were free user accounts. That means DropBox has about
8,000,000 paying users. Instead of buying the company for $4 billion they
could instead pay each paying DropBox customer $500 to switch.

Or they could spend $4 billion on marketing / giving away their free 1 TB of
OneDrive space with purchase of an Office 365 subscription for $6.99 per
month.

I'm probably missing something?

~~~
MichaelGG
Same reasons MS ended up buying Skype, despite having a near decade lead in
tech (NetMeeting before MSN Messenger), 300M active users, etc. etc.? MS even
had VoIP-to-PSTN in the 90s, albeit via a poor partnership with MCI.

Same reasons MS ended up investing in FB, instead of turning Messenger (think:
you've already got everyone and their friends using it!) into a good social
network?

~~~
boomshucka
There are network effects in both of those. It's not the same.

------
jforman
When I moved from SF to Boston (after co-founding Inkling six years ago), the
top two things I was worried about are a) a less pro-startup culture, and b)
less available early-stage money.

This really doesn't help either point. We need more early-stage money here and
more optimism, not less.

~~~
ghc
Understandable. The seed environment in Boston is sub-optimal. But hopefully
it will continue to change as more people like me band together with friends
to start seed stage VC firms. The market is just too good to not take
advantage while there's no competition and no crazy valuations.

------
TimSchumann
I'm surprised at someone actually taking the other side of this bet as I
thought Sam was _very_ conservative on his projections.

1) Any one of those companies (besides Pinterest IMO) could conceivably
achieve a market valuation of $200B by Jan 1, 2020.

2) Again any one of those companies (besides Teespring IMO) could conceivably
achieve a market valuation of $27B by Jan 1, 2020.

3) Easy win for Sam.

~~~
dkrich
Seriously? As I write this, Microsoft, the largest purveyor of enterprise
software in the world, is worth roughly $340 billion. Oracle? Less than $200
billion. Hell, Amazon, the company that Dropbox runs on isn't worth $200
billion.

You honestly believe that any one of those companies, none of which has been
around for more than ten years, could reach a market cap of $200B within 5
years? Either you are incredibly bearish on the dollar or we are officially in
bubble times.

~~~
TimSchumann
Yes, seriously. Which company is anyone's guess, and some are more likely than
others, but it's conceivable a single company from that list could achieve a
$200B valuation on a 5 year time scale.

~~~
dkrich
My point isn't really to take anything away from those companies. They're all
very impressive. It's more that I am surprised that people don't seem to think
that $200B is an incredibly large amount of money. It's more than three Ford
Motor Company's. Or $80 billion more valuable than Cisco Systems, in many ways
the backbone of the entire internet. It's just an incredibly large valuation
to achieve for any company let alone in a five-year time frame.

------
MCRed
I have no idea how this bet will come out but I was not pursuaded by Sam's
argument because he did not address the root cause of the bubble. Put another
way, he's sitting on the surface of a bubble and pointing out that there's not
a bubble rising from that surface.

He's saying that there's innovation and the innovation makes these companies
more valuable-- on that we can all agree. Whether VC investments are correctly
valuing companies or not at various stages, I don't even think that's an
issue, so I will take his general assertion that they reasonably are. To the
extent that people think that the nature of a the "bubble" is unrealistic
valuations, I think it's silly to say there's a bubble. That's not the bubble.
The actual bubble causes these high valuations but has nothing to do with VC
judgement -- who are all acting based on the pricing information they're
getting from the market-- so that they are being irrational is due to the
irrational pricing info they are getting, not due to having lost their senses.
The irrational pricing info is that the cost of money is way too cheap.

The bubble is not a startup funding bubble, it's a dollar bubble.

The main argument for us being in a bubble is not that we're in a bubble of VC
expectations for companies-- though that is a side argument that VCs expect
google and Facebook to buy everything whatever the quality.

The main argument is that since 2001 and especially since 2008 the money
spigot has been opened wide. Helicopter Ben is in full effect. The 2008 bubble
was a direct consequence of that spigot being open, combined with interest
rates being held below the cost of money and the Clinton era "not loaning
money to people who can't repay is racist" agenda and changes to the CRA that
forced banks to make bad loans. Everything else that happened in 2002-2007 was
secondary effects.

When 2008 happened the spigots were opened even wider, the interest rates
forced lower ,and now, instead of having an open market for T-bills the
federal reserve itself is buying them. Totally distorting the market.

The short description of what that means is that money is really cheap--
really cheap for the institutional types that have a lot of it already, and
especially really cheap for anyone who can go to the federal reserve window.
EG Banks. T he banks have all this money and have to put it somewhere that
earns a return over the borrowing cost (carry)... which from the Fed is even
cheaper than the money you lend them in your savings and checking accounts.

The way the money spigot works is it filter thru tiers of the economy. Banks
lend as much as they can which produces economic growth (though not without
cost, hence the whole misrepresenting this system as Keynesian-- keynes
recognized the cost and danger of this, but everyone who claims to be
"keynesian" since then and advocates this system seems to ignore the cost and
danger.).... and a lot of it hits the stock market and then even more risky
ventures.

All this money in the VC pockets chasing startups is originating at the
federal reserve as they shove money into the economy.

Sam talks about "interest rates rising". Well, interest rates would have
risen, but the fed is providing unlimited demand for T-bills so that's
distorting a market signal. The FOMC is providing unlimited money to paper
short gold, so that's distorting another market signal.

I don't know how it will break-- just as I wasn't sure how the housing crisis
would break in 2008, even though I knew there was a bubble (and at that time,
by the way, everyone said there wasn't a bubble. They also said there wasn't a
bubble in 1999. How old was Sam in 1999? I honestly don't know but I'm
guessing he was not 18.)

And all of this is on top of a hundred years (since the founding of the
federal reserve) of exporting the effects of US dollar inflation onto other
economies-- most of which were weaker than us but now are reaching parity and
don't need the dollar to back their currencies so much anymore.

The bubble is not a startup funding bubble, it's a dollar bubble.

I'm certain we are in one. I have no idea if it will bust in the next 5 years.
But when it does, it will be worse than 2008, 1999 and the 1930s combined.

~~~
neilk
I'm on shaky grounds trying to talk about macroeconomics, but I don't think
loose monetary policy counts as a bubble, exactly.

It would be a bubble if everyone believed that loose monetary policy was going
to last forever. The Fed is well aware of the trillions of dollars they've
created and they have the ability to make it go away, once the economy is
moving again to their satisfaction.

Planet Money did a segment on this last week.[1] The problem is, a lot of that
money never made it out into the regular economy -- when the Fed creates
money, it's really creating it for banks which are supposed to have incentives
to loan it out. But mostly, according to that show, the banks aren't lending
it out. At the very least, this shows they don't have the requisite irrational
exuberance for it to be a bubble.

One thing for sure: it seems that banks have less incentive to make productive
investments than the Fed thinks they do. A possible reason why: "manager
capitalism"[2] yields higher incentives for short term speculation, bonuses,
etc. Maybe a trickle of that money has made it into VC but I have no idea how
to determine that.

[1]
[http://www.npr.org/blogs/money/2015/03/20/394274484/episode-...](http://www.npr.org/blogs/money/2015/03/20/394274484/episode-612-the-
indicator-strikes-back)

[2]
[http://www.vanguard.com/bogle_site/sp20030611.html](http://www.vanguard.com/bogle_site/sp20030611.html)

------
discardorama
Well, with Amazon's "unlimited storage" announcement today, you can bet some
wind got knocked out of Dropbox's sails...

------
foobarqux
After the bet has been finalized, please post your rationale for the "against"
case.

------
nicklovescode
Hi Michael, would you mind explaining your rationale? In particular, why would
you believe his bet and still be a VC?

~~~
vikp
I'm also curious about the general case of people believing that we're in a
bubble giving advice to startups. Do they advise that startups keep a really
low burn rate and wait it out, or go for broke and raise as much as possible
now? Do they advocate certain business models that do better in recessions?

~~~
nostrademons
Both. When the last bubble hit, the advice given to startups was:

1.) If you're in a position to raise capital, raise money now, because the
funding window may not be open for a long time.

2.) Cut burn rates immediately.

3.) Get to cash-flow positive.

4.) Cut non-essential features, and focus on customers that are willing and
able to pay.

It's usually not practical for a startup to change its entire business model
(although LoudCloud did it in the first dot-com bust), but they can trim fat,
and stop doing activities that aren't absolutely essential to generating
revenue.

[http://venturebeat.com/2008/10/10/the-sequoia-rip-good-
times...](http://venturebeat.com/2008/10/10/the-sequoia-rip-good-times-
presentation-get-your-copy-here/)

------
ddorian43
...what bet ?

~~~
hydrazine
[http://blog.samaltman.com/bubble-talk](http://blog.samaltman.com/bubble-talk)

[https://news.ycombinator.com/item?id=9258798](https://news.ycombinator.com/item?id=9258798)

~~~
ltnately
Directly from link

 _To win, I have to be right on all three propositions.

1) The top 6 US companies at [http://fortune.com/2015/01/22/the-age-of-
unicorns/](http://fortune.com/2015/01/22/the-age-of-unicorns/) (Uber,
Palantir, Airbnb, Dropbox, Pinterest, and SpaceX) are currently worth just
over $100B. I am leaving out Snapchat because I couldn’t get verification of
its valuation. Proposition 1: On January 1st, 2020, these companies will be
worth at least $200B in aggregate.

2) Stripe, Zenefits, Instacart, Mixpanel, Teespring, Optimizely, Coinbase,
Docker, and Weebly are a selection of mid-stage YC companies currently worth
less than $9B in aggregate. Proposition 2: On January 1st, 2020, they will be
worth at least $27B in aggregate.

3) Proposition 3: The current YC Winter 2015 batch—currently worth something
that rounds down to $0—will be worth at least $3B on Jan 1st, 2020._

~~~
tacos
Ironically a basic statistics class indicates that cherry picking companies
that deliver 2x, 3x and ... whatever the fuck that third pick is ... as a
guaranteed return over 5 years is indicative of the overenthusiastic hype that
historically surrounds bubble valuations.

#3 is a die roll. #2 is the killer. And I might take the bet on just #1.

~~~
dvanduzer
#3 isn't just a die roll, it's the entire basis of early stage investment. If
he loses on #3, YC will either be a shadow of its former self, or Sam will
have given himself enough rope to hang himself (as president of YC).

This is exactly the sort of thing that _everyone_ making press about
investment capital should be willing to do. Sam isn't making a bet about
_money_ here, he's making a bet about his reputation as a forecaster/analyst.

~~~
fleitz
That's not true, YC could just have a bad batch, or the economy could be in a
serious downturn in 2020.

A number of reasonably likely events could cause #3 to be false without any
catastrophic loss to YC.

~~~
tacos
Exactly. I admire Sam's balls but the externalities here are immense. The
greatest financial mind of our time built Berkshire Hathaway to $350B over 50
years. GE is worth $250B. Microsoft $340B.

To believe Sam's motley list of companies can either hold onto valuations
approaching those "real" companies for five more years, let alone actually
generate viable earnings and go public (even at goofy P/E multiples) in line
with what GE, Microsoft, or Buffett's candy, ketchup and mac'n'cheese
subsidiaries alone make seems ... optimistic at best.

If he loses, might I suggest the book title? "Oops! Brands Aren't Businesses!"
by Samuel H. Altman.

~~~
icebraining
It's $200B on aggregate, so they just need to be worth $33.3B on average.
That's more on the level of Adobe than Microsoft.

~~~
tacos
I understand the bet. I do not think you understand what "averaging $33B"
means.

For instance Rubbermaid simply owns numerous home, commercial and healthcare
markets. They make everything from saws to Sharpies. They doubled their market
cap in the last five years. 20,000 employees (more than anyone on that list)
$6 billion in revenue (ditto) P/E ratio of 30 ... and they're worth $10B.

~~~
icebraining
Rubbermaid is a razor-thin margin business, with plenty of exposure to both
the pressure of retailers like Wal-Mart and the rising costs of supplies, and
very little in terms of differentiation from competitors. That's why it went
bankrupt and got bought by Newell.

~~~
tacos
It averaged a gross profit margin of 38% the past five years. While paying a
dividend. And doubling the stock price.

Which companies in that list have profits let alone profit margins? And are
half as diversified? I see the big upside. I see the big downside. But I don't
see how they all grow to average 3x NWL/Rubbermaid in the absence of bubble
valuations.

Also all this "2x or 3x" after the big rise talk is just dilly-shaking anyway.
The numbskulls who jumped in on the last Tumblr round would've made more money
flipping Microsoft stock over the same period. Talk about unnecessary risk for
the sake of risk.

------
ndamiano
This is a nice way to get publicity for relatively cheap.

Should I be disturbed that our YC batch ended up being just a bet? I feel like
I'm in the Silicon Valley version of "She's All That."

------
iamcurious
I wonder how this works, is it necessary for Sam to acknowledge the bet? What
happens if more than one person wants to take the same bet?

~~~
hydrazine
The bet is only open to the first VC to publicly take it I believe.

------
bbcbasic
I think Michael will almost certainly lose the bet.

I also think this is a very shrewd move by Michael. It is pure genius to
accept that bet. (No sarcasm)

------
louisswiss
2) and 3) seem like a given, but looking at the companies in 1), I think Sam
might have his work cut out for him...

~~~
adrianpike
SpaceX alone makes me not want to bet against Sam on point #1.

~~~
snowwrestler
SpaceX is dependent on government contracts for their business, which is
risky. Government contracts could go away, or get reduced, for a bunch of
different reasons--some of which have nothing to do with how good you are.

~~~
GeneT
While they are dependant on government contracts they are also in a industry
with huge barriers of entry. On top of that their main competition had a
rocket explode earlier tho year, so I would say their outlook is pretty
positive.

------
davmar
boy this is an awkward post.

~~~
shepardrtc
Awkward or not, $100,000 will be going to a charity at the end of this. I
think we can all put up with it for that alone.

------
choppaface
sama and mdlm: since you're effectively going to lock up $100k each for 5
years, how about you both give the interest on that capital to charity?

------
lettergram
Pretty confident Sam will win, given the current track record, and baring a
complete market collapse.

~~~
MCRed
That's the nature of bubbles. This is a bet about whether there's a bubble or
not. IF there is a bubble, of course it's going to look like Sam has a slam
dunk win here-- until the bubble pops and then it looks obvious that Sam could
not have won. This is irrespective of the bubble popping in 2019 and thus Sam
losing the bet and 2021 - where Sam wins the bet but loses the point.

The problem with bubbles is that when you're in them, it's very hard to know
you're in a bubble and thus crazy things seem perfectly rational.

I'm not saying we're in a bubble or not in early stage investment--- I'm just
pointing out the nature of bubbles.

~~~
nemo44x
The funny thing is, this is the first time I remember everyone speculating on
if we are in a bubble or not. Once bitten, twice shy I suppose.

But, I also think that although there is a lot of optimism a lot of it
rightfully there. Technology has been creating a revolution in communication,
media, entertainment and just about every other industry. The internet finally
arrived for the masses in the mid-2000's followed by the smart phone
revolution followed by tablets and smart devices. There's simply a lot of
opportunity out there.

I don't think we are in a bubble so much as in the middle of a rare
technological revolution. So many things are happening at once between
computer systems becoming so powerful and networks becoming so large and fast,
etc. Old industries are dying while new, more profitable companies take over.

------
scottydelta
I would like to bet on proposition 3 but damn I don't have that kind of money!

------
jtruk
Do you guys need someone to act as escrow? _makes call-me handsign_

------
kmeves
I think it's pompous for both you and Sam Altman to be wasting our threads
with these bets.

~~~
sama
Agreed; I would have greatly preferred he emailed me.

~~~
prawn
I think it's generated some interesting discussion. I'm sure the same occurred
on the original thread, but I didn't read that.

