It's ultimately content marketing for a16z. If Chris Dixon wrote this same article—e.g. "Here are all of the best things I've said"—then it would come off as arrogant or ickily self-promotional. But having someone else write it allows the author to praise the ideas without the same stigma.
I don't know whether it was intentional or not, but it's interesting how well the content comes across when the base idea ("writing about smart things our partner was right about") is the type of marketing companies/VCs _want_ to actually say but social norms prevent.
The article itself is an example of the advice within the article. A "good idea that people think is a bad idea."
I have no idea what A16Z's returns for their LPs are across their funds, but this could literally be right out of a movie script.
GENERAL PARTNER is chatting with potential LIMITED PARTNER
LP: The fund you're raising... the thesis, it's...
interesting. You've done a great job with your last
three funds. But I've read similar things from
Andreessen's team that make me think they have a
better grasp of the space - wouldn't my money be
better invested with them?
GP smirks and calmly reaches towards MARTINI GLASS,
casually picking the toothpick, olive still attached,
between her thumb and index fingers. She places the olive
between her teeth to the side of her mouth, grasps, and
pulls the olive off the toothpick in one swift motion.
She carefully places the toothpick in a napkin, stares LP
in the eye, and pauses just a moment before aggressively
biting down. She finishes chewing without breaking eye
GP: Ah. Yes, they do market themselves as visionaries.
It's completely intentional. They're fantastic at
marketing, PR, and brand building. In less than a
decade, while generating very unimpressive returns,
they've built one of the strongest VC brands in the
world. They're phenomenal at it. They do it so well
that they make it look easy, but it's not at all.
LP: So if I'd like to make money...
GP: You got it. How much are you in for?
One of the most prominent managers local to me (worth $150-200m, probably one of the wealthiest people in my country) only has one senior manager, apart from that...just grads. The product is terrible but is designed for a certain market that is growing rapidly and is naturally doing very very well. This is true of all of the largest fund managers local to me: always distribution first, thinking about who is going to buy, and what they care about (i.e. US pension fund, superannuation, etc.).
Even worse, I have come across more than one manager who was clearly very +EV but either couldn't raise money or went out of business because they weren't selling the right product at the right time. Most good managers do stay in business but not all. And if you don't have good distribution, you won't survive no matter what returns you have.
Why? My current theory is that people have rigid ideas about how to make money. Profit doesn't matter: it is about validating an idea or opinion of themselves. I suspect that the VC world is no different. I know nothing about a16z apart from their "reputation": very influential, whizzy VC firm, and very safe intellectually. They are the archetype VC firm, this is what VC investing is, you can lose money but you won't lose face.
I don’t know if it’s possible but I would love to see all these concepts proven by data.
If that's the case, an optimal strategy might be to take as many convex bets as possible, keep secret all the ones that fail, and then once a low-probability bet succeeds, milk it for all it's worth and convince everyone you're a genius. You can then leverage that for significant financial gain from organizations who seek genius-level insights in the future. Eventually regression-to-the-mean makes you lose your credibility, but in the meantime you can pocket significant amounts of cash and invest them in much more stable revenue-generating assets.
A glance at who's been successful since the 3rd millenia started shows that this might not actually be a bad career strategy.
One of the criticisms of psychological studies historically has been that we've been studying mostly abnormal behaviors and that it'd be like trying to determine how a car is built based upon only asking repair shop auto mechanics. Similarly though, I think we need to invert this for business - we need to identify commonalities between businesses that fail more than we need to identify the factors that cause success (the entrepreneurship porn out there is potentially harmful this way despite the many articles on the dark side of it). I think the common factors in what causes failures are fairly static compared to the factors that cause success. This interview is a great example of what was successful at one point in history can totally fail later (much greater planning necessary in the early 90s while now we're focused upon market fit / reactivity today as a trend). My gut feeling is that some kinds of companies are better off sticking to their guns and churning out good product independent of the market trends while others need to evolve.
I’m not sure this is actually true. There’s tons of data from “normal” subjects, though normal here mostly means “average behavior of an 18-22 year old college student.” If anything, psychology would probably benefit from more focus on individual differences rather than commonalities.
I must admit I may be missing some much more fundamentals that are discussed in academic programs for business (like data structures in CS programs) but am curious why they're treated as table stakes for merely talking about topics like market fit and growth projections when engineers do talk frequently about "basics" like essential data structures.
However I would caution anyone to be careful with the type of optimal strategy you outline. Diversifying within reason is good, but you have to deliver real value somewhere along the line. The luck involved in building a successful business does not occur in a vacuum, if you are not focused and prepared, the rocketship won't leave the ground (or worse explode mid-flight).
Those who are more obsessed with the financial or social outcome than the actual job of building a business are the ones you find all glad-handing each other at networking events while the most successful always seem to have (or have had) something more important to do.
When you like people, or just your team, you plaster over their mistakes. If you try to reduce the whole thing to something cynical, people just want to watch you crash and burn. Which is I think where you see the problem with reproducing results. You get a certain number of people who just want to turn the screws another two clicks instead of creating a better work environment where more gets done.
I shared my own personal experience in this article https://thenextweb.com/contributors/2018/12/08/this-is-how-i...
Here's the link for anyone interested: https://www.ted.com/talks/bill_gross_the_single_biggest_reas...
I would go even further, ideas are a dime a dozen but execution is what matters--simply staying alive is the biggest issue.
"Timing" is simply staying alive long enough that you are actually present when the correct timing occurs.
My real issue is how to weed out the legitimate feedback from the bad. No one has ever told me how to identify the difference. It's typically, "yay" means you've done well and "nay" also means you're doing well. When really, either of those responses could be a false positive - but which?
"I like it" means absolutely nothing by itself. People will tell you they like your idea/demo/whatever all day and have absolutely no intention of ever using it, let alone paying money for it. What you want to hear is "How much does it cost and when can I buy it?" (assuming b2b) or "Can I be a beta tester?" (assuming b2c). Everyone else is fluff. If you're getting nothing but fluff after talking to a bunch of people, your idea is probably also fluff.
"No" by itself also means pretty much nothing. You want to be listening for "No because..." and then evaluate the because part. Is it no because they're not the right audience? Is it no because they don't see the market opportunity like you do? Is it no because they've already heard the same thing from 3 other entrepreneurs and yours is thus a me-too play? Is it no because [fundamental reason you didn't think of and have no answer to]? Etc.
Feedback from people in the target market is hugely valuable, especially if they answer in individual terms. E.g., I will/won't buy because X. But feedback from people not in the target market is rarely useful, especially when it's in theoretical terms. So unless I have some specific expertise, I try to redirect people toward the people they should actually be talking with.
Highly recommend it. It's short (yay!) and very practical and changes the way you think about questioning people.
No affiliation, just like the book
Which unicorns were started by people with deep domain knowledge? Struggling to think of any, but that may be a lack of imagination.
If you're not a domain expert everything you come up with will collapse under efficiency arguments. Such as "if this made sense someone would have done it".
Much of expertise is knowing what experts themselves think. That's why you can answer the question of why it isn't already there.
I have a question though. If you need to be a domain expert, how can there be so much focus on young founders? Is that a different category of investment, people who happen to have a lead into an emerging industry like social networks?
Young founders are often in B2C and capital-light. They are judged (almost) purely on growth metrics. Series A negotiation can drag on for months, and its hard to fake 100% month-on-month growth.
The B2B will usually be more experienced insiders with deep domain knowledge, and excellent references.
EDIT: everything is relative. If you are a brilliant PHD in ML then you can be 25 AND a domain expert AND go in to a capital-heavy B2B sector.
Like does anyone read this stuff?
“[The] business of seed investing, and frankly, early-stage entrepreneurship, is so much about getting good information. And almost all of that information, unfortunately, is not published.”
OK cool, thanks. By the way also that's also true of all investing, in anything, ever throughout history. By definition good investment information is unique information, that's the nature of competitive markets.
“Ideas …matter, just not in the narrow sense in which startup ideas are popularly defined. Good startup ideas are well developed, multi-year plans that contemplate many possible paths according to how the world changes.”
Ideas matter. More thoughtful, well developed ideas matter more. Who knew? Another thing that matters is warm clothing, it's really handy.
“What the smartest people do on the weekend is what everyone else will do during the week in ten years.”
In ten years everybody will be spending time with their family, apparently.
This era of technology, it seems to be the core theme is about moving beyond bits to atoms.
Thank god, the whole sub-etha thing has been getting pretty tired.
And so on. This article is almost completely devoid of actual analysis or observation, it reads like a fugue on someone's stream of consciousness ramblings
It wasn't what you need for your paticular situation, and that's fine. But the general hostility towards this is strange. Why did you feel the need to attack it instead of moving on with your day? Genuinely asking.
That someone could see the future of smartphones when a mobile phone was a box of 100 pounds in the trunk of a car is a bit much. There WAS a possibility just by (1) talking to the electronic radio engineers about spectrum, bandwidth, propagation, and power, (2) learning about encryption, and (3) talking to the experts in microprocessor lithography and where that field was going. E.g., quite early on, IBM had their eye on line widths small enough to need X-ray wavelengths as a light source and built a cyclotron as an X-ray source.
The OP missed the possibly crucial role of original advanced technology, e.g., from applied math, that is difficult to understand, duplicate, or equal. Reasons for the OP to miss this possibility is that (1) they have seen little or no such on Sand Hill Road and (2) are unable to evaluate such technology themselves and unwilling to direct such evaluations by others. That the US DoD, DoE, NSF, NASA, NIH, etc. are willing to evaluate such technology early on and have done so with fantastically good effects is just ignored by Sand Hill Road. My guess is that the main cause is concerns by the institutional investor limited partners.
The part about building a demo to prove that the team can build serious software is not good: From all the months I contacted Sand Hill Road, apparently it doesn't much matter WHAT software a team has written in the past or what abilities the team has demonstrated, Sand Hill Road won't invest based on software yet to be written.
Writing such as the OP long misled me: I guessed that such considerations would be part of a VCs investment decisions. But after experience, I concluded, NO: Instead IMHO it appears that that the investment decisions are based on (1) traction significant and growing rapidly, (2) in a large market, (3) with little or no current competition, (4) with a team with not much obviously wrong with it, and (5) the team desperate for a check. The rest in the OP might tempt an entrepreneur to send a pitch deck but won't have anything to do with the VC writing a check.
"If you can’t sell, starting a business is probably unwise" may be realistic, but it saddens me deeply as a human being.
We don't know this actually. What we know is the things that the 'smart' (whatever that is!) people who have succeeded did on the weekends. We not only don't know what the things they did that never went anywhere were or others who are less notable are spending their time on.
I hate these types of sugary statements that everyone flocks to.