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469 points by dwynings on Apr 23, 2012 | hide | past | web | favorite | 143 comments

Congratulations on the investment. The return is nothing short of spectacular. It's a truly excellent example of execution and timing.

But the point that keeps resurfacing in my mind is SpaceX. SpaceX, from nothing, created a low-earth orbit delivery system that is revolutionizing satellite launches and (soon) the cost of getting men into space... for less than the price that a bunch of people can send photos to each other with cheesy filters [1].

It would be difficult to overstate the impact Elon Musk has had, is having and will have on humanity (and no this isn't hyperbole) through SpaceX (and maybe even Tesla). And it didn't even require, relate to or is connected with some bullshit social network.

I'm also reminded of Steve Yegge's OSCON talk [2] from some months back. The computer power we have available now is stunning. used for the right purposes it could fundamentally change humanity for the good, whether that be in bioinformatics or whatever, is hard to overstate.

Yet we're using all this power and the brightest minds on the planet... to send cat pictures. It's actually reached the point that when I get unsolicited recruitment email or read about some new startup on HN that I tune out as soon as I see the word "social".

There's something astoundingly depressing about all this.

EDIt: I should add that my issue isn't that the founders and investors sought wealth. I don't begrudge them that at all. Not by any means am I anti-capitalist. Bill Gates, as one example, is doing huge amounts of good with his accrued wealth.

The issue is more on what society values.

[1]: http://news.ycombinator.com/item?id=3857904

[2]: http://www.youtube.com/watch?v=vKmQW_Nkfk8

If it makes you feel any better, there's nothing new about this situation. One could just as well complain in the 1930s about the money and effort that were going into popular films instead of whatever other more virtuous project.

This case actually sounds like a fairly mild one. Instagram didn't have many employees, so only a few people were diverted from curing cancer to sending cat pictures.

only a few people were diverted from curing cancer to sending cat pictures

Pre-acquisition, sure. But how many people will see the instagram acquisition and decide to give up on curing cancer to help people send cat pictures instead?

You're comparing apples and oranges.

Cancer research is a gamble: You spend years of your life pipetting liquids in the hope that you'll discover something new that improves upon the current standard methods of treating cancer. The equivalent in CS is, well, CS research: You spend years of your life poring over journals in the hope that you'll discover something that dramatically improves the standards of computing.

Like a lot of research, these are highly worthwhile activities but they aren't big business. That's why, if you want to see more of them, the bottleneck isn't finding the talent: It's the funding, which generally comes from taxpayers. (I assure you from very personal experience that there is a large and consistent oversupply of people who would be willing to conduct cancer research, or any other kind of research, so long as the funding is there.)

Whereas sending cat pictures is not a gamble. It is an established business. It reliably, demonstrably, and very inexpensively improves the lives of tens of millions of average people, to the extent that it and similar businesses are consistently profitable ($355 million earned at Facebook on revenues of $1.2 billion, for example).

And cancer treatment - doing more of what we already know how to do to treat cancer - is likewise not a gamble but a business, which is presumably why it's a huge and growing sector of the economy that dwarfs Facebook and everything else that's fun – $128 billion per year in the USA alone:


For comparison: Global advertising revenue is estimated at around $420 billion per year:


So given that the USA is only 309 million people out of seven billion, we can guess with some confidence that the world spends more on cancer treatment than on advertising of any sort, let alone on the tiny percentage of ads that suffice to pay for all the cat pictures that any cat lover could want.

They are comparable in the sense that a new Stanford CS grad might conceivably be deciding between working in cancer research or cat picture startups.

Your overall point about funding is correct, but typically the very best students and researchers don't have trouble finding funding. Thus the problem is how to attract the very best students away from Wall Street and cat picture startups, and stories like Instagram don't help with that.

I don't really feel that the sight of one company in fifty thousand cashing out for one billion dollars has a profound influence on the career decisions of a cancer researcher. One thing that even beginners in that field understand is elementary statistics.

The simpler explanation is that any programmer -- COBOL for bankers, CRUD apps, even "maintainer of Office installations for the IT department" -- commands a salary larger than that of a decently-paid Ivy League postdoctoral researcher. With minimal effort at steering one's career, the multiplier is two; according to rumors coming from the general direction of (e.g.) Google, if you've got talent and experience the number is a multiple of three.

You don't have to win the lottery. You start winning on the day of your first paycheck and you never lose, relative to research, because programming is a safer career than research.

Be careful about cherry-picking Wall Street and Instagram when choosing examples: Those are just the sensational ones. If Wall Street disappeared tomorrow, and venture funding with it, plumbers would still make more money than the average researcher. (Remember: A lot of research work is done by grad students, whose salaries make postdocs look pampered.)

"The very best students and researchers don't have trouble finding funding" - this is like saying "talented farmers have no trouble growing food". First, you're selecting a group of winners and then looking for evidence of winning. Lo, you found some! The second problem is that this statement doesn't account for effort: Farmers work hard and take risks for the money, and researchers do as well. As a researcher who wants to succeed you must have grants in the front of your mind one third of the time, and in the back your your mind most of the rest of the time, because success is measured in grants: Your pay, promotion, rate of progress, and reputation are directly contingent on the amount of grant money you can raise. Unless you're Einstein, maybe, but see above under "winning the lottery".

Face it, society doesn't value research as highly as going concerns. When you think about it, why should that surprise anyone? Businesses are a sure thing by comparison. You turn the crank, profits fall out. Often, happiness and human health fall out, too. Nursing, for example, saves lives. It saves them one at a time, but they get saved, and it's a sure thing: You don't need to make a bet against long odds. Change a bedpan, make someone considerably happier; notice that the patient has stopped breathing, save a life. Turn the crank. Turn the wheel the world has given you.

Your assuming everyone is equally good at building cat picture start-ups and doing Cancer research which I don't think is particularly accurate. Also, I suspect Cancer is over funded and we would be much better off diverting 1/10th of that talent and resources to building cheap self driving cars.

I read that as "cheap self driving cats."

Burned out (and homeless) in San Diego says: I am completely ready to make that (type of) switch, and it has nothing whatsoever to do with any company being acquired. Most people don't really want to get well. They want a better drug. I am currently seriously planning to burn my health site to the ground and start something shallow and hopefully profitable, like an astrology site.

Not kidding at all.

Mz, you don't know me but I've often read your comments here with interest and respect. I also know several people in the San Diego ecosystem (I was in LA for many years). I admire what you're doing with healthgazelle and if I can help let me know (email is in my profile).

While the sentiment is appreciated, I cannot imagine what to ask for. I need either a huge cash gift to wipe out my debts or to declare bankruptcy, which I am currently trying to work on through legal aid. I also need an online income. I suck at self promotion and most people have either given me well meaning advice which failed to make any real difference or pooh-poohed the idea that any of my current sites could be commercialized and monetized. While it bothers me to take the site down, my webhosting expires in May and not only can I not afford the $120-ish dollars to renew for another year but if someone gave me the money, as has happened the previous three years, I would spend it on food, not hosting service. I see little reason to continue taking verbal abuse for a project which makes no money and is of interest to very few people.

I also do not know how to get off the street in part because I have been healthier sleeping in a tent these past few months. I do not wish to remain homeless but I also do not want to rent a typical American apartment ever again. I do not know how to go from homeless to homeowner, which is probably the only hope I have for arranging a housing situation which does not contribute to my health issues.

You are more than welcome to email me. I just have no idea how it would help.


Edit: Though I do have a non-internet business idea I am toying with. And concerned that it will go nowhere because a) I can't get a business loan in my current circumstance b) I won't qualify for a business loan if I successfully declare bankruptcy and c) I don't know if I can successfully run an IRL business given my health issues.

> While it bothers me to take the site down, my webhosting expires in May and not only can I not afford the $120-ish dollars to renew for another year but if someone gave me the money, as has happened the previous three years, I would spend it on food, not hosting service.

How about if someone offered to take over the project(s) from you? In effect equivalent to the above, but non-fungible.

Since all three of my current sites are deeply rooted in first hand personal experience, I do not see how that can be realistically accomplished. I either need a (financial) miracle within the next month which makes it worth my while to continue developing my sites or they need to die. I don't see any other reasonable alternative.

But thank you for asking.

How about if someone offers to host the site free for some time. And once you have recovered, you can move it your own server. Even if you are not going to update it any time in future, the information already there could be of some help to someone. Just don't take the sites down since could be providing some value to some one in the mean time. Let me know.

I will think about it however free hosting will not solve anything. Other people have paid the hosting for the last three years. Keeping the site up does not change the lack of traffic. It does not change the lack of credibility I have with the CF community. It does not change the general perception that I am some attention mongering egomaniac who got myself well as some publicity stunt. It does not change the fact that no one wants to compensate me for the information there. Given that I am currently homeless, it rubs me the wrong way that people still want to preserve the site but not give me one thin dime. Meanwhile, people in the CF community raise thousands of dollars for the CF Foundation because they are desperate for better drugs. If everyone here is so fucking idealistic, why are there zero donations?

I do not know what the answer is but at the moment I see no reason to be idealistically trying to preserve the information for the benefit of other people and I find it incredibly offensive that people are suggesting I should given that I am homeless. Either give me money, help me effectively monetize it, or say goodbye to it. If it has value, it should be worth something to people. If it is not worth something to people, then bleeding a homeless person for sympathy seems pretty freaking sick.

I don't know anything about your situation or your site, but I think it comes down to a very simple business evaluation: does your site make money?

It sounds like you are not making money, so either A) fix something so it makes money or B) toss it.

Just because something is useful does not mean it is profitable. As with all things in business, you have to find someone that values your service enough to pay for it (in some capacity).

I wanted to write software for academic biologists because I'm an ex-biologist...but they don't want to pay for it. Doesn't matter how useful it is if no one is willing to pay.

So, shut it down. Kill it with fire and move on.

No, it does not make money. It gets me sympathy and condescending pats on the head. Everyone who thinks I should keep my sites out of idealism will not give me money and will not promote them. They tell me I am doing something wonderful. But they will not tell other people I am doing something wonderful and it is deserving of support.

At the moment, $1700 in donations (edit: and a few links/promos generating traffic) would convince me to keep it up for another year. That would not get me off the street but it would pay my taxes, pay the webhosting and domain name and help me and my kids eat properly for the next two weeks. In other words, it would alleviate some serious immediate stressors. But no one will blog about it and announce it to the world and tell people to support it or open their own wallet up. So I think I will try the e-book idea and then move on to other projects with an eye towards making money first and foremost.

Take all the info you have on your site, dump it into a PDF, give it a title, and sell it as an e-book on Amazon -- let the site die.

If someone out there thinks your information is valuable, they can pay $15-25 bucks for it; at least then you don't have to keep paying/updating your site and you might put a few bucks in your pocket.

If you search for "convert wordpress to book" you get a bunch of sites, including this one http://www.blogbooker.com/wordpress.php, which is free. There are a lot more.

Thank you. Any suggestions on how I can do that within a month? Or where I can get info on how to do so? I am currently on a tablet and having trouble using my webhosting interface, though for something like this (i.e. a short term project) I could use a computer at the library for anything I can't do on my tablet.

"hopefully profitable, like an astrology site"

Instagram founders can probably afford to fund some medical research or establish a chair or even a medical center like many wealthy business people end up doing. There are many ways to help the world if you find a good way to make money.

I have cystic fibrosis, as does my 24 year old son. We have figured out how to get ourselves well. It has left me deeply in debt and homeless. And damn few people have any interest in what I have done. I get called a liar and snake oil salesman. At the moment, I don't feel like getting rich so I can make the world a better place. I feel like getting rich and then telling the world to go fuck itself should the world suddenly reverse position and find my story of recovery fascinating just because I have found fame and fortune.

Add "bitter" to my list of descriptors.

You are making the assumption inventors are primarily motivated by money. I doubt this to be the case. Furthermore, the sharing of photos and memories is known to have therapeutic qualities for humanity:


I have a feeling that people who think they could cure cancer will stick with it no matter how much money there is in cat pictures. Getting cancer probably means you're going to die and there may be little or nothing you can do to buy yourself more time. If you really believe you have the ability to stop this, it would seem crazy to go chase money instead. Imagine being that person, making the next Instagram and then dying of cancer. Oops.

"so only a few people were diverted from curing cancer to sending cat pictures."

I have to be reminded of this every time I get judgmental about how people spend their time simply because it isn't the way I choose to spend my time. I don't watch or follow sports, and try to avoid religious activities to the best of my ability. But after many years I finally was able to respect in the end that those things are important to others.

Back in the day you know, people were always critical about the time I spent "playing with computers" and of all things, photography. Funny how things change.

Yeah, and it's not like they would have be cancer researchers otherwise. Curing cancer is great, but I have no interest in doing it - my passion is in creating media and technology for people to enjoy. I think that's just as valuable to society than having me become a cog in the quest for space exploration or cancer research. We can't assume that the noblest goal should be everyone's passion or expertise.

Things not getting better in a world whose population is increasing drastically (from ≈ 2 billion in 1930 to almost 7 billion currently) is a problem.

The real test though, in this system, is what Instagram or any successful startup does next (or are they so used to pivoting towards profitability that nobody tackles hard, virtuous problems).

It would be difficult to overstate the impact Elon Musk has had, is having and will have on humanity

I can't count how many times I've seen this debate. I think last week there was a thread debating the triviality of web apps and similarly mentioned Musk.

Elon Musk may very well have developed a cat picture social network to gain the wealth required to fund his companies, but he instead worked on X.com/PayPal. Do you really believe Musk would be where he is today if he didn't gain considerable wealth from that venture? He'd likely be drawing rockets in a sketchbook while working as VP of Advertising at Google.

The Instagram founders are only wealthy enough at this point to have great credit, who knows what great investments they could make post-close?

I'm a fan of taking the simplest, reasonable route to wealth, then investing in something of greater importance, something that critics would agree improves humanity.

  I'm a fan of taking the simplest, reasonable route to wealth, then investing in something of greater importance, something that critics would agree improves humanity.
I agree with this, and have been talking to people about it under the moniker of "deferred altruism". My hypothesis is that someone who continually gives his time and/or money to worthy causes over his entire life may end up being cumulatively less world changing than someone who spends half her life making money, then switches to philanthropy or world changing ideas later.

The canonical examples are Elon Musk and Bill Gates, but of course there must be thousands of examples where the risk doesn't pay off, and the deferred altruist ends up unable to contribute much at all.

Perhaps I'm just finding a way of justifying being miserly now, but I certainly intend to pay it back in cash if I'm successful, or in time if I'm not.

One danger is that if you're not giving at least some in the meantime, it might be hard to part with it when "it's time". "Deferred altruism" is basically my plan, or at least I tell myself that, but this is something I worry about, so I try to give now, too.

My hypothesis is that someone who continually gives his time and/or money to worthy causes over his entire life may end up being cumulatively less world changing than someone who spends half her life making money, then switches to philanthropy or world changing ideas later.

How do you know how long you're going to live, such that you can switch from miserly to altruistic halfway through?

A will?

Perhaps. How many misers younger than middle age do you know who have wills?

Doesn't really matter how long a specific rich individual lives for this to work. As long as there is a culture of rich people doing it, then things would average out. Especially given that the life spans of very rich people tend to be longer.

To an extent this was my point too - if a decent number of people do this, then the few who get mega-rich and become philanthropic will make up for the many who fail to get mega-rich, and also the few who get mega-rich but don't become philanthropic. Well... hopefully!

I get your point, but it's hard to shake the feeling that "deferred altruism" is just an "excuse" to keep everything to our self. Also, I strongly believe it's hard to turn generous after being very selfish for a long time. Guess that's what andrewflnr said..

Yep, I get your point too. But I feel that we can't pressure people into altruism so if they aren't going to give anyway, then it doesn't matter whether they fail to do so in one lump sum or fail to do so continuously.

"...someone who continually gives his time and/or money to worthy causes over his entire life may end up being cumulatively less world changing than someone who spends half her life making money, then switches to philanthropy or world changing ideas later."

Couldn't have said this better myself. Thank you :)

I especially like the change in gender half way through. Almost certain it was intentional.

Yeah, it was intentional. I noticed a while ago that I almost always used masculine pronouns when the gender was really irrelevant so I've been forcing myself to switch it up a bit. I think I first noticed after reading a comment on an article on Fred Wilson's blog where a guest author did this too.

You mean spend the first half of your life as a man so you're paid more, and then change gender when it's time to give your money away? Brilliant!

Make sure you keep the emphasis on "may" - I think it's important to note that this is not a hard and fast rule, it's just a theory.

Thanks, this is very interesting.

I don't believe deferred altruism is as good as it's cracked up to be, because of the importance of motivation. If you tell someone who wants to work in a homeless shelter, "Go to Walk Street instead and give away your wealth" you may be correct in theory, but in practice that person might be a terrible banker and burn out quickly. To desire money instinctively, the way most people crave hugs and candy, is actually rather rare, and most of the rich people I know desire money that way, while most of the poor people don't. I'm not sure an altruist can make himself obsessed with money in order to be a better altruist. I've seen people try and fail.

So yeah, there's a gold rush. They're great for economic expansion but kind of suck when it comes to depth of achievement.

Right now, there's a lot of low-hanging fruit in the ability of technological innovators to positively affect the everyday lives of normal people in lots of small but personally significant ways.

If you consider that goal bullshit, then yes, I imagine the current economic environment is astoundingly depressing.

Yes, there are many amazing opportunities higher up the tree, and yeah, it seems like there aren't enough multibillionaires to take the risks to chase them, and counterbalance all the "easy stuff" people are chasing.

My point is this gold-rush-like era will pass. California got started that way, after all. I bet people were pretty frickin' sick of all the n00bs and posers moving to the West Coast with crazy/stupid dreams of getting rich. It probably seemed depressing to have every single week bring more idiots panning creeks.

But three generations later, California was manufacturing a command module to put men on the moon. The expansion that started in the gold rush led to agriculture, movies and technology.

And now things are cycling around in some ways. But if you're serious about progress, you have to be patient at times.

Elon Musk's first start up was called Zip2. Only after selling Zip2 was he able to co-found Paypal, Tesla, SpaceX, etc. if it werent for Zip2, a online publishing company (which could've been used posting cat pictures), there wouldn't be a Paypal, Tesla or SpaceX.

I agree. It's quite sad that some of the best and brightest minds of our time are spending their days working to increase revenue per click of advertisements. We could achieve so much more if our focus shifted towards more meaningful endeavors.

I am, however, encouraged by the recent rise of impact entrepreneurship, where for-profit ventures tackle large societal problems. It's something we certainly need to see more of.

Actually on advertising I will have to respectfully disagree. This may be controversial but:

My opinion is that Internet advertising has done an inordinate amount of good for the world.

Advertising has allowed the creation of amazing services that are free to use. Let's imagine a world where search or GMail might otherwise cost you $20/month (completely made up number) to use. You could afford that right? Even if you could you may not pay for it (people are remarkably fickle when it comes to paid services). That's not a lot of money.

But what about to the poor or those in developing countries to whom $20/month is a significant amount of money? They get the same service you do because of advertising.

Consider that the next time a text ad at the top of Google otherwise offends your (and I'm talking the general "you" rather than you specifically) aesthetic sensibilities.

> But what about to the poor or those in developing countries to whom $20/month is a significant amount of money? They get the same service you do because of advertising.

Well they're not paying for the service directly, but surely the advertisers want something for their money. And inflated material desires with excessive spending can certainly keep the poor poor, in a way that a fixed $n/month expense can't.

That said, advertising which directs your expenditures to more appropriate places is morally fine by me. If I search for "buy a basketball" and some start-up is able to expose me to a better, cheaper basketball than that seems useful. However, if that same query returns ads for Nike shoes, Kobe Bryant jerseys, and the All-NBA-All-The-Time cable channel, then that's bad for society, I think.

The canonical example I use for myself is grocery store coupons. I purposely ignore them. While intuitively it seems I could save money by redirecting my purchases to things that are on sale, I use my meta-intuition to know that more than likely it will convince me to buy some category or brand of good (now or on a future trip) that I wouldn't have otherwise purchased. Consequently, I see coupons as net money-losers.

I see ads in the same way. While it may get me this service for free, I imagine it planting seeds of desire in my mind for various other goods/services, such that I end up paying more over the course of my life than I would have if I just paid for the service in the first place and didn't see the ads.

What makes you think that "all the best and brightest minds" in this world are capable and motivated to work on the most noble tasks? If they had the passion for it they'd be doing it. If they don't have the passion for it, they wouldn't be any good at it.

Frankly, I personally have no interest in learning how to cure cancer. I have no interest for biology or formalized scientific research. I do have a passion for creating technology for people to enjoy. Does that mean my values are wrong? Should all people be pursuing what society deems the "noblest goal"?

But humans are not born with a "passion to do X" and then live their entire lives in a vacuum.

If it was seen as a quick way to build wealth and fame, I'm sure more people would be passionate about curing cancer.

I agree wholeheartedly with your comments on SpaceX and Elon Musk. What I don't understand is how you're relating SpaceX to the Instagram acquisition.

"Yet we're using all this power and the brightest minds on the planet... to send cat pictures."

So you're suggesting we have a problem because intelligent people don't always find the "right" ways to contribute to society? I think you should be directing your anger at those who spend their time sending cat pictures, rather than those who enable millions of people to do so simultaneously.

"Social" gave us evolutionary fitness. Does that mean that it could have a compounded effect bigger (inclusive) impact than "revolutionizing satelite launches"?...

You can see Instagram as sending "cat pictures" or pure gossip(^)... or as improving our "theory of mind" (a window into people's mind, their beliefs & desire). http://en.wikipedia.org/wiki/Theory_of_mind http://www.sciencedirect.com/science/article/pii/S1364661308... ^http://www.thepsychologist.org.uk/archive/archive_home.cfm?v...

Elon Musk first made his money in Paypal and then funded SpaceX. I think Krieger and Systrom will have exciting world-changing projects in the pipeline too.

Oddly, I think the most influential path to curing cancer is making a lot of money, gaining lots of power, and having more control to allocate societal resources.

SpaceX did not come from nothing. The science, technology and infrastructure that enabled SpaceX to exist was created by tax payer funded programs. I'm not saying he's not a great guy. I'm just saying he's standing on the shoulders of giants.

The taxes paid by people sending cat pictures funds the infrastructure that enables SpaceX to exist.

When the OP stated something from nothing I think he/she meant tangible 'things' from investment and research(ie. rockets). As opposed to Instagram which is a form of communication and entertainment that will forever exist within a software context.

Instagram also stood on the shoulders of giants.

Also keep in mind that there is a big difference between a billion dollars in the hands of someone as capable as Elon Musk (who also happens to invest all of his time and creativity), and a billion dollars in the hands of a random investor. The latter won't come close to the former in terms of returns.

then again: -the wealth Bill Gates is using was generated (in part) by software intended to create office memos and clip art.

-much of the computing power mentioned above to change humanity for good comes from infrastructure designed to sell twilight novels and, yes, send cat pictures...

the invisible hand at work...

agree with your sentiment. but, this is not surprising. VCs talk about 7 sins and not curing cancer

There is something wrong with a world that allows an investment of $250,000 to turn into $78,000,000 in such a short period.

Now before you downvote me, I'm not suggesting what these guys did was wrong, or that FB's money is dirty, or even that anyone directly suffered as a result of this transaction.

But capital is like a liquid, it ebbs and flows. The fact that so much of it can flow in such a small amount of time toward such a small group of people bothers me. Especially when you consider the impact that investment could have made in other places.

Ok now you can downvote me.

Well, then, take heart. You also live in a world where a $78,000,000 investment can, in a short time, be turned into $250,000!

Feel any better?

Ha ha! Yes I do feel strangely better. I wonder why? Perhaps I'm just annoyed I haven't managed to make a decent financial investment...ever.

I make a decent return on my investments and the biggest guide I can give you is to watch the Baby boomers and what they are going to do with their money next. That and stay away from bubbles/crashes ("don't try to catch a falling knife"). You'd think that this information would already be embedded into the market, but it really isn't.

I think your inability to make good financial investments is directly linked to your hard leftism and your desire to punish people who do.

Unfortunately, the policies you advocate are the cause of poverty in this society... and when they do something like create the housing bubble -- you turn around and blame the victims, rather than the perpetrators. (The housing bubble was created by clinton administration regulations requiring banks to loan money to people who couldn't repay- after it burst the obama administration effectively nationalized the banking system, moving the country closer to fascism.)

Your "how quickly they forget" tells me that you view the world thru the lens of propaganda, not reality, and thus it was heartening to see once again that the source of this support for evil is simply jealousy.

Wow. Way to extrapolate my argument into a preconceived idea of who I am and what I'm advocating. Where did I suggest we punish people who make money?

>Your "how quickly they forget" tells me that you view the world thru the lens of propaganda, not reality.

Take a step back and consider that judgement. Is that a sound judgement based on my comment? Is it possible that maybe I'm well read, educated, centrist who doesn't see the world in black and white? Is it possible you're actually viewing me through a distorted lens and seeing a stereotype created by another form of 'propoganda'?

>support for evil is simply jealousy

I don't even know what to say to that. Hilarious.

I may be wrong about this, but wasn't the program that effectively nationalized the banking system the TARP, which was signed by Bush before Obama was elected?

That's a fair perspective. And really, you could go all the way back to the founding of the federal reserve as the beginning of the nationalization of banking. But I was specifically referring to the Obama administrations "reforms" that put the federal reserve in control of regulating the banking industry.

Hahahaha. I empathized with andrewfelix there briefly. And then I laughed.

Great point! :-)

Start an airline.

Hilariously well put. =)

I do think it's a bit strange, but I think the VC/tech world isn't that big a part of the strangeness, at least unless it gets to 1999 proportions again. Instagram is pretty much an outlier, and most of the other "big" multipliers, like Google and Apple, have huge R&D behind them. Even this post, written by a VC, considers a two-year billion-dollar exit to be an outlier that you won't see again.

Finance is where the pervasive ebbs and flows are more obvious, imo. Once you have flows that are gigantic, it becomes more profitable to try to skim a little tiny percentage off the top of them than to do lots of other kinds of work. You could spend your whole life building up a $5m small business (a perfectly respectable, successful thing to do!) and make less money at it than finding a way to skim 0.001% off a $10 billion transaction a few times in your career. So if you're motivated mainly by money, rather than figuring out how to build up that business, it might be better to start boning up on how to maneuver yourself into a position to take tiny percentages from large flows. There are lots of opportunities in the dense web of management fees, M&A deals, etc.

Facebook's value (cash and stock) 'flowed' to Instagram's owners because Facebook thinks Instagram will be worth even more to Facebook's owners.

It's not like they bought a consumable that's used up, and thus can't buy other necessary consumables.

And a lot of that Facebook value only exists because the universe of owners (and potential owners) believe that Facebook will keep preserving and growing that value by doing these sorts of things.

If that same 'investment' could have had a better 'impact' for the Facebook owners elsewhere, they'd do it.

If you mean some other sort of 'impact', for the good of people other than the Facebook owners, then essentially, no, that investment value can't be alternatively deployed that way. The value exists because of the faith it will be used in self-propagating ways. The equity value would simply evaporate once the confidence in it is broken: it's not transferred anywhere, it just disappears.

And if you engineered a world where this sort of 'wrong' bonanza can't happen, by design, then the big stacks of value either on the Facebook side ($1B), or on the Instagram investors' side ($250K), would never have condensed in the first place. Their existence was conjured up from previous bonanzas, or the expectation of potential bonanzas. Eliminate the potential for such bonanzas and you don't free up value for impactful redeployment elsewhere: the value never even exists.

> Facebook's value (cash and stock) 'flowed' to Instagram's owners because Facebook thinks Instagram will be worth even more to Facebook's owners.

Wrong. The Instagram acquisition was largely defensive, due to Instagram dominating a space (mobile photos) in a way that would've eventually hurt Facebook. Facebook snatched them up early to prevent a huge competitor, and $1B was the price they had to pay. Nobody can argue that the team or technology was worth $1B, and Facebook will not see a big return on their investment - at least not anytime soon. Instagram doesn't even have an established revenue model.

The fact that they gave up $1B proves Facebook (specifically Zuckerberg) thought they'll get something more valuable to them than that $1B.

Even if the purchase was 'defensive' – preventing s competitor from using Instagram to chisel away at Facebook's monopoly – they expect the result of the deal, versus the alternative, to be worth even more to them than the $1B they gave up. (This is essentially tautological, unless you think Zuckerberg is irrational.)

>The fact that they gave up $1B proves Facebook (specifically Zuckerberg) thought they'll get something more valuable to them than that $1B.

My guess is that the "something more valuable to them" is protecting their $100 billion valuation. It all makes perfect sense if you are prepared to suspend reality and accept that $100 billion is what Facebook is worth.

My original OP was vague. All the points you make are good.

I wouldn't propose a system in which investments couldn't propagate future opportunities. I think they should at the very least be regulated. But my concern goes deeper into the underlying system and culture in which all of this takes place.

Facebook and Instagram didn't do anything wrong within the context which they operate. But I believe there is something wrong with the context.

Capital is just society's rough, imperfect proxy for wealth. Wealth is just things people want/ascribe value to. Wealth doesn't just flow, it can be created. Making new things that people want increases the wealth of the world. With software, wealth can be created extremely quickly. That is a good thing.

Keep in mind that although $78,000,000 is 312x the investment, it's likely that more than 312 investments of $250,000 turn out making absolutely nothing. That's why the rewards are so high: the risks are even higher.

That is an interesting way of framing it.

But are the risks that high? If you took an average sample of investments at $250k would you expect the rate of failure to be 311 for every 312 investments?

No, of course not. The reason VCs exist is because the expected return on investment is positive. But the reason the returns on those $250k investments is so high is because so few people have $250k to invest in something that only has, say, a 1% chance of returning 312x.

The something you refer to is actually two things: luck and technological leverage.

What's a reasonable return on $250,000?

How will the $78,000,000 be invested?

What should Facebook have bought instead with their stock?

What investments should should Facebook's investors have made instead of Facebook?

What investments should Facebook's investors' clients have made instead?

On the contrary, I think we are very lucky to live in an era where value creation can be realized so quickly and efficiently. Most seed investments are lost entirely; Instagram rose from the ashes and captivated millions of people. Why shouldn't they be rewarded accordingly?

Personally, I don't think Instagram "created" $1billion worth of value. $1 billion was just the price FB had to pay to stop them raining on the parade of their own (gigantically inflated) valuation.

Maybe society would be better if more seed investments made modest returns and Instagram didn't make huge ones?

Love it or hate it, that is the venture capital business model. There are other private equity firms which invest in the more conservative manner that you suggest, although the dollar amounts are generally larger.

Do you feel the same way about $5 in lottery tickets turning into hundreds of millions of dollars? I suspect not, because you think of lottery winnings in terms of all the "losers". There are plenty of losing investments, firms, etc.

Yes I do feel the same way about lottery tickets.

You clearly don't understand risk/reward then. It seems to me like you don't like the idea of people earning more than you deem they are due to earn. Investments and the like are not a statically defined 9-5 job. That's why most people don't invest and even fewer invest profitably. It requires a combination of luck, intelligence and foresight to make good investments. Just as making ~75 million on a $250k investment is absurdly high, making $0 on $250k is absurdly bad. It would take most people 4-5+ years to save that much money. That's an insane amount of money to lose on a company that lets you put a filter on your photos.

Well I sure assumed wrong...

> There is something wrong with a world that allows an investment of $250,000 to turn into $78,000,000 in such a short period.

What about a world where 30 million people can have the ability to express the mundane quotidian and interesting occasional aspects of their lives with a little bit of personal flair?

For some users, Instagram is the equivalent of a Kodak(tm) moment.[1]

[1] Mad Men, "The Carousel" http://www.youtube.com/watch?v=suRDUFpsHus

You make a good point. I agree that Instagram is a brilliant tool, and its creators should be rewarded. But my concern is the where and how the value of it is attributed. Is $78,000,000 a reasonable reflection of the value and risk of the original $250,000 investment?

I think it's a complex argument, that goes to the heart of how we value things in a capitalist society.

Lets imagine we both have a very rich uncle that gives each of us $50m to invest in startups.

We then go off and invest $250k in 200 startups each.

After 12 months we find out that all my investments failed and I lost all my $50m and luckily enough for you, one of your investments succeeds giving you a ROI of $78m.

Now, your fund is up $28m and you look like a titan of the industry, whereas for me, well no one knows about me because I'm the loser, and losers don't get press coverage.

Is it fair to focus on the single winning investment you made and cry foul? Is it fair for me to be upset that you earned a whooping $78m from just one lowly $250k investment?

I don't think so. If you look at the total of all investments that occurred, $100m, having a single return of $78m seems quite reasonable -- hell it's not really that great in this example.

So now think about all the money that's invested in startups, across all the VCs, across all Angel investors, across all founders using their life savings. Isn't that a really huge number?

"The fact that so much of it can flow in such a small amount of time toward such a small group of people bothers me. Especially when you consider the impact that investment could have made in other places."

Well if it makes you feel any better that new wealth will end up in the hands of car dealers, real estate, all sorts of tradesman, and other places in the economy as well as I'm sure, more startups.

It was a long shot hit but don't short change how something like that will help the entire startup economy. The world of news and investors want to hear about blockbusters.

So there will be significant impact from the entire Instagram win.

>...new wealth will end up in the hands of car dealers, real estate, all sorts of tradesman...

It sounds like you're referring to supply side economics, or 'trickle down' which has never had a a proven effect on wider wages.

I see this as a small part of a much bigger picture: that "world" you refer to is a free market with property rights which IMO gives the best possible outcome for the society as a whole (refer to the "invisible hand" theory of Adam Smith).

>Now before you downvote me,


>Ok now you can downvote me.

Okay. I'm addressing the community at large when I say this.

Stop doing this now. It's not constructive. Say your piece or don't say it. Don't couch it in these empty defensive posturings.

It was really just a way of saying 'Consider the basis for my opinion...'

The original comment has received a ridiculous number of downvotes. I understand people having a different opinion, but shouldn't we be voting on whether a comment is constructive or properly articulated?

The 0-value white noise just shifts the needle further against you. Don't excuse the unpopularity of your opinions/ideas on that basis.

Edit: For the record, I agree with the actual content of your post in principle, but I think realistically I'd rather the money be in the hands of Systrom and Krieger for future investment than stay with institutional investors who don't know their arses from a hole in the proverbial ground.

On the contrary, I think there's a problem with a world where this can't happen. If it could not, there would not be incentives for shoot-for-the-moon ideas. There would not be the freedom to benefit from providing value to society. Grand innovation would be stifled in favor of "lifestyle" careers and businesses. While there is nothing wrong with most people taking smaller amounts of easy money for long term work (i.e. salary,) we all benefit from others who take large risks to improve our lives.

Further, much of that $78M will be recycled through the economy, some of it re-invested in the hopes of making similar returns.

The idea that because some prosper, others suffer, is a consequence of one of the most dangerous human emotions: jealousy. I agree that institutions should promote long term distribution of wealth through taxation and incentives. However windfalls for big thinkers and executers are extraordinary incentives for big thinking and executing, from which we all benefit.

funding Kevin to compete with Dalton would be a violation of the original implicit commitment we made to Dalton—to not fund competitors to PicPlz.

This is very interesting. Is this common practice among VCs? PG has said that they don't reject YC aspirants simply because they're building something that competes directly with another YC company: The way we deal with it is that when two startups are working on related stuff, we don't talk to one about what the other's doing.[1]

For some reason, I assumed this practice extended to VCs as well.

[1] http://ycombinator.com/faq.html

Different investors approach this differently; it depends on the velocity of investments they make and on how hands-on they are.

For instance, SV Angel (Ron Conway's fund) has an explicit policy much like YC's: they will invest in competing companies, but that they won't reveal one company's private information to another (and they don't really get involved in the management of their portfolio companies). Both SV and YC are making a lot of small, early-stage investments, so this makes sense for them.

A traditional VC, though, is very hands-on (usually a partner takes a board seat after an investment) and thus often has a policy of not investing in competing companies--it would just be too hard to not share information, at least implicitly, when you are sitting on the board and actively helping manage the company. Andreessen-Horowitz is a VC firm, and this seems to be their approach as well. It makes sense when you're making fewer, larger, later-stage investments.

The idea that you can mask learned knowledge of a company's strategy by simply not explicitly revealing sensitive information is a difficult concept to wrap my mind around.

It is not possible to unlearn the information. If you are acting as a strategic advisor, the information has to weigh in your mind and you implicitly will end up revealing information, practically subconsciously. A simple case would be where one company explains an experiment they ran (perhaps testing a feature with a small part of their customer group) and the result of the experiment. If the competitive company comes in and says they are thinking of running a similar experiment and explicitly asks the advisors what they think—what is the response given?

I have a hard time understanding how this type of accumulated information could not enter into future judgments the advisors are making. As a management consultant who faces this type of challenge frequently (and overcomes it by avoiding competitive clients and never sharing my work) I am honestly curious how one elevates themselves above this type of subconscious thinking.

Well, that's exactly why VCs don't invest in competing companies.

Andreessen Horowitz did the only ethical and logical thing it could do. It was in a tough spot, so it did the thing that wouldn't violate its implicit agreements with Kevin and Dalton.

I don't think either side is complaining, and I doubt Andreessen's LPs are either.

Can we put this matter to bed now?

All I know is this...this is the kind of support I want from the people I work with. A16Z consistently show me they're the kind of people I want to be working with.

A couple of things I thought about while reading this, unrelated to the ethics...

1- If he's able to assign a precise value to the investment outcome, that implies that Facebook assigned an explicit value to their stock involved in the transaction. I don't know if that had to be the case or not, maybe it did. But what it makes me curious about is...what valuation did they use? The current second market valuation? Something else? The $100 billion bandied about isn't an official valuation is it?

2- What Facebook bought was an open social graph, as opposed to their current private one. Now that makes a lot of sense as something worth a lot of money, specifically to Facebook that otherwise has no way to make their private graph public, at least not in any way that doesn't piss off their users. Of course, now they have some verrrrrry tricky waters to navigate.

1. It was published the day after the Instagram acquisition that Facebook had assigned a valuation of $75 billion to their stock.

2. I doubt Facebook bought Instagram for the "social graph" . Facebook has always been laser focused on user engagement. One of the core features on Facebook that keeps users engaged is photo sharing with their friends. Instagram was an up and coming challenger in the sharing photos with your friends arena and that is the primary reason Facebook bought them.

Re: #1, this is a part of a reasonable answer to "How are they worth so much?" - the purchase of Instagram was made "roughly 30 percent in cash and 70 percent in stock[1]", meaning that the $1B was really ~$300M in cash and a bit under 1% of Facebook.

Maybe that still looks high, but it's certainly not as outrageous as a billion dollars. The bit that makes it look crazy is Facebook's valuation at nearly $100 per active user.

1: http://dealbook.nytimes.com/2012/04/18/with-instagram-deal-f...

So our choices were: a) invest in Dalton b) invest in neither or c) invest in Kevin and violate our commitment to Dalton.

I would have thought that suggesting that Dalton and Kevin join forces would have been one of the options.

What happens when the idea doesn't work out and they pivot? Do they stay together then?

Presumably they'd then be in the same position as any co-founders regarding a pivot: They'd have to reach agreement on whether and how to alter their plan.

If I was Dalton (PicPlz) I would have been fine with my investor exercising their pro-rata rights in another investment, even it had become competitive. It's not ideal, but I don't think it's unethical. I'd be much more concerned about them sharing information, so there would have be a discussion about that.

See my answer to "yabbadabbadoo". It's just too hard to not share information, at least implicitly, when a VC takes a board seat on competing companies. So most VCs have a policy like Andreessen's.

Since maximizing return is in the interest of the LPs, as a VC wouldn't you at least have a conversation with PicPlz about investing in an additional round with a competitor? Especially:

Dalton later pivoted out of PicPlz and is now building an exciting new service called App.Net.

If the App.Net concept was on the alternative idea list (likely considering the generalist nature of the entrepreneur [music, photos, whatever app.net does]), maybe the pivot would have happened sooner.

I agree with this statement. If someone invested in my service and something else who competed with mines, this doesn't represent an ethical problem, but just that the investor is interested in the field in general.

This is a statement I appreciate (and that I personally agree with) but that is, well, rational. When things get real, rationality is often forgotten.

It would be easy to take the opposite position if you were to consider that an investment is usually (or supposedly) a product of the investor's passion for your particular business, not necessarily the field it belongs to. It can be seen as the investor saying "we're with you on this, and we'll fight your competition by your side". It's a matter of perspective, and in this case, it is easy to see things from both sides.

All this being said, I love Dalton's honesty, and Ben's post. A ton of ink was used to cover this matter, but the fact is, everyone's happy here.

Andreessen Horowitz continues to show that they are among the classiest investment firms in the business, as well as being one of the best. Bravo.

Christ, 78 mil for an app that shares pictures. I must be the only one thinking this is money which could be used more wisely developing better medical equipment and generally solving real engineering problems.

Well, actually it's $1bn for an app that shares pictures. It's only worth that because people use it. 40 million people according to recent reports.

If you want resources spent on more serious stuff, you'll have to start by getting the general public to spend their time more seriously, because that's the root problem.

well, one of the technical challenges in medicine is how to share medical imaging between different hospitals and doctors. the current "PACS" systems that do that suck.

Instagram or something like that would be a neat way to accomplish that.

Turing completeness and all...

The reason why it is a hard problem is HIPAA regulations, not because of some deficiency with the PACS. Any social or semi-public solution would be instantly shut down.

Could you explain your thoughts on sharing images/use of PACS? I do IT work for an imaging center and would be interested in your experience with such software.

I've heard that sepia is all the rage in radiology reading rooms.....

Is this standard of ethics amongst VC firms the exception or the rule? A lot of news and comments paint VC firms in a bad light but this story seems to suggest that strong ethics are still alive and well.

Ethical and transparent -- two phenomenal qualities in a VC.

What do you expect? People don't talk about their unethical dealings.

This is not to say anything about Andreesen Horowitz -- but recognize that this is a savvy piece of marketing, just as the Valve employee manual "leak" is a savvy piece of hiring material.

I am really thrilled to read something like this from the venture capital community :)

I think it was a great investment and great for them for the transparency. For those that criticize how much money was in so short period of time. You are probably in the wrong industry. I'm sure nobody feel bad for when somebody else do a bad investment. Thinks can go in both ways.

What else is there to say now? He makes it very clear, shows how they value and respect both entrepreneurs and sets the record straight.

Very well done.

That means that our friend Jack Dorsey also pocketed another 78M - along with Adam D'angelo? When most people will never strike 10M in their entrepreneurial/investment career, these guys have pulled three already... That's really impressive.

They were probably not invested at the same level but I'm sure they did well.

all of the anger over instagram seems to come from zero-sum thinking. I liked one of the touches of David Brin's novel Sundiver, where people who think in terms of zero or negative sum games are deemed insane.

Can someone please explain what "...Kevin came to it organically based on the Burbn data" means?

Ben Horowitz is countering accusations that Kevin pivoted into photo sharing based on Dalton's work. He's saying that Kevin saw that Burbn's photo sharing was its most popular feature and so naturally (organically) Kevin pivoted in that direction.

Imagine if other industries were this transparent.

So when faced with a sticky situation, he does what he thinks is ethically right, then makes $78,000,000 (with six zeros). If someone can't step back and evaluate that situation for what it is, they have a serious issue with perspective.

This deal absolutely stinks. It sure seems like someone said, "Hey Facebook, you just got paid. Why don't you buy instagram for an amount of money that we made up so that my buddies and I can get even richer?" And they made 78 million dollars behind that.

1. If people can make up money, then it lowers the value of money for everyone.

2. If people can make up money, then it destroys any semblance of fairness in the system. Why are we working every day when some people can just invent tens of millions of dollars for themselves?

This isn't how markets are supposed to work. An asset isn't worth one billion dollars just because someone you know has a billion dollars to spend. The last thing I expected to see was a blog post bragging about it.

> An asset isn't worth one billion dollars just because someone you know has a billion dollars to spend.

Actually that's nearly the definition of what something is worth: how much someone is willing to pay for it.

I have no inside knowledge, but I doubt it. Look at the funding (left side, half way down the page):


There are quite a number of people involved. The seed round people apparently had about 15% of the company. If I had to guess, the A and B round had 20-35%. The non-founder employees, could have another 10% or so. Leaving 40-55% for the founders.

If you're trying to funnel money to somebody in specific, this is terribly inefficient; 80% of the money would go to other people.

Also, Facebook is about to IPO, and this is a very high-profile deal. It's the worst time and the worst way to do something fishy.

As my finance professor says, "Price is what you pay; value is what you get."

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