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Tell Sam Altman: I will take your bet
298 points by mdlm on March 26, 2015 | hide | past | favorite | 127 comments

I will take your bet.

I run a VC fund called Immaculate Conception Ventures, I am a TechStars Boston mentor, and I like to invest in TechStars alumni companies.

Michael de la Maza Immaculate Conception Ventures LLC

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.


Fund is $500K. Investments are listed below. Happy to provide LLC documents.

Please enter into longbets.


Fitocracy https://www.fitocracy.com/ Empreware https://empreware.com/ Modify http://modifywatches.com/ Ecovent https://www.ecoventsystems.com/ Amino http://narvii.com/ seedchange https://www.seedchange.com/ ROCKI http://www.myrocki.com/ CoolChip http://coolchiptechnologies.com/ edTrips http://www.bookity.com/ (via AngelList syndicate)

There's an old company called CoolChips -- http://www.coolchips.com/ -- might want to have CoolChip keep their eyes open for C&D, unless they already know about each other

can you send me your email address? i'm sama@


My email address is michael.delamaza@gmail.com


I found the following...


7 confirmed investments of $25K

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.

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

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.

The bet is a punctuation point on a discussion. Sam is already taking risk on current valuations, another $100K here or there isn't going to move the needle. The real stakes are reputation for prognostication. And the point to me is getting VCs on the other side of the debate to put a public stake in the ground, and hopefully give their arguments for why.

So I don't find this taker particularly interesting. In the context of an industry wide debate, the opinion of someone who doesn't have an audience similar to Sam's doesn't really mean much. Not that they aren't smart, just that they aren't someone influencing the discussion. Which is what this is mostly about.

And to say "I take the bet" without any discussion of why really misses the whole point.

Of course Sam should take this bet. But I'd suggest that he amend his proposal: Find people with enough audience to change the discussion, who are talking about bubble valuations, and ask them specifically to put a stake in the ground on this.

a fair point. i didn't define "VC" well enough.

if another VC from a top-tier fund with at least $500MM under management would like to take the bet, i will make the same bet once more.

The bet also serves as an interesting hedge for anyone whose net worth is already heavily correlated with the success of the tech sector (which certainly includes VCs). 100k is not enough to really matter to a GP at a 500MM fund, especially if it goes to charity either way. But there are plenty of smaller VCs or even startup founders (including myself) who would do that deal not because they're skeptical of tech's fundamentals, but as a way to counteract exposure to an overall macro/tech downfall.

Not sure I see why this is the case since the money's going to charity.

moving the goal posts? poor tactical decision, sam. you've just undermined your whole position.

before, with the open definition of VC, it expressed a high confidence in your bet.

now, by limiting the pool of potential bet takers, you are weakening your overall goal of maintaining public perception that there is no bubble.

the analogy is boxing. before, you were putting a huge bet that you were the best boxer in the world and you challenged any other boxer to challenge you so you could prove it. now that someone has, it's like saying that you are the best boxer in the world, and anyone can challenge you to prove it, except this challenger because reasons. it sounds like an excuse not to fight and makes you look scared.


it sounds like your confidence in your position concerning bubbles has been weakened, but you are trying to convince yourself it is as strong as ever by saying no REAL venture capitalist has taken your bet, so you must still be right.

it's cool though, I'm sure nobody will notice.

I imagine he's interested in a bet with a big VC because they are the ones complaining about high, "bubble" valuations. I doubt Sam really cares one way or another if some random guy/the American public/whoever thinks we are in a bubble.

I think he means an additional bet.

I know. sorry, I probably wasn't clear: it doesn't matter if he takes another bet or not, what matters is that he wishes that he would have had more restrictive requirements for who is able to accept his bet.

the logic being that, the more restrictive requirements, the less people who meet them, which means less probability that someone would take his bet, which implies that he never really wanted anyone to take the bet in the first place.

the subtext is that sam is not as confident in his position as he would like you to believe.

If I understand correctly, his original offer was just to take one bet?

'This bet is open to the first VC who would like to take it' http://blog.samaltman.com/bubble-talk

Any bets taken beyond that would be a relaxation of the 'you weren't here in time' criteria which would have excluded all other gamblers.

trye, but the importance of the two criteria aren't weighted the same.

plus he isn't doubling down on the same bet: he's changing the new bet to be more in his favor, so the additional 100,000 is actually worth less than the original 100,000. (not monetary value, but rather the money's value as representation of the strength of his belief that the bubble won't pop before 2020).

That's welsher talk, if you make a bet and a person accepts then you have to take the bet or STFU.

If you believe the person will not follow through that's one thing, maybe both parties should put $100K in escrow, talking about the purpose of the bet is weak.

Maybe he should follow through but the bet isn't interesting anymore.

you know what, this guy appears to be betting with a far larger share of his assets than sama is, he's putting his money where his mouth is

maybe you shouldn't be so dismissive

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.

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.

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.

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.

Am I the only one hoping they have the same favourite charity?

nope :)

And since the $100k to charity would be tax deductible, it's really only circa half that for the publicity. But that too is not symmetric - if Sam wins it's more likely he will be able to put the deduction to good use immediately as he will have more gains.

It's ok he's also playing for publicity. ;)

This is exactly the sort of weak-minded chest-thumping I fully expect to see from venture capitalists. Way to live up to your stereotypes, both of you.

At least it's going to charity.

What's the point of having money and (mini) fame if you can't toss it around and have some innocent fun with it every now and then? Only one life on this planet...

I think that's the problem, that this is considered fun. Some people also like to measure their dicks . . .

That was my thought too when I first saw this despicable behavior by both parties. It's just egos clashing and unfortunately happens everywhere.

The determination of "valuation" is pretty obnoxious. These preferred securities with liquidation preferences aren't even close to a "common equity" valuation. A VC round at $x valuation isn't remotely similar, economically, to a public co at $x valuation. This bet is more about whether the late stage VC bubble continues for 5 years than any notion of real value.

Isn't that exactly what the bet is?

A bubble that never bursts is indistinguishable from real value. Remember that money is itself a bubble; its only value is that you believe other people will continue to accept it to give you the things you really value. The dollars in your pocket are just pieces of paper; the dollars in your credit card are even more nebulous, they're bits and bytes in your banks' computers. And yet somehow it's worked for thousands of years.

Plus, it's pretty likely that several of the companies listed will go public in the next 5 years, and then their valuation will be the public co $X. If that's lower than the stated figures in the bet, well, Sam will lose.

I don't think that is the intention of the bet, no.

Wow, way to contradict yourself. You say it's indistinguishable and distinguish in the next sentence? A bubble is distinguishable this way: if the value of the asset comes only from selling it to someone else, it's a bubble. If the asset provides value without selling it, it isn't a bubble. Pretty simple right?

To the extent they go public, sure, those numbers are more reasonable.

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

Hi! I'm delighted to see you'll be using Long Bets: 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.

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

looking forward to see this play out.


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.

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?

Betting against 3 isn't just rolling dice. In a sense, betting against 3 is betting against YC itself (albeit a slightly weaker version, with the variance in startup, it will probably takes a few batches in aggregate to make a strong bet).

From Sam's point of view, 3) is probably the safest one. Likewise, 1) seems to be the most risky one.

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.

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.

or OP just wants to donate $100k to charity

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


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.

I googled this guy, and both the author of that book and this guy seem to have gone to MIT. So unless it's a huge coincidence, I'd say the answer is yes.

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.

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?

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?

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

> I think Palantir is basically shit. Wait and watch.

That's a pretty bold statement.

I've worked with them as well, and definitely don't buy into the hype either. But when the latest financing round (~Jan 2015) has them valued at $15 billion, there must be something to it.

I don't know what kind of access their private investors have to the financials, but it's been reported they have 100s millions in revenue from USG alone selling their platform as enterprise software, which typically has a longer sales cycle but more "stickiness" once the customer has committed (i.e. they are less likely to purchase another platform no matter how bad the current one is). On top of that, the alternatives in this space just aren't very good, and sometimes hype and brand are all you need to make the sale.

That being said, I'm pretty skeptical of the valuations of all the tier 1 companies SamA mentioned, with maybe the exception of Pinterest, and think that category of the three has the most likelihood of losing him this bet.

There are a LOT of hyped startups that deliver hugely mediocre products/services. From consumer (HomeJoy, FlyCleaners etc) to enterprise software, there's a lot of nonsense out there.

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.

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.

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.

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.

> 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?

That's not the bet. The bet is that they will, in aggregate be worth $200B.

    "Proposition 1: On January 1st, 2020, these companies 
    will be worth at least $200B in aggregate."
Edit: Can't read. The parent is in response to the grandparent, not the bet.

He was referencing my statement above, not the bet.

Thanks for the correction. Edited to reflect that.

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.

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.

Major difference between public market valuations vs private market valuations.

Particularly, liquidation preference & anti dilution.

There is no such thing as a $200B private market valuation. For a company to have that large of a valuation, it pretty much has to be a publicly-traded company by definition.

If the argument is that somebody bought 0.001% of the company for $2,000,000, therefore 100% of the company is worth $200B, that's just a bridge too far.

1) Do you really think Dropbox, with all the big co competition, can grow past its current valuation? Snapchat would have been a better choice in this list.

Dropbox would have been my next closest to the bottom on that list, and while I think a $200B valuation on its own for Dropbox is a bit outlandish, it's conceivable.

I thought about it like this...

Would I bet that every company on this list will do worse than doubling their valuation over the next 5 years?

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.

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-...

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

I mirrored your sentiment in the original thread [0].

> I think this is quite a risky wager. I'm not sure how much of external factors are accounted for. The economists and financial journalists are quite excited about the whole QE and ZIRP effect. It's been deemed an unprecedented experiment. Cheap money has flooded the market. If we look at each industry of itself, most of them are in the similar state. Housing has become very expensive, stocks are at all time high, executive compensation has increased, commercial real-estate is popping up everywhere and the wealth gap is broadening. So when someone looks at statup evaluations and see them getting higher and higher, an expectation of market correction is in order just as it would be with the stock market. Perhaps the inevitable will get delayed once Euro takes up on the QE.

P.S: I think when someone talks about bubble, it doesn't imply that the current crop of startup ideas are bad. It just reflects inflation in the VC market.

[0] https://news.ycombinator.com/item?id=9259224

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

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

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

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

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?

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.


...what bet ?

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/ (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.

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.

#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.

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.

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.

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.

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.

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.

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.

Or, 5 years isn't that long from now... for comparison (from CrunchBase) Dropbox was part of the Summer 2007 batch. So, in the context of this bet, they would have had to have had a valuation of 3B in 2012 (assuming the rest of the batch failed).

As of Jan 1, 2012, their most recent funding would have been a Series B round for $250M at ~ $4B. So, in this case, Sam would have won.

In my opinion, #3 is a little unfair, just because there are significantly more startups in these YC batches than in years past. I wouldn't be surprised if the entire W15 batch hit $3B in total valuation by the end of the year. There are roughly 100 in this batch, so they would only need an average of $30M in valuation for Sam to win #3.

Somehow I interpret the bet as #1 being the most risky to win.

It seems like there are still chance that Pinterest, Dropbox and SpaceX still might ... fold, isn't it?

(3) will be the clincher for this guy.

There are a lot of potential home runs in the current batch IMO - medical startups, etc. If someone like Stripe faces too much competition (as I'm certain Instacart will), I think (2) is his best option. Most of the rest of those names don't scream megacorp to me, but then I imagine Sam is privy to the interesting future plans of all of them.

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."

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?

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

It would great if there are multiple bets on both sides (crowdfunding for each side). I'd question the legality of this but more money for charity would be great!

If there's enough demand, it might make sense to make a site/app and pick a side (maybe use Stripe to put money into some sort of escrow account).

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)

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...

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

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.

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.

boy this is an awkward post.

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.

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?

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

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.

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.

A bubble would require an investment firm to make an intentionally risky investment with the intention of selling off at the IPO prior to the collapse of the company. This is what we saw in 2000 and in the 2009 housing bubble.

The current state of affairs has companies being bought in cash by other large companies such as Google, Apple, etc. So the public never gets the chance to purchase overly valued stock. Further, of the companies that did have an IPO (Facebook, Groupon, Google) none of them had outrageously high growth. In fact, most of the companies stock values dropped after an IPO (at least initially).

All of those are clear signs we are not in a bubble, as it is financially impossible at this point, regardless of the "nature of bubbles." However, 5 years from now, who knows! The bet was for 2020, not 2016.

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

Do you guys need someone to act as escrow? makes call-me handsign

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

Agreed; I would have greatly preferred he emailed me.

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

I realize now it wasn't posted by Sam--merely his blog.

Ha ha oh man, sam. seriously: do you think about what you post at all before you hit submit?

you wanted to have a discussion behind closed doors before announcing this to the entire world? ok, that's fine, but that begs the question "why?"

given human nature, it's probably for nefarious purposes and propaganda control. I'm thinking you regret this bet, have realized it has only accelerate d the bubbles collapse, and are attempting serious efforts at damage control.

look, your a smart guy, sam, but you are pretty terrible at this whole communication thing, which is a shame considering that's a major part of your job.


In fairness to Sam, he didn't actually submit it to HN, he just blogged about it.

this comment reads like the "why is this on HN?" comments, which are against the guidelines. people are voting this up and they find it interesting, and that's why it's on the home page. just click the flag button.

Are they more pompous or less pompous than the articles that show up every so often claiming that Tech is a bubble that's about to pop any moment now?

er, yes? How is an article like that pompous?

If the implication here is that Sam Altman and OP are pompous enough to think we care what they think about the state of the Tech economy, then wouldn't the same logic apply to the authors who write "the Tech bubble is bursting! The world is ending!" articles?

Sam Altman and the OP posted their own content to Hacker News. The articles are usually posted by a totally different person than the one that wrote it.

No, Sam Altman's post was submitted by another user as well.

Huh, apologies, could have sworn he did.

In any case, there is a difference between writing bombastically about a situation you are financially involved in and a journalist writing an article about tech.

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