Comment by tyre | Hacker News Reader

Comment by tyre | Hacker News Reader

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I strongly disagree.

You can keep a low hit-rate and focus on giant returns by playing the lottery, but fortunes are built on compound interest and diversified portfolios.

Reducing the number of failures does not mean getting rid of the big winners. It could mean focusing on large existing industries over speculative, pie-in-the-sky trends.

Think about ZenPayroll (disclaimer: early employee there, biased.) Product-focused payroll is not sexy, but the impact is massive and a tremendous business opportunity. We're now building software for local governments. Not sexy, huge market, huge impact on humans, clear path to single, double, and home-run.

My biggest frustration with looking for founding teams chasing these speculative bets is the sheer waste of human talent. I don't want to see another all-star team waste their time on bitcoin and food-delivery.

There are real, serious problems with the same upside but whose "failure" scenario may be a $25m business.

ZenPayroll was far from an obvious winner when we funded it. This job is so much easier with hindsight. If you can actually pick the winners better than we can, there's a giant fortune awaiting you :)

I'm not saying that ZP was an obvious winner when you funded it, because you didn't even fund it!* And that's kind of the point.

The companies that get into YC are often speculative in their ideas. Maybe it is devaluing the idea over the execution. Maybe it is the belief that getting in early to a growing trend is more valuable than reinventing an existing idea.

Regardless, the result is great teams of founders who think the key to success is a crazy idea. Sometimes crazy ideas work (AirBnB was kinda nuts at the time) but there seems to be a heavy weight in companies funded towards those types of investments versus the ZenPayrolls. Which tends to attract the same.

* They were Switchboard Labs at the time, doing something totally different.

Actually, I did fund it. I personally invested shortly after the ZP pivot :) (and it still wasn't clear they would be successful)

Nevertheless, the fact that yc invested pre-pivot only reinforces my point, as ZP wouldn't even exist had YC not taken a chance on the team and then helped them find a more promising idea.

Sorry I was unclear, I had meant YC didn't fund that idea because it didn't exist until they were already accepted.

I see your point, that the team is the most important part and YC invested in that. My feeling is that YC can be more effective at funding those types of ideas and teams. That the hit rate can be higher by focusing on a different class of idea. Perhaps that means more pivots or different ideas accepted at the start. I'll try to flesh this out more.

P.S. Unrelated, but thank you for sharing your thoughts. I appreciate it

YC's IRR outstrips that of all but a tiny handful of venture funds. (Sequoia, maybe?)

There's always room to improve, but it's likely they are making fewer mistakes than you think.

I don't think AirBnB was ever even slightly nuts. VRBO had been around forever and couch surfing already existed.

It's all easy with hindsight. It was much less obvious at the time: https://medium.com/@bchesky/7-rejections-7d894cbaa084

AirBnb was almost dead when they got into YC. Nobody would fund them, and Nate had moved to Boston to get a real job.

Sure, but those were very far from being mainstream.

Airbnb is actually still nuts. They probably aren't even to the half-way point in terms of where they need to be to be actually mainstream.

Even after YC and with the full support of PG himself, AirBnb was turned down by one of the top VCs in the country:

http://www.paulgraham.com/airbnb.html

And that's just one public example. (Chris Sacca also turned them down.)

Empirically it would be shocking if they were the only 2 investors who had the opportunity to invest but didn't.

It could be easily argued that the promise of bitcoin (blockchain) will contribute way more to the betterment of humanity than anything ZenPayroll will ever do (I like ZenPayroll, don't get me wrong). But regarding bitcoin, the argument for increased transparency (public ledger), reach to 3rd world consumers who do not have access to a stable financial system, reduced overhead and costs of existing global financial systems etc. are very important and worth the time of smart, talented founders.

I think it's great that you believe in what you are doing versus what other "all-star" teams may choose to do but your comment is equally frustrating, IMO.

Maybe. I disagree about BTC. It sounds amazing in theory, but in practice I would rather help millions of small business owners.

When you talk with them, they never say (or say without knowing it) that their biggest problem is financial transparency. Or that customers want to buy but want an anonymous currency. Or that they need to switch between many different currencies. BTC has always felt like a solution in search of a problem. The blockchain is wonderful technology as well, but that's not the hardest part of most startups.

Yep, the bitcoin stuff is one moonshot that I can definitely get behind (and I'm not even that bullish on it currently).

> fortunes are built on compound interest

This makes sense to me more on the scale of a single company. Put together a great team and focus them on a long-term problem. Their year-over-year drive and passion will outlast the rollercoaster of starting a company, leading to a much better shot of those huge returns.

Rather than going all in on the flavor-of-the-week, I agree with the focus on radical improvements to existing markets. It's far more likely—which does not mean less impactful—that we can fix known problems than fix as-yet-unknown problems.

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