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Comment by TeMPOraL | Hacker News Reader

Is it a secret though? I thought it's 101 of startups-VC interactions, and I learned it by reading pg's essays in about the same time I first learned what a "startup" is. I.e. the whole thing works because some people with money do high-risk investments in which nine companies out of ten fail, but the tenth one pays them back more than they invested in all of them together.

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But then you get the counter argument from people like Dave McClure who speak pretty actively against this style for most investors, implying they should be investing in way more companies at earlier stages (also I highly suggest avoid calling it a "shotgun" approach unless you want to piss him off).

There's a reason 500 Startups [edited out "he" and replaced with firm name - although he is also a prolific individual angel] tops the league tables for most active early stage investments every year, because they believe a lot of VCs are wrong.

Active investments by VCs since JAN2015 - http://imgur.com/QxVJVgZ

What's his track record?

Good question - we don't have much IRR data on 500 Startups' funds (most of them are still open), but they never have trouble raising more money for new funds, so I assume their LPs are happy.

here's a rough summary of my track record (personal / professional)

1) my angel investments ($300K portfolio, 2004-2008 vintage): 3 exits (Mint, Mashery, SlideShare) @ $100M+ out of 13 -- roughly 3.5X cash on cash in ~8 years

2) my investments at Founders Fund (~$3M portfolio, 2008-2010): 3 unicorns (Credit Karma, Lyft/ZimRide, Twilio) + 3 large wins (Wildfire, SendGrid, Life360) out of ~40 investments via FF Angel + fbFund -- roughly $50-60M appreciation in value over 7-8 years, >100% Gross IRR

3) 500 Startups main funds: $30M Fund I / 265 companies / 19% Net IRR / 2010-11 vintage, $45M Fund II / 325 companies / 23% Net IRR / 2012-13 vintage -- so far, 2 unicorns (Twilio, Credit Karma), 2 half-unicorns (Ipsy, Udemy), 30+ "centaurs" (>$100M+ value). Fund III is $85M / vintage 2014-15 / 650+ companies -- still pretty early but so far Net IRR trending ~20%

our LPs have been happy with our results so far. my/our track record is likely upper quartile, and at least for my years at Founders Fund top decile. Peter and I may differ in approach & stage, but likely more in agreement than not about the #s, altho he would likely consider or strategy more brute force and inelegant than his. that said, I think made enough money for him at FF & found him 3 unicorns, so hopefully he doesn't think I'm an idiot ;)

Wow, great stuff, and thanks for answering this personally !

What does AUM mean?

(Yes, can I have access to pitchbook?)

Assets under management - basically how much cash these firms raise and then need to deploy through investments.

YC only 318!

It's the same core belief: returns are driven by outliers. The difference is how to find them. Peter Thiel suggests focusing only on finding those with the potential to do it. Dave McClure suggests looking at tons of companies because you can't tell.

It's analogous to someone observing, "Over long time periods, companies that have low PE's outperform companies with high PEs" Warren Buffett picks individual companies with high PEs, while David Booth creates and index for all of them. Both have found ways to become billionaires.

> Is it a secret though?

It's a secret to the majority of the people that are the market for a book like that. As opposed to those of us who are on top of startups who found out that information many many years ago.

Well, he also uses secret throughout the book to mean "an idea that's not commonly accepted".

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