Thought Experiments to De-Risk Your Startup
codingvc.com
codingvc.com
Founders are clearly founders because they really like their idea, and people "just don't get it" and are spewing irrational arguments at it in an offensive way can easily get under your skin if you haven't already thought about them attacking you. Sometimes you'll just have to walk away and if you really want their support that can be really hard to do.
I think investors especially want an answer to the irrational because frankly, the rational knowledgable argument is hard to understand. That gets worse the deeper into a bubble we get.
Did I just say that investors are not rational? Yes, I just said that investors are not rational. I'm not a believer in the Efficient Market Hypothesis:
Imagine you are an average VC. You lose money. You lose money because the market means Sequoia and other top tier firms get first refusal on all the best deals. Also you are overwhelmingly likely to be a fairly useless investor. If you are a great investor you can set up a top tier VC fund based on your own investing history. See Andreesen Horowitz.
Likewise in the stock market, bond market, every market but the process happens faster the more open, transparent and liquid it is. If you can achieve a 30% year on year return people will happily lend you money or invest with you. Most people are just lucky or their advantage disappears at some point. But some people really are just that good and they either reach a size where they can't get above average returns any more because their strategy doesn't work at that scale, Apple, Berkshire Hathaway or they deliberately stay smaller than they could be to keep their money spigot working, Renaissance, Citadel.
Is that true? There's always a reason to say "no" to a startup. I would think that they are looking for reasons to say "yes", and then getting more skeptical as they get interested.
This was always the power of a crazy revenue graph — impressive revenue growth immediately flips people around.
It's not exactly true but it's a decent approximation. Because the investment rate is so low (~1%), and because professional VCs often see 1000+ pitches per year, red flags are a quick way to allocate time more efficiently. If I see 1000 pitches, 100 might be very strong right off the bat, 200 have promise, and 700 have a number of aspects that would make me reluctant to invest. I will pass on the 700 quickly so that I can focus more on the other 300. If my investment rate were higher -- say 15% -- then I might drill into some of those 700, too. But because it's 1% and there are only so many hours in a year for meetings, if I see a red flag or a few yellow flags in a first meeting, I'll use that as justification to give a quick pass. I think most VCs are similar.
YC's scaling over the last few years w/ sam + pb (and now michael) is a feature that some see as a bug of dilution. 200 companies a year now get extra access to angel money at a minimum, some percentage of which (mine!) likely wouldn't have normal access b/c of red flags.
And this is one of the reasons why human organizations eventually stagnate and then decline. They get too big so that they have to manage by filtering out those unique opportunities that would have been necessary for their survival.
That's a polite way of hinting that you really should consider shutting down.
Kind of :). But this is also what bridge/extension rounds are for. Perhaps you raised a $1.5m seed round and your goal was to validate 4 key hypotheses with that capital. If you validated all 4, then that's usually a great segue into raising a Series A. If you validated 0-1, that probably means your company isn't viable. If you validated 3 out of 4, or maybe even 2 out of 4, there's evidence that you might be on the right track, and you can often raise another $1m or $2m extension from investors who believe that you will validate the remaining hypotheses if you have a little more runway.
> How do competitors view you? Think about your 2-3 closest competitors. If you asked their CEOs to truthfully describe your company's strengths and vulnerabilities
Well, your 6 months old startup has no "strengths and vulnerabilities". It should also not have direct competitors. Only big companies have this kind of things. You have code, users and growth.
> Are you ready for a Series A? > Imagine that instead of being the founder of your company, you're an investor
You already ask yourself these questions.
> The debate from hell
This one is decent and I'm nice. You already did this with your cofounder most of the time.
> Was your MVP truly minimal?
Who cares, you've survived.
> Stomach-churning churn numbers
You will stress automatically about churn.
> The missing key
Don't hire "key role". Only big companies do that.
> Laughed out of the room
Decent and I'm nice.
> Unexpectedly large market
By the way, only investors say market when talking about startups. While this has sense, it's kinda a concept for big companies again. Your startup has early users and say pool / niche of those.
> Unexpectedly small market
You rarely have an unexpectedly small market. Most of the time you have no market at all: you have built something people don't want.
> How does the trajectory of the world over the next 5-10 years align (or misalign) with what you're doing?
If you're growing, you're "aligned".
And on and on. The intention is not really to help you here I believe.
For higher-quality discussion, we should apply the Principle of Charity: that is, assume the strongest plausible interpretation of an article and respond to that. Poking holes in a weak one may be fun but it is not substantive.
Why would it get upvotes if it's not helpful? Just trying to understand.
One can speculate about why—my theory is that it plugs into reflexive neural circuits, rather than the slower, reflective ones that make for more thoughtful reactions—but the fact itself is painfully well-established.
https://hn.algolia.com/?sort=byDate&prefix=false&page=0&date...
So... how is that for an idea: having voted on something you get an option to return and double-down your vote, but no sooner than five minutes later. To try more things we could also show the user his recent upvotes, and mix in some comments he did not vote on, so that the user had to stop and think.
So now, I have a question. I've noticed some people use a clever communication and social trick I call "word dropping". "word dropping" consists of forming sentences only in the intention to say or write a set of words because doing so can have an effect on some people. (Example of word set: de-risk, small market, big market, MVP, hire, key role, business plan, etc.) It is exactly like a text written with random words, it means absolutely nothing, but the trick is to do that with a limit set of words which when put together quasi-randomly provide a feeling of sense. One can see the disastrous consequences such a thing can have if people start believing into it. It's super powerful because word dropping cost nothing to produce and cost a lot to dismiss with proper arguments. This only hurts terribly.
I've found some people use plenty of social intelligence hacks like that, which works, hurts and decrease productivity. How do you protect someone from that? For example, say someone use word dropping to hurt me, what can I do? I guess I should read a book about that...
Sounds like you may be referring to the Bullshit Asymmetry Priciple: https://en.wikipedia.org/wiki/Bullshit#Bullshit_asymmetry_pr...
It sounds good, but isn't good. I think the answer in response to it is to have ammo that both sounds good and is useful, and it'll win out to the smart people.
You are not just competing with similar businesses, but also the potential that customers literally 'do nothing'.
In addition to that, there could also be legacy solutions or alternative ways of avoiding the issue that your company seeks to solve.
Another important spin on this might be if you /should/ have had competition but they no longer exist. That's something that the search here can turn up and provide further input for the other thought points.