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Comment by eof | Hacker News Reader

Some people seeking funding don’t seem like good investments.

Sounds like it's just a problem of identifying arbitrage opportunities then. I.e. the problem isn't actually that there isn't enough places to put money. The problem is identifying systemic biases in the investor landscape (e.g. a bias against diversity, as just one potential example).

I mean, yes, obviously if there are people who aren't getting money despite actually being a good investment, then of course that's something that should be identified. However, I don't think that's a necessarily large amount of people (I could be totally wrong, this is just a gut feeling). It's a pretty well known failure mode that investors try not to fall into.

I think a much bigger arbitrage opportunity, one that e.g. YC tried to exploit a lot at first, is getting people who aren't looking for money, but would actually be a good investment, to try building a startup. That's why pg wrote so much about why people should build startups - he thought (and I imagine still thinks?) that there are way more good startups that can be built, if only more people were trying to build them.

This might be related but I think the bigger arb opportunity is looking outside of SF/NYC. There are some PE funds operating in the Midwest and doing great, but I think it’s still pretty difficult to find early/growth equity funding.

Isn't that just choosing wise places to put your capital? Where's the arbitrage?

The arbitrage is that the same amount of dollars to pay engineers goes further in the midwest than on the coasts which extends the runway of a company with the same amount of funding because of reduced burn rate.

Drive Capital (ex-Sequoia) is a good example. You might be surprised how uncommon this idea still is today.

Arbitrage is about buying something that you can immediately sell somewhere else for a higher price with no risk. What you're describing just sounds like getting a good deal.

If you could buy 10% of a company for $1mm in Chicago and sell that 10% for $1.5mm in SF the next day, that would be a form of arbitrage.

From wikipedia:

> the practice of taking advantage of a price difference between two or more markets: striking a combination of matching deals that capitalize upon the imbalance, the profit being the difference between the market prices. When used by academics, an arbitrage is a (imagined, hypothetical, thought experiment) transaction that involves no negative cash flow at any probabilistic or temporal state and a positive cash flow in at least one state; in simple terms, it is the possibility of a risk-free profit after transaction costs

https://en.wikipedia.org/wiki/Arbitrage

In the theoretical sense, yes. The usage in the here is much softer and less strict, not like in finance. I wouldn't get too caught up on the casual usage.

The way I've seen the word used in startups is more akin to "Tim Ferriss style" geo-arbitrage.

https://www.physicianonfire.com/geographicarbitrage/

In what sense is geo-arbitrage associated to Tim Ferriss for you? Genuinely curious. I've listened to a lot of his podcasts but can't recall that ever really coming up.

This isn't particular to me, but he's frequently cited for popularizing the term. You can see on Google Trends that it took off in 2007-2008 after the publication of 4HWW, and that there are virtually no results for it prior to the book's publication.

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