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Comment by cperciva | Hacker News Reader

Quoth pg: It would hurt YC's brand (at least among the innumerate) if we invested in huge numbers of risky startups that flamed out.

Paul, you're sounding like a venture capitalist who is worried about whether he can find investors for his next fund.

I would posit that the people whose opinions you should care about are potential founders; and that their primary concern is themselves, not the performance of a fund (oops, I mean class) as a whole. You're damn right that it would hurt YC's brand if 70% of each class didn't survive past Demo Day -- because for an individual founder, success is pretty much binary, and having a 50% chance of becoming a millionaire is more attractive than having a 5% chance of becoming a billionaire, despite the 100-fold reduction in mean wealth.

You may be in in the business of farming black swans, but if they're all you worry about you'll find that all the swans end up laying their eggs elsewhere.

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I do care about would-be founders' opinions, but surely I don't have to use every essay I write to convince people to apply to YC. I've already written elsewhere about the founder's eye view of YC (e.g. http://ycombinator.com/atyc.html). This essay is just an exploration of the strangeness of startup investing as a business. The goal is not to convince anyone to do anything.

Off-topic, but something I've been chewing on lately: what's it like to have your every written (or spoken!) word analyzed by a bunch of people? Esp. people that you end up having some form of contact with.

It seems like it would be difficult to just have a public conversation about a topic. Do you think about that much when you write?

It's pretty grim. I think that's one of the reasons I write fewer essays now.

After I wrote this one, I had to go back and armor it by pre-empting anything I could imagine anyone willfully misunderstanding to use as a weapon in comment threads. The whole of footnote 1 is such armor for example. I essentially anticipated all the "No, what I said was" type comments I'd have had to make on HN and just included them in the essay.

It's a uniquely bad combination to both write essays and run a forum. It's like having comments enabled on your blog whether you want them or not.

Having people pick over every detail of what I write is something I like about HN -- it forces me to think more carefully about what I'm saying, and on a few occasions (tptacek, I'm looking at you) has even prompted me to go back and write further blog posts about specific points.

Of course, my blog posts don't get nearly as much attention as your essays, and I don't have the problem of having people try to draw attention to themselves in the hopes of being remembered when applications are considered for the next YC round.

I can't tell here if you're just off-hand mentioning something you like about HN, or if you're also suggesting that it's something other people should like too.

Your posts are more technical in nature, and can benefit from debate. Other people might write things that are more personal, or opinion, or thinking-aloud, and while a little bit of good-natured feedback from trusted people might be appreciated, lots of nitpicking and debate and very public arguing is not.

I can't tell here if you're just off-hand mentioning something you like about HN, or if you're also suggesting that it's something other people should like too.

The point I was trying to make was that I would be disappointed if what pg clearly saw as a problem was "fixed", because for me it's a feature.

For you it is, for others it is not. You would be disappointed, others would be contented.

(I'm not picking on you btw, I have a tremendous amount of respect for you. But I don't think your desire for debate on what you write is suitable justification for other people putting up with the same, especially when it's discouraging them from writing.)

I claim no privileged position for my preferences. I was just stating what they were. :-)

You should have preempted this thread with more armor.

Well, I still enjoy your essays. Let this comment be the generic encouragement of those who aren't trying to pointless dispute and who are usually silent.

At least some of the people who are questioning you are probably doing so out of intellectual curiosity, rather than animosity. You probably know that intellectually, but for many people—including me—it's sometimes hard to remember that in the heat of the reading moment.

I hope this buried comment isn't overlooked, but let me caution the reader that intellectual curiosity is often interpreted as animosity. It took me many years to realize that my constant barrage of questions on, well, anything was offputing to a significant fraction of people I interacted with. Perhaps this is obvious to many of you, but it was not to me.

> I had to go back and armor it by pre-empting anything I could imagine anyone willfully misunderstanding to use as a weapon in comment threads

This is perhaps the worst thing about discourse on the internet. If you and I were having a conversation in room, you'd never pretend to not understand me to rip into me (maybe to understand my point better.) But on the internet, so many people are just trying to score points that it's nearly impossible to have a conversation.

PG, thanks for writing the essays. They're definitely thought-provoking and a lot of people appreciate them. Keep writing. :)

You don't give your detractors enough credit. Many of these misunderstandings are not willful, and actively seeking to avoid them is almost always good practice on your part. (In my opinion.) For the record, I found footnote 1 illuminating.

I'm sure that the intense scrutiny you get would annoy any writer. But I think it genuinely makes your essays stronger, too, and I hope you don't hate it too much.

Two thoughts.

1, that's terrible. So many benefit from the ability to read (and interact with) your opinions. It's so much more valuable than a random once-off Reddit AMA. It's a shame the value is reduced through the actions of a few.

2, this community attracts young smart people, exactly those who might want to match wits with you. Some of it is valuable, some is just annoying. I'm reminded of the niceness value in discussion; if everyone was nice about it, maybe you wouldn't feel as apprehensive or besieged and we could still have a good debate to extract the maximum benefit.

In the end, I hope you find some way to care less about the opinions, because what you do and write about are so valuable. In the spirit of "If you aren't writing enough wrong stuff, maybe you're being too cautious."

When I saw this comment (before reading the essay) I was ready to decry this armoring. But now, having read the essay, I think it's a good thing. This essay flows nicely and is clear. Footnote 1 is a good clarification, especially if someone hadn't read your other essays.

I think at least half of the misunderstandings that arise in HN comment threads are honest misunderstandings.

That seems a reasonable estimate, but it means up to half are dishonest misunderstandings, which is quite a lot if you think about it.

You're missing my point -- I was objecting to the "(at least among the innumerate)" bit. It would hurt YC's reputation among everybody who matters, whether innumerate or not, if 70% of YC companies didn't survive past Demo Day.

Hence the "at least", no?

Maybe this is just idiomatic, but when I see "it is thought (at least by people with property foo) that...", I read the parenthetical comment as meaning "people without property foo don't think this way".

"I do care about would-be founders' opinions, but surely I don't have to use every essay I write to convince people to apply to YC."

The essay reminds me a bit of the argument that the Native Americans actually got a great deal when they sold Manhattan for $24, because that money would be worth about $30 trillion today if it had been invested at a return of just 7.5% for the past 385 years. I think it's interesting and worthwhile to explore these sorts of mathematical ideas, but at the same time it's impossible to make good business decisions without fundamentally basing them on human needs, human scales, and human timeframes.

Do you think it might be possible to run this kind of program under a separate brand, similar to the relationship between Touchstone and Disney?

It would hurt founders' perceptions but wouldn't actually decrease any individual founder's chances of success. YC would just accept a bunch of people who aren't likely to get funded.

What would happen if you split up the batches into two groups, YC Classic and YC Black Swan, and placed founders into the groups post-interview? People who were placed in YC Classic could continue to have the expectation of ~100% demo day success they do now, while the people placed in YC Black Swan would be told "I find your idea interesting and we'll let you in but don't expect funding after demo day." People could take the Black Swan offers as rejections if they wanted.

There are a bunch of problems with this approach, but I wouldn't be totally surprised if way more than 30% of YC Black Swan was funded.

I love this idea, because it addresses the two fundamental issues at play here: the social and the financial. Considering YC as a single entity, the optimal funding strategy must take into account both the power law on returns and the prestige of the program. If YC loses its place as the most prominent and well-respected startup incubator, the Dropboxes and Airbnbs of the future will either forgo the application or suffer from lack of investor interest. If YC limits itself to only those companies that have an extremely high chance of getting funded, the outliers will never find a way in.

Let's say that p_accept is the probability that YC accepts the founders of the next Dropbox. YC itself cannot optimize for p_accept because of the factors mentioned above: instead, it has to optimize for p_apply * p_accept * p_fund, the product of the chances that those golden founders will apply to the program, be accepted, and find the funding they need to grow and thrive.

With the hypothetical YC / YC Black Swan split, the original YC can optimize for p_apply * p_fund, and YC Black Swan can optimize for p_accept. Not only that, but since all Black Swan candidates would have started as applicants to YC, Black Swan's p_apply would equal that of the original YC. Numerate investors with the same sense of the power law as pg would take care of Black Swan's p_fund.

Thus, all the prestige, cultural appeal, and midsize exits would derive from the original YC, but all the power-law returns would emerge from Black Swan.

So, pg, new business model?

If you could pull that off without discrimination that would be an awesome idea. It may cause somewhat of a North/South Korea kind of thing but if it can be done it would be a great data collection exercise that investors, founders can really learn from.

Would be interesting to learn why the black swans have done better then the normal batch, or why the normal batch did better or why it was a 50/50 split.

You might even learn that because a startup is considered as a black swan founders in that group work harder and thus have a higher success rate. This would really put into light debates about how much intelligence vs hard work may effect success rates in the world of startups.

It would hurt founders' perceptions but wouldn't actually decrease any individual founder's chances of success.

In a world where potential founders are making a choice between YC or doing the startup anyway without YC, sure. But the world is more complicated than that, and I'm sure there are plenty of potential founders whose decisions are informed by what they hear from YC.

[...] split up the batches into two groups, YC Classic and YC Black Swan [...] People could take the Black Swan offers as rejections if they wanted.

This sounds like a very good model, in that it would separate the "is this something YC wants to invest in?" axis from the "does Paul Graham think that I'll succeed?" axis.

I know which Demo Day I would go to! (The Black Swan one.)

Interesting, but am not sure it'll work from a marketing/founder-motivation perspective. There may be a segregation VCs can see, but it is not clear what effects it'll have on the company/founder's future efforts/commitment to the startup business.

The group-think effects are to be considered, before adopting this model. Am obviously not predicting anything, except perhaps this move might make the Black swans even more unpredictable.i.e: if you look at the Tableau of payoffs here(http://edge.org/conversation/the-fourth-quadrant-a-map-of-th...). this move can push investments from complex payoffs to very complex payoffs easily. Personally, i am likely to even shoot for the YC Classic group deliberately or in rare optimistic moments, the Black Swan group.

The problem is you are applying post-hoc analysis.

While a theme was that the outsized returns can come from ideas which sound bad, it doesn't necessarily say that all outsized returns come from bad-sounding ideas.

Not only that, but I think reading the essay will show that the outsized returns are not known until several years after demo day.

Sometimes bad ideas are just bad ideas. In the Venn intersection between bad-sounding-ideas and good-ideas - the 'bad sounding and not good' is a much bigger area.

To me, the entire essay is about making sure that institutionally, the bad-sounding-but-ultimately-good ideas are not left out. Trying to further identify and silo them at application stage would be even more fraught.

Khosla Ventures actually has two separate kinds of funds set up for such funding -- KV Seed for science experiments, and a larger fund for more classic investments.

The main difference in branding for KV's funds is really only to the LPs, though they do mention it to founders on their website. They want to cover themselves in case the seed funding both doesn't return anything and looked to be imprudent in retrospect. Luckily I think they're doing well.

Vinod is actually quite explicit about trying to find black swans in his pitches :-)

Isn't there a simple solution to this problem? Bundle the unfundable ideas into a secretive spinoff. Say, call it YC BlackOps, or something. Keep it mysterious, like Google X Labs. If you do it right, it won't hurt the YC brand.

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