Growing black swans

    Paul Graham from the Y Combinator startup incubator published a short essay , Growing Black Swans , in which he shared his observations on venture financing for Internet companies. Over many years of work, he made two main conclusions:

    1. Almost all the profit was received from several “big winners” .
    2. At first, the best ideas look like bad (because those ideas that look good have probably been implemented by someone). Because of this, it is even more difficult to predict the “big winners”. For example, a site for students where they can kill time is an example of an “ideally” bad idea (Facebook). This is a site for a niche market where there is no money, for useless hanging out. The same thing happened with Google - a new search engine in a market full of search engines.

    Indeed, it is very strange when the chances of success are practically irrelevant, if it is not “great success”. So the team of smart 19-year-old guys who do not know what to do has not much less chances to become billionaires than a startup with a clear business model and experienced managers.

    After financing Y Combinator several hundred startups with a total value of $ 10 billion, it turned out that only two startups, Dropbox and Airbnb, accounted for 75% of the capitalization. At the same time, the profitability of the “big winners” is 1,000 times higher than expected and 10,000 times higher than the profit of other successful startups, which turns venture financing into a very strange task.

    Paul Graham says that we need to develop a special ability to “ignore the elephant,” that is, not specifically take into account the obvious commercial prospects of a startup, but instead think about the likelihood of a major breakthrough that things are practically unrelated. It follows that when growing a startup, you need to ignore the opinions of investors, says Paul Graham. It was with this idea, “We don’t care what investors think”, they gave money several times to develop the strange site Airbnb.

    Paul Graham specifically explains that making a profit is not the only goal of Y Combinator, so in any case, they are happy with those hundreds of startups that do not bring billions, but only pay back the costs. For example, Reddit is not profitable, but Paul Graham met many interesting people thanks to Reddit.

    On this topic:
    Fifteen "excuses" do not create a startup from Paul Graham

    Also popular now: