Why Aren’t there More Paul Grahams?
Paul Graham has an interesting essay “Why There Aren’t More Googles.” In it, he talks about how VC are shying away from doing lots of little deals, and how the bold ideas are the ones that are hardest to fund:
And yet it’s the bold ideas that generate the biggest returns. Any really good new idea will seem bad to most people; otherwise someone would already be doing it. And yet most VCs are driven by consensus, not just within their firms, but within the VC community. The biggest factor determining how a VC will feel about your startup is how other VCs feel about it. I doubt they realize it, but this algorithm guarantees they’ll miss all the very best ideas. The more people who have to like a new idea, the more outliers you lose.
Paul is absolutely right. The more people who have to like a new idea, the more outliers you miss. However, any really good new idea is likely a combination of one really good insight, and several bad ones. It’s hard to dis-entangle them until you engage with the market. There’s a real question of how expensive that will be. There’s also the question of will a really bold new inventor listen enough to make the idea successful?
When I was at Zero-Knowledge, we spent a lot of time exploring ideas which have now come to fruition. Zero-Knowledge, under the name RadialPoint, is thriving. Selling security and privacy to consumers makes sense as part of an ISP package. Making it work, and figuring out what people were ready for, took a while. Some of the bits that they weren’t ready for, and perhaps weren’t ready for the market include the IP level privacy, a problem that the Tor Project is hard at work on. We also worked hard on ‘private credentials, which Credentica launched as U-Prove, and has since been acquired by Microsoft.
We had lots of new ideas at Zero-Knowledge, and a set of happy outcomes (as shareholders know).
But Zero-Knowledge, while bold, wasn’t even absolutely new. It was built on the ideas of the cypherpunks, and we even had a Chief Cypherpunk. Similarly, Google wasn’t the first of the search engines. It was innovative in how it worked, but it was several years after Yahoo!, AltaVista, and Ask. The bold ideas took a while to become profitable ideas.
So I think that it’s absolutely wonderful that we have a creative, chaotic froth of very little companies, and that Paul helps make that happen. I wish there were more. I love seeing what emerges from that chaotic experimentation. But that experimentation can be tremendously expensive, with people chasing many variations of the ideas.
Paul is chasing a variation on how funding happens. He believes passionately in that vision, and is putting his money where his mouth is. Will it work? Who knows? I’m glad there’s chaotic experimentation, and if Paul succeeds, I’m sure he’ll have many imitators.
VC has no root password that lets it bypass any rules of economics. As such, it is definitely crowded by people struck blind by the star effect. For some reason, people believe that is where the real power is, so when they do get rich, they feel as though the next step is to get a bit of that easy VC money.
Unfortunately, they are deluded. Just like their early richness, VC wealth is based on a lot of really hard work. And, unless you are very good at that area, you are going to make mistakes. It isn’t about inspiration, but the willingness to work through the details of dozens of ideas, then make the judgement call as to which to fund.
About the only thing one can say that is positive about this worse-than-lottery process is that as long as no-one is forced to bet their pension on it, it’s just another adult entertainment that should be legal.
Great post!
Off topic – congratulations, your book has been Slashdotted
http://books.slashdot.org/article.pl?sid=08/04/21/1323233
Great article Adam. I agree with you completely. I’ve been impressed with the YCombinator model – but trying to replicate it in Canada has some unique challenges.
Part of the reason the model works is the ecosystem that it operates out of the valley where the culture & environment provides a lot of mentoring & funding support for the type of innovation they fund.
Still it’s a model that is already affecting how we are doing angel investments & early stage VC work.