I’m not a VC but I think about this all the time 😂 I can see how this is large enough a topic to discuss on an ongoing basis. It’s definitely under-discussed.
Here are some thoughts of mine:
Non-consensus and wrong = embarrassed
Consensus and right = great
Consensus and wrong = fine
Non-consensus and right = genius
Now, weirdly it does seem to be the case that the expected value of genius + embarrassed is lower than the expected value of fine + great.
This must mean that the tail outcome on the downside -which is only -1x in financial terms! - needs to be pretty much unbounded in non-financial terms. What non-financial terms is that? Well, the signalling it involves in our mimetic human nature.
Ergo: testing for how afraid someone is to be embarrassed should be a decent tell of they at least have a chance of being a great VC.
I agree 100%! The same is true of founders as well. Here is how I like to crystallize it:
In life you have to decide whether you want to go with the flow or depart from the consensus. The challenge with departing from the consensus is it takes some time to know if you are right, so you have to risk the possibility of being wrong (and embarrassed) before getting the upside of being right before others see the future.
But ultimately, the choice to follow the consensus versus the willingness to depart from it affects so many things in the limited time we will have in this world. You might like this write-up by Howard Marks called "I Beg to Differ." It is a great summary of what we are riffing on here...https://www.oaktreecapital.com/insights/memo/i-beg-to-differ
I'll take Mark's piece as bedtime reading tonight -- always such fascinating yet level-headed perspective.
I think it's true for entrepreneurs too, but I think that's the most complex situation, so I'll return to it.
Another constituent is artists. Talk about how great art has nearly always originated from someone who was comfortable with being embarrassed, often non-consensus and wrong for ages before transitioning into the "genius" quartile. Of course, people like Manet got rejected, laughed at and publicly ridiculed for years and years but just kept going. Doing what Pollock or Twombly did can not have been.. comfortable.
Now -- what I like most about those examples is that they had the same ochre pigment, the same canvases, the same historical references as all of their peers, but they saw the world differently.
That's why I personally think the most impressive and interesting entrepreneurs are to a large extent artists -- whose vehicle just happens to be a corporation. They look at the world as it is, see what others do not see and bring it to life. "Pure alpha" if you will.
Entrepreneurs in technology rarely have that luxury, because we always ask them "why now" -- in fact I think this is a major part of your thesis at Floodgate. The answer to this question is almost always that there is an underlying "beta" force in the market.
So now we're asking you to navigate an outright jungle of beta (take AI as an example) and of top of that add alpha -- it's a very tall order indeed. And of course it has to be -- you're looking for a 100x outcome, which most likely isn't achievable with only alpha in a static market. But it's a big, big ask.
I wonder if a structure of a venture fund who had a higher hit rate, but outcomes slightly less far out on the tail, generated by pure alpha in the world as it looks today, could exist. It would certainly bring about more non-consensus entrepreneurs.
I'd be curious to hear what you would think if someone answered your "why now" question during a pitch with: "Because today is when I saw the world differently. And now I can't unsee it."
The entrepreneurs that matter most are *absolutely* more like artists than can be described by any functional role like "C-level product, marketing, finance, etc" Steve Blank was the first person to articulate it in such a way that I couldn't unsee it.
I'm sorry for pattern breaking and writing direct message to you in comments :)
I actually want to make a small pitch here, because we are not well connected and cannot find angels, sooo, don't bother deleting it:
We are making Home Swipe.
Home Swipe allows travelers to exchange their homes during travel instead of renting appartments on AirBNB. We help travelers to find each other in our app with tiktok home proposal feed and tinder match format.
Our concept is ultra fast registration, exceptional travel proposal, easy checkin-checkout, safety guarantees. Our business model is taking 50$ from every home swap. Market opportunity can be realy big after network effect.
We are 10 years experienced multidisciplinary team with two developers. Our competitors have no key insights, goals, technical and user interface excelence that we have.
We are rasing pre-seed round for 100k$ to create MVP, we have no traction yet, but we are in multiple funding discussions.
Please see our pitch deck and business model in attachment.
Hey Dmytro - Huge respect for your initiative but unfortunately I can't take pitches here. If I did, the whole point of this blog would shift into being a platform for pitches (which might be another fun project!...but I have to stay true to the mission here.)
Hey Mike! Sure, you are absolutely right, let's stick to the blog topic :) But if you will suggest any way to contact and pitch you or maybe somebody else we will be happy!
I actually believe that to succeed the best way is to disturb patterns in every paradigm you touch: communication, work process, technology. I even believe that only possible way to find optimal solution is to "pattern break" as many things as you can.
So theoretically following this thought there is some probability of building unique solution for example to housing problem with just doing something disturbing the industry, and iterating as fast as possible. You can do metrics, making things visible, and nice communication. It looks like standard way in how you make new products nowadays and there is no way it can harm with appropriate mindset.
On the other hand I'm not sure how much this way resonates with me. It's like blind scientific way, maybe it suites for somebody, but I'm actually too lazy :)
I'm just interested in intuitive scientific way - the way no to only test hypothesis but the way of find maximally potent. And through my life I have also found the best predictor of such hypothesis:
1. in group one thing is communication - the hypothesis is pretty likable by others and produce unbelivable focus within the team.
2. in individuals - effect is the same but on individual scale. I suppose it is called flow pattern.
In summary I like the last ideas of applying scientific method to product development. But I actually suppose that human possibilities are just to high to understand for us and intuition or group intuition is just amazing thing that is rarely used for doing exactly the thing called "pattern breaking"
I’m not a VC but I think about this all the time 😂 I can see how this is large enough a topic to discuss on an ongoing basis. It’s definitely under-discussed.
Here are some thoughts of mine:
Non-consensus and wrong = embarrassed
Consensus and right = great
Consensus and wrong = fine
Non-consensus and right = genius
Now, weirdly it does seem to be the case that the expected value of genius + embarrassed is lower than the expected value of fine + great.
This must mean that the tail outcome on the downside -which is only -1x in financial terms! - needs to be pretty much unbounded in non-financial terms. What non-financial terms is that? Well, the signalling it involves in our mimetic human nature.
Ergo: testing for how afraid someone is to be embarrassed should be a decent tell of they at least have a chance of being a great VC.
I agree 100%! The same is true of founders as well. Here is how I like to crystallize it:
In life you have to decide whether you want to go with the flow or depart from the consensus. The challenge with departing from the consensus is it takes some time to know if you are right, so you have to risk the possibility of being wrong (and embarrassed) before getting the upside of being right before others see the future.
But ultimately, the choice to follow the consensus versus the willingness to depart from it affects so many things in the limited time we will have in this world. You might like this write-up by Howard Marks called "I Beg to Differ." It is a great summary of what we are riffing on here...https://www.oaktreecapital.com/insights/memo/i-beg-to-differ
Thanks for engaging in this stuff!
I'll take Mark's piece as bedtime reading tonight -- always such fascinating yet level-headed perspective.
I think it's true for entrepreneurs too, but I think that's the most complex situation, so I'll return to it.
Another constituent is artists. Talk about how great art has nearly always originated from someone who was comfortable with being embarrassed, often non-consensus and wrong for ages before transitioning into the "genius" quartile. Of course, people like Manet got rejected, laughed at and publicly ridiculed for years and years but just kept going. Doing what Pollock or Twombly did can not have been.. comfortable.
Now -- what I like most about those examples is that they had the same ochre pigment, the same canvases, the same historical references as all of their peers, but they saw the world differently.
That's why I personally think the most impressive and interesting entrepreneurs are to a large extent artists -- whose vehicle just happens to be a corporation. They look at the world as it is, see what others do not see and bring it to life. "Pure alpha" if you will.
Entrepreneurs in technology rarely have that luxury, because we always ask them "why now" -- in fact I think this is a major part of your thesis at Floodgate. The answer to this question is almost always that there is an underlying "beta" force in the market.
So now we're asking you to navigate an outright jungle of beta (take AI as an example) and of top of that add alpha -- it's a very tall order indeed. And of course it has to be -- you're looking for a 100x outcome, which most likely isn't achievable with only alpha in a static market. But it's a big, big ask.
I wonder if a structure of a venture fund who had a higher hit rate, but outcomes slightly less far out on the tail, generated by pure alpha in the world as it looks today, could exist. It would certainly bring about more non-consensus entrepreneurs.
I'd be curious to hear what you would think if someone answered your "why now" question during a pitch with: "Because today is when I saw the world differently. And now I can't unsee it."
The entrepreneurs that matter most are *absolutely* more like artists than can be described by any functional role like "C-level product, marketing, finance, etc" Steve Blank was the first person to articulate it in such a way that I couldn't unsee it.
I'm sorry for pattern breaking and writing direct message to you in comments :)
I actually want to make a small pitch here, because we are not well connected and cannot find angels, sooo, don't bother deleting it:
We are making Home Swipe.
Home Swipe allows travelers to exchange their homes during travel instead of renting appartments on AirBNB. We help travelers to find each other in our app with tiktok home proposal feed and tinder match format.
Our concept is ultra fast registration, exceptional travel proposal, easy checkin-checkout, safety guarantees. Our business model is taking 50$ from every home swap. Market opportunity can be realy big after network effect.
We are 10 years experienced multidisciplinary team with two developers. Our competitors have no key insights, goals, technical and user interface excelence that we have.
We are rasing pre-seed round for 100k$ to create MVP, we have no traction yet, but we are in multiple funding discussions.
Please see our pitch deck and business model in attachment.
Home Swipe Pitch Deck
https://drive.google.com/file/d/13hqy5ALbw0NsaW-ZibVUWDPP6uyW03OA/view?usp=sharing
Book a call and we will tell you more:
https://calendly.com/alina_luhovska/home-swipe-meeting
Hey Dmytro - Huge respect for your initiative but unfortunately I can't take pitches here. If I did, the whole point of this blog would shift into being a platform for pitches (which might be another fun project!...but I have to stay true to the mission here.)
Hey Mike! Sure, you are absolutely right, let's stick to the blog topic :) But if you will suggest any way to contact and pitch you or maybe somebody else we will be happy!
I actually believe that to succeed the best way is to disturb patterns in every paradigm you touch: communication, work process, technology. I even believe that only possible way to find optimal solution is to "pattern break" as many things as you can.
So theoretically following this thought there is some probability of building unique solution for example to housing problem with just doing something disturbing the industry, and iterating as fast as possible. You can do metrics, making things visible, and nice communication. It looks like standard way in how you make new products nowadays and there is no way it can harm with appropriate mindset.
On the other hand I'm not sure how much this way resonates with me. It's like blind scientific way, maybe it suites for somebody, but I'm actually too lazy :)
I'm just interested in intuitive scientific way - the way no to only test hypothesis but the way of find maximally potent. And through my life I have also found the best predictor of such hypothesis:
1. in group one thing is communication - the hypothesis is pretty likable by others and produce unbelivable focus within the team.
2. in individuals - effect is the same but on individual scale. I suppose it is called flow pattern.
In summary I like the last ideas of applying scientific method to product development. But I actually suppose that human possibilities are just to high to understand for us and intuition or group intuition is just amazing thing that is rarely used for doing exactly the thing called "pattern breaking"
mmjr@floodgate.com. Make sure to cc: ryland@floodgate.com!