Ask PG: Is There A Startup You Regret Not Funding? (Like Fred and AirBnB)

https://news.ycombinator.com/item?id=4477867

by npguy • 14 years ago

127 37 14 years ago

news.ycombinator.com

jaredsohn• 14 years ago

Here's Fred Wilson's post about passing on AirBnB: http://www.avc.com/a_vc/2011/03/airbnb.html

david_shaw• 14 years ago

I'm neither Paul Graham, nor a venture capitalist. I've never invested in a startup.

However, I have been involved in the process with potential investors deciding whether or not to invest in a company -- on both sides of the table. I can't answer your question, but I might be able to lend some relevant conversation on the topic.

Investors, especially those who specialize in early-stage startups, take a lot of risks. We all know that most startups will fail -- and those that don't are not always wildly successful. There are plenty of ramen-profitable startups that will piddle out, and plenty more that never even get to that point.

Because of the inherent risk involved with investing in general, it makes sense to take as risk-averse an approach as possible. That's why YC-backed companies are built on such solid, great ideas (the best foundation possible) -- and even many of those, even with Y Combinator's full support, still fail.

Whether or not pg has regrets is a question that only Paul himself can answer (and I hope he will), but my opinion is that his approach is the same that I take towards my investment portfolio: maybe a slight tinge of missed opportunity, but the decision whether or not to put money into a company is calculated rationally. Because of this, there's no real regret to be had.

klochner2• 14 years ago

and you slept at a Holiday Inn last night?

[edit] I meant Holiday Inn Express

chmike2• 14 years ago

Could you explain your comment ? It don't understand the relation with the comment you responded to.

lifeisstillgood• 14 years ago

My next one ;-)

Edit: joking aside, I cannot comment for pg but there are a number of startups I regret not funding - funding with my time and effort. Whatever strategies or not people use to invest in others companies we can all invest in one - our next one.

I am minimising my regrets, by investing in me.

(I do worry about that management team though !)

rolandal• 14 years ago

I feel like this is a common problem - we all get presented with many opportunities to join startups that become great.

I remember reading a similar post that was about how an engineer felt about turning down the opportunity to be a 1-10 employee at Facebook

pg4• 14 years ago

A couple. I can't name names though because I feel like we're obliged to keep applications confidential.

When we miss a good startup, we always go back and figure out what went wrong and try to fix it. One advantage of all the other incubators that have arisen is that when we miss a good company, we at least find out about it. We've changed our application process several times in response to misses.

(Strangely enough, it might actually be net beneficial to YC to have so many competitors, because they're training our filter.)

shin_lao• 14 years ago

How do you decide/realize you "missed a good startup"? Profits? Traction?

pg4• 14 years ago

You can never find out a private company's revenues, so the best we can do is to go by approximations like how frequently we hear about them, later funding rounds, etc.

npguy• 14 years ago

Thanks PG !

pwendell2• 14 years ago

Does it always mean that something went wrong if you passed on an eventually successful startup? That seems like an assumption baked into the question and your answer.

At the end of the day you are taking a calculated risk. The interesting question isn't whether you wished you had funded them, because that is asking you to make a risk-free (in hindsight) decision. The real questions is how you decide whether a missed opportunity indicates a lapse in the way you calculated risk/reward, or simply a bet you ended up on the wrong side of despite it being the right bet at the time.

That's the question I'd really be interested in hearing the answer to. How do you decide whether a missed opportunity represents an error in your process?

pg4• 14 years ago

As far as we're concerned, missing a good startup is by definition an error in our process. We may never get our error rate down to zero, but we can try. And it's reasonable to assume we have a lot of room to, considering how early we are.

Having funded 465 startups over 7 years may not sound early, and I suppose it isn't in a relative sense, but it is in an absolute one. Society in general and we in particular are still learning how to predict which startups will succeed.

chmike2• 14 years ago

Note that a rejected applicant will have learned from the failed YC interview and adjust his presentation accordingly when applying to another incubator.

Kudos for your postmortem optimization feedback loop. This is one of the non visible features of YC that could explain the difference. Do you record the presentations for later review in such case ?

For the applicants, this gives the hint that they should apply to many different incubators and angels before applying to YC so that they can learn from their rejection how to optimize their submission. ;)

ot2• 14 years ago

Sorry about the obvious and slightly more controversial question, but are there any startups that you regret having funded?

In particular from the non-economic perspective.

redthrowaway4• 14 years ago

I'm hoping he regretted funding 9GAG. It's one of the most unethical companies I've ever come across. This post on /r/4chan details some of their misdeeds:

http://www.reddit.com/r/4chan/comments/zacju/9gag_repost_mac...

paulsutter• 14 years ago

Surely they wish they were able to allow the n+1'th team to join a given class, but they're busy enough with the n they do select that I'm sure they dont give it a lot of thought. Certainly not regret.

YC's investment is primarily about time and effort, not money anyway.

tomasien2• 14 years ago

I think a MUCH better question is "Are there any companies that didn't ultimately reach exits that you regret funding: I.E. companies who you believe YC itself would have made the essential difference in their success"

This would be a company who got grew initial growth but, for lack of proper guidance and mentoring, made really bad decisions that killed them. Perhaps a company that had a chance to be huge, did well initially, but didn't have the proper connections to scale after that.

That to me is a harder but ultimately much more valuable question.

tomasien2• 14 years ago

More valuable because of COURSE PG had some misses. If he didn't have misses, he wouldn't be human. But where it gets really interesting is in his estimation of the YC effect, which I think is estimable: what companies would have been billion dollar companies with the YC effect but aren't because they don't have it?

andrewhillman• 14 years ago

i think they rejected sendgrid, but not 100% sure.

Ask PG: Is There A Startup You Regret Not Funding? (Like Fred and AirBnB)

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