As usual, Mark tells a good story by leaving out a lot.
So, he has "(0.5%) eventually sell for $150 million or more".
Okay, so what? Is his argument that the chances of an entrepreneur are just a lottery draw with winning odds of 0.5%? If so, then that's misleading.
Why? Because it shouldn't be a lottery draw. Instead, the entrepreneur should know more than just a lottery draw. The entrepreneur should have done some good, careful, solid, and quite likely effective planning so that when, based on the additional information he has and the planning he has done, he goes for the $150 million or more, his chances are quite good, hopefully well over 50%. If he can't plan that well, then he needs to learn how or get into another game.
VCs, including Mark, won't teach how to do such planning, won't help with the planning, won't evaluate the planning, and, instead, will just report the figure of 0.5% from just looking in simple terms at all the e-mail they receive or some such.
Although the odds may have looked like 0.5% from 50,000 feet up, it is quite possible that for the winners down on the ground the odds looked and were much better than that.
Net, it is quite possible to see a large need, think of a good solution, find a way to provide that solution, and plan a business to deliver that solution, even with some new, advanced technology, all with quite high probability -- all over our economy, all around the world, in many industries, people do such planning and execution with quite
high probability.
E.g., when Intel decides to move from line width of some x nanometers to 0.66 x nanometers and build a $2 billion plant to manufacture at 0.66 x nanometers, do you believe that the project is high risk with only 0.5% chance of success? BS. Intel has taken many such steps in their history, and so far they may have had some delays and some kinks to iron out but never really had an actual failure.
E.g., recently movie director
James Cameron got in a specially
designed 'boat' and took a little side trip to
the bottom of the Mariana Trench, about six
miles down or some such. No one, not even all
the world together, has a lot of experience
building 'boats' to go six miles down. So, what
he did was essentially for the first time. Thus,
he needed a lot of quite good planning. And he came
up alive. Lesson: Planning to attack the unknown for
the first time is possible.
The great old lesson was the Wright Brothers. Langley had just fallen into the Potomac River. But the Wright Brothers took a train from Ohio to Kitty Hawk and flew apparently with little or no doubt. Why? Good planning. How? They built the first quite good wind tunnel and, thus, had some good data (although they missed Reynolds number) on wing lift and drag. They also knew horsepower and thrust of their propellers. They had the weight of their plane and passenger. They understood the crucial role of three axis control and had a good enough solution. A little arithmetic, and it was clear that they should be successful. And they were. First time.
Planning is doable. Sorry, Mark.
Let's put it this way, drawing from Mark's post: He did point out correctly that a house in the area will set one back about $2 million. Well, if making that much money is as difficult as Mark suggests, then house prices should fall!
Are we learning yet, e.g., how to earn?
A good, old lesson, especially in business, is "Always look for the hidden agenda.". So, VCs are in the business of buying parts of young companies. So, as a buyer, they want more inventory to select from. So, Mark can tell CxOs that their slot is for just chump change and that they need to be CEO and get some VC funding. And if they were a real man, they'd d be paying cash for a $2 million house, and for that they'd need to be a CEO with VC funding. For more, a buyer wants to tell the seller that their product isn't very good, e.g., has only 0.5% chance of being worth $150+ million. So, maybe such is part of Mark's agenda.
Then telling entrepreneurs how actually to plan a $150+ million exit, with some significant probability, is not part of the agenda.
This is at best true for the entrepreneur (and even then you strike me as someone who has never founded a startup, because it never goes smoothly according to plan). A prospective employee has no better chance than a VC at picking winners.
The "chances", that is, the probability, is close to irrelevant. Instead what is just crucial is the conditional probability conditioned on the information one has. Even if the probability is low, with suitable extra information the conditional probability can be quite high.
You understand: You saw the move 'Wall Street', right? So,
what was the probability of a big move up of the PA steel company? Low, right? "A dog with fleas". But the conditional probability given that the takeover guy's plane was flying to PA was quite high. Got it now?
Again, yet again, to repeat just for you, from my three examples in my post, it's possible to plan effectively, even for advanced projects, and then perform according to plan with relatively low risk.
On picking winners, VCs don't try very hard to evaluate projects. E.g., recently a VC told me that he sees a lot of projects that currently have $2000 a month in revenue. Thus he missed the point: No doubt at one time each of Apple, Microsoft, Google, and Facebook had about $2000 a month in revenue. What is just crucial in picking "winners" is essentially to f'get about the $2000 a month and look closely at the project. VCs don't like to do that. Moreover, in recent years in information technology projects, VCs just don't want to believe that there could be any advanced, solid, unique, powerful, valuable technology difficult to duplicate or equal to be evaluated. Evaluating technology and projects just isn't how their business model works.
On my startup experience, you were guessing and guessed incorrectly.
Yeah, I "get it". Sheesh, no need to be so fucking condescending. If it's so easy to pick winners why aren't you doing more angel investing instead of complaining about hot air from VCs?
Here is an explanation of some of the 'difficulty in picking winners': A lot of entrepreneurs try projects, and, right, maybe only 0.5% get an exit 150+ million. But a point is that, how many of those efforts were actually well planned? Not very many. Of the well planned projects, the chances should be much higher. Again, to pick good projects, have to use a lot of information, more than can use when just playing a lottery which, in effect, the 0.5% number assumes.
More generally, the goal is something exceptional. Can't get much insight into that looking at what was not exceptional. But there are some good guidelines for being exceptional. Yes, there are not many examples among the famous IT successes. From this you can conclude either that the path to being exceptional doesn't work or that there are good opportunities.
Whatever the entrepreneurs are, it's easy enough to identify the several dozen well known venture partners. Sadly, for the well known path to being exceptional, they are not and, really, don't have the backgrounds to do the evaluations. E.g., they are not much like the problem sponsors at NSF, NIH, or DARPA or leaders of significant, advanced projects at major labs or businesses.
So, again, the VC business model is not following all the promising paths to success.
A prospective employee has no better chance than a VC at picking winners.
Bingo. In fact, the employee is less informed. If the VC asks to see the cap table, it happens. If the employee asks to see the cap table, the offer goes away because it was a "rude question". A VC can get lunch with investors and co-workers at the founders' previous companies. The employee has to decide, based on an hour where both parties are posturing, whether he "basically likes the guy". VCs can assess the engineer compensation structure and get a basic sense of what kind of coding chops the company will be able to get. The engineer knows his offer and nothing else.
If anything, we're talking about a market where employees trade time (often of unconsidered value, because they're too young to know what they're worth) for illiquid stock their parents would (for their own protection, although it's debatable whether such laws are good) not be legally allowed to buy. The VCs, with webs of social connections that de-risk the whole process for them, are hard-core insider traders.
The idea that ground-floor employees know more than investors about a company is completely off the mark. Founders have the most information. Investors come next. Employees are dead last. They don't know shit about a company's prospects. Investors get to see the cap table, the compensation structure, and have the social access to vet the key players. Employees have none of that. If an engineer gets 0.25%, then the other 99.75% is completely opaque to him.
People tend toward overconfidence and therefore want to load up on their own performance risk. That's fine. If you're a +3 or +4 sigma intellect, you probably are smarter than people will perceive you as being. That's one key informational advantage you have over the rest of the world: you're smart, they don't realize it. But... that means nothing once you're subsumed into a 50-person "startup", whose macroscopic performance is not really changed by taking on a +4 sigma guy at some dippy subordinate level.
VC-istan investors are the ultimate insider traders. They know everyone, including the acquirers who make markets for their wares. As an employee, you don't. In VC-istan, you don't know shit and the earlier you learn this, the better.
So, he has "(0.5%) eventually sell for $150 million or more".
Okay, so what? Is his argument that the chances of an entrepreneur are just a lottery draw with winning odds of 0.5%? If so, then that's misleading.
Why? Because it shouldn't be a lottery draw. Instead, the entrepreneur should know more than just a lottery draw. The entrepreneur should have done some good, careful, solid, and quite likely effective planning so that when, based on the additional information he has and the planning he has done, he goes for the $150 million or more, his chances are quite good, hopefully well over 50%. If he can't plan that well, then he needs to learn how or get into another game.
VCs, including Mark, won't teach how to do such planning, won't help with the planning, won't evaluate the planning, and, instead, will just report the figure of 0.5% from just looking in simple terms at all the e-mail they receive or some such.
Although the odds may have looked like 0.5% from 50,000 feet up, it is quite possible that for the winners down on the ground the odds looked and were much better than that.
Net, it is quite possible to see a large need, think of a good solution, find a way to provide that solution, and plan a business to deliver that solution, even with some new, advanced technology, all with quite high probability -- all over our economy, all around the world, in many industries, people do such planning and execution with quite high probability.
E.g., when Intel decides to move from line width of some x nanometers to 0.66 x nanometers and build a $2 billion plant to manufacture at 0.66 x nanometers, do you believe that the project is high risk with only 0.5% chance of success? BS. Intel has taken many such steps in their history, and so far they may have had some delays and some kinks to iron out but never really had an actual failure.
E.g., recently movie director James Cameron got in a specially designed 'boat' and took a little side trip to the bottom of the Mariana Trench, about six miles down or some such. No one, not even all the world together, has a lot of experience building 'boats' to go six miles down. So, what he did was essentially for the first time. Thus, he needed a lot of quite good planning. And he came up alive. Lesson: Planning to attack the unknown for the first time is possible.
The great old lesson was the Wright Brothers. Langley had just fallen into the Potomac River. But the Wright Brothers took a train from Ohio to Kitty Hawk and flew apparently with little or no doubt. Why? Good planning. How? They built the first quite good wind tunnel and, thus, had some good data (although they missed Reynolds number) on wing lift and drag. They also knew horsepower and thrust of their propellers. They had the weight of their plane and passenger. They understood the crucial role of three axis control and had a good enough solution. A little arithmetic, and it was clear that they should be successful. And they were. First time.
Planning is doable. Sorry, Mark.
Let's put it this way, drawing from Mark's post: He did point out correctly that a house in the area will set one back about $2 million. Well, if making that much money is as difficult as Mark suggests, then house prices should fall!
Are we learning yet, e.g., how to earn?
A good, old lesson, especially in business, is "Always look for the hidden agenda.". So, VCs are in the business of buying parts of young companies. So, as a buyer, they want more inventory to select from. So, Mark can tell CxOs that their slot is for just chump change and that they need to be CEO and get some VC funding. And if they were a real man, they'd d be paying cash for a $2 million house, and for that they'd need to be a CEO with VC funding. For more, a buyer wants to tell the seller that their product isn't very good, e.g., has only 0.5% chance of being worth $150+ million. So, maybe such is part of Mark's agenda.
Then telling entrepreneurs how actually to plan a $150+ million exit, with some significant probability, is not part of the agenda.