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Comment by m_ke | Hacker News Reader

> You should try to limit yourself to opportunities that could be $10 billion companies if they work (which means they have, at least, a fast-growing market and some sort of pricing power). The power law is that powerful. This is easy to say and hard to do, and I’ve been guilty of violating the principle many times. But the data are clear—the failures don’t matter much, the small successes don’t matter much, and the giant returns are where everything happens.

This is the main reason why most people should avoid VC money. As a founder/employee all of your eggs are in one basket and the chance of having a billion dollar exit is practically 0. VCs get to raise billion dollar rounds, live off of the 2-3% management fees and go around spraying and praying with the hope of hitting a unicorn. If that doesn't work they take their top donkeys and try to pump and dump them, marking up their investments in the process in order to raise another round.

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I have a feeling that this is all past results that don't guarantee future performance. It is tuned to the time when Google, Amazon and Facebook were created - but this evolution phase is over.

From Ben Thompson newsletter:

"""

where would $1 have been best invested on March 25, 2015, when Altman wrote his post?

* Unicorn basket: Uber ($41.2 billion -> $53 billion), Palantir ($15 billion -> ~$26 billion), Airbnb ($10.5 billion -> $35 billion), Dropbox ($10 billion -> $7.4 billion), Pinterest ($11 billion -> $10.4 billion), and SpaceX ($10.1 billion -> $33.3 billion) = +$67.2 billion and a CAGR of 11.6%.

* SAP 500: From $2061.05 to $3,234.85, for a CAGR of 9.87%

* Big Tech: Apple ($714.84 billion -> $1,321.6 billion), Microsoft ($338.6 billion -> $1,210.1 billion), Google ($386.1 billion -> $938.6 billion), Amazon ($172.5 billion -> $929.6 billion), Facebook ($230.9 billion -> $595.1 billion) = +$3,152.06 billion and a CAGR of 23.14%

"""

plus correction:

"""

However, I did err by not including dividend payouts, which are basically reassignments of market cap to individual investors. Interestingly, this results in an annualized S&P 500 return of 11.7%, which actually beats the unicorn basket annualized return of 11.6%! More on this in a moment.

"""

Those companies you list are just big companies that havent gone public yet. They should be added to your s&p bucket.

Then you need to compare that return to investing today in a basket of early stage companies. A year ago, stuff like lambda school + a bunch of dogs, plus some stuff I have never heard of.

Then measure returns of your basket vs s&p+unicorns.

The startup basket may or may not win, but we simply dont know yet.

I agree that investing in the SP500 and Big Tech might be better for an individual investor without access to earlier rounds. For anyone reading your comment though, it's worth keeping in mind that the stock price is not just based on current and past performance, but also the expected future value of the unicorn (specifically: the present value of expected future dividends). A unicorn can grow exponentially and still show ordinary stock price appreciation, if that degree of exponential growth was already "baked into" the stock.

> where would $1 have been best invested on March 25, 2015, when Altman wrote his post?

Which is an unfair criticism to Altman, because typical VC returns only mature 7~10 years later. If you put $1 into Uber in 2009 and exited at IPO, your returns would far exceed the S&P. This is a terrible financial analysis from Thompson, but I don't think that was his real point from the newsletter anyway.

That being said, the point still stands, investing in venture is generally NOT a good strategy in of itself. The general recommendation is less than 5% of your overall net worth.

This is weird, because if you are talking about tenor of 10 years, you need to include the 90% of companies that exited at $0.

Of course you include them - the whole point of VC investing is that even if most of your companies exited at $0, the 1 10,000%+ return made up for it.

It was not a criticism to Altman - I only quote it for veracity - the important part is the data. Altman's bet was that there was no bubble in 2015 and that his unicorn basked would not lose money, and he was right.

> the important part is the data. Altman's bet was that there was no bubble in 2015 and that his unicorn basked would not lose money, and he was right.

But thats my point. This is a terrible analysis bc the data presented is not scoped appropriately to fit the narrative.

Wrong timeframe for the startups. For Uber, the timefime would have been 2011 with its series A and B, not late stage growth rounds. You buy in at the $60M valuation with the potential for billions, not actual valuation in the billions. In 2015, the "unicorn" to invest in would have been something like Pendo.

VCs aren't all the same. Despite Sam Altman's advice there are many which pursue a lower risk / lower return model, possibly focused on a particular vertical. They may be less famous and won't necessarily have offices on Sand Hill Rd, but their money is the same color.

This advice sounds overfitted to the current economic environment which is founded on fiat and is therefore highly artificial and not based on real value that people earned doing useful things. Once the fundamentals of finance change, this advice will be no longer valid. The tech economy is based entirely on monopolizing user attention, this is not a natural state of things. The current winner-takes-it-all tech economy has created a much bigger and growing army of highly skilled losers, there are enough of them that they can distort society and governments. I think Bitcoin, Brexit and Trump are the product of a growing class of people who are just beginning to exercise their collective power.

I'm optimistic about cryptocurrency because I believe that every generation will invent a new way to legally take or inflate away the wealth of the previous generation. If an earlier generation was able to manipulate governments to the point that they abandoned the gold standard for fiat, then the new generation can easily manipulate governments to abandon fiat for cryptocurrency.

There is nothing the elites can do about it, there are too few of them. Centralizing economic forces are making them richer but also shrinking their numbers.

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