At Scale-Up, Deviance Is How We Defy the Mean and Beat the Benchmark
The Problem: Venture Capital Regresses toward the Mean
Two features of venture capital induce mediocre results:
- VC is a highly quantified activity. Any detail that can be converted into a countable metric is. Quantification is beneficial in that it lets us measure our performance. Returns matter, and they must be calculated. But such counting also increases the salience and gravity of the central tendencies: the mean, the median, and the mode dominate.
- VC is a highly risky activity. Though startups’ prospects improve as they grow, fully 97% of seed-stage startups fail to exit. This is nothing to fear. Experienced VCs understand that the game is to lose $1…
Some Initial Thoughts about an Old-New Idea that Is as Obvious as It Is Insane
Sam Lessin recently published an analytical piece about how, soon, individuals are going to surpass companies as the most valuable brands and attract the smart, forward-thinking equity financing. That’s right: instead of investing in companies composed of teams, products, and business models, VC is going to start investing in individuals.
Given recent events and trends, this thesis is appealing and makes a lot of sense at first glance. So let me first expand on Lessin’s argument and explain a few reasons to back up his point that even he seems not to have thought of.
Then I’ll explain why investing…
Scale-Up’s take on the WSB/Gamestop mischief and how it relates to VC
News about Reddit* performing Occupy Wall St. II: Short Stuff by pumping the stock of a zombie company with an obsolete business model is now harder to avoid on the Internet than a Kardashian’s cosmetic tips. Sharp observers have called this whole episode dumb. And they’re absolutely right. It most certainly is.
The question I’d like to ponder is why it’s dumb and whether venture capital is really any less dumb than the public markets.
According to some, redditors’ power is not only dumb, but “unnatural, insane, and dangerous.” …
Power comes in many flavors. For example, relational power differs from structural power. Relational power exists when one player can influence others’ moves in the game. Structural power, by contrast, is the ability to influence the rules of the game itself. Relational power is about individual decisions; structural power is about the agenda, the rules, the exceptions, and the context in which decisions are made.
Relational power helps to obtain goals in stochastic situations; structural power affects who has what goals and what situations are likely to arise in the first place.
In Silicon Valley, the wealth and renown of…
Alex Lazovsky shares the full version of his recent Forbes piece on why expert advice works for private equity but not for public equity
(For the abridged version on Forbes, click here.)
Humans are terrible at choosing stocks. To be more precise, individual humans are terrible at choosing stocks, but collectivities of humans — markets — are rather good at it. There are several ways to characterize the reason for this discrepancy:
- The efficient-market hypothesis postulates that the price already contains all the relevant information about a stock’s value, so outsmarting the market by correctly and reliably anticipating price movements is impossible.
- The zero-sum game theory holds that, for every winning position somewhere in the market, there is an equal and opposite losing position…
Scale-Up engages constantly with AI. Alex Lazovsky shares some thoughts that guide us.
Ever since the first humans started using spears and clubs, the technology we invent has presented us with ethical decisions. Some decisions, like mandating lifeboats on cruise ships, are easy because the benefits are so obvious. Others, like banning nuclear weapons, are clear because the consequences are so atrocious. Some, however, are ambiguous with strong arguments for and against. Is greater mobility worth 1.35 million road traffic deaths per year? Good question.
Such technological revolutions and ethical conundrums arise seldom, perhaps just once a generation, if that. But we’re in the middle of one right now due to artificial intelligence…
Ben Kamis & Alex Lazovsky ponder why a celebrity VC would short his own industry.
Chamath Palihapitiya was the youngest VP at AOL ever. He took Facebook’s user base from 20 million to nearly a billion in just four years. He runs Social Capital, a highly respected VC firm that’s doing a lot of good. He’s earned the reputation of a maverick, and he’s rumored to be worth a billion. Chamath Palihapitiya is a venture capitalist’s venture capitalist.
But remember when Palihapitiya called the practice of venture-capital firms supporting start ups “an enormous multivariate Ponzi scheme”? It was at the 2018 Launch Scale conference. Here’s a video:
Scale-Up VC blog
Scale-Up aims the sharpest & most experienced VCs at the most dynamic tech disruptors. Welcome.
