The subtext to this piece is the mathematics of venture capital investing.
1. Most companies fail. Not "turn into airplanes"; plow into the ground at terrific speed leaving an unrecognizable smoking crater.
2. VC investors survive this by investing in a portfolio of companies, not just one or two.
3. For the math of a portfolio to work out, the winners have to pay for the losers.
4. The majority of the portfolio is losers.
Because they invest so little in such a large portfolio of companies, YC can afford to cultivate startups that are aiming for 8-digit outcomes. But VC firms, as a general rule, can't: for your startup's success to make their math work, you need an outstanding return. They'd rather you return something than nothing --- but they wouldn't rather by much.
There's a lot not to like about this model, but it's not really a moral question. There isn't a model where just a couple of investors plow millions of dollars into your startup all at once where simple mathematics aren't determining everyone's positions.
So when we talk about the difference between shoot-the-moon companies and "airplanes" or "lifestyle businesses" or whatever dumb term we're using for them this week, we'd do well to keep in mind that the people pushing you away from these kinds of outcomes really don't have a choice.
1. Most companies fail. Not "turn into airplanes"; plow into the ground at terrific speed leaving an unrecognizable smoking crater.
2. VC investors survive this by investing in a portfolio of companies, not just one or two.
3. For the math of a portfolio to work out, the winners have to pay for the losers.
4. The majority of the portfolio is losers.
Because they invest so little in such a large portfolio of companies, YC can afford to cultivate startups that are aiming for 8-digit outcomes. But VC firms, as a general rule, can't: for your startup's success to make their math work, you need an outstanding return. They'd rather you return something than nothing --- but they wouldn't rather by much.
There's a lot not to like about this model, but it's not really a moral question. There isn't a model where just a couple of investors plow millions of dollars into your startup all at once where simple mathematics aren't determining everyone's positions.
So when we talk about the difference between shoot-the-moon companies and "airplanes" or "lifestyle businesses" or whatever dumb term we're using for them this week, we'd do well to keep in mind that the people pushing you away from these kinds of outcomes really don't have a choice.