masternode
Member
Evan mentioned at the last board meeting he felt we didn't have enough funds for projects. It's clear to me now that is not the case. We have enough funds for projects. What we have is a talent void and the inability to be selective about what we are funding. Evan is not addressing the right problem.
If we continue funding projects like this payment processor, with no experienced team and no real plan, then we are going to wind up with a bunch of half baked projects the vast majority of which will fail (and I'd put that failure rate at around 99%). In the long run we will simply be taking money and turning it into less than we started. Even VC's with incredibly rigorous vetting have a failure rate of around 80 to 90%, so quantifying our failure rate on projects like the payment processor at 99% is not unreasonable.
It's very easy how the VC model works. Let me explain, and maybe the group see the importance of being much more selective about who they fund. VC's invest in 10 companies hoping that they get returns of greater than 10x (good VC's like to truly believe that their investment has a chance of getting them a 100x return). If 9 fail and 1 gets 10x they basically break even. If 8 fail and 2 succeed they get a return. They span across a large enough sample size to ensure that they can withstand the natural variance of the strategy and lock in a few winners to offset all the losers and then some.
Building a business is not easy, let alone one where you can provide a multiple return of 10x +. This extremely tough to do and requires some serious talent behind the startup. Now getting a 100x return is extremely rare. You need a very seasoned team, good strategy, perfect execution and a ton of luck. Those kinds of returns would likely get them near unicorn status. This is why they call them unicorns, because they are so hard to find they are considered mythical (technically a unicorn is a company that is worth over $1B but the point here is that 100x returns on an investment are extremely rare roughly at the same order of magnitude).
Now imagine they were making bets that were 99% to fail (as opposed to their usual 80 - 90% to win rate). Then it's impossible to win. Basically they would be hoping they are lucky enough to find someone who can return 100x. And as I've said before, hope is not a strategy. They would find themselves in a spot where they need to catch something near unicorn status just to break even. Good luck with that.
This is why guys like Jason Calacanis look to try to believe a start up will get them 100x return on their money even with an amazing team (that is likely to have 80-90% failure rate). So what this means is that they sit around and say no pretty much 99%+ of the time.
https://www.quora.com/What-are-the-...up-that-can-make-you-say-Yes-I-want-to-invest
Now you might say "these are not investments, they are more like grants". But in the end that is arbitrary. We have asked to take funds that miners should normally have received and told them we believe these funds are better utilized to fund companies through voting. We are saying we can take money X and create value with it that will help the ecosystem in the amount of X * Y (where Y is > 1). But in order for it to be helfpul to the ecosystem our bets need to be positive expectation. Bets with mediocre teams that have a success rate of around 1% are not the kind of bets that are expected to give a return in value. If we make 100 bets and 1 of them has a success rate of 20x (remember banking on 100x is as insane as saying your going out into the woods to find a unicorn) then we are losing 80% of the value. 1 * 20 + 99 *0 = 20 (from 100 that we started). Even if the bet has a 50x return we are still set up in a spot where we lose money. So can you honestly tell me that when we are investing in a couple guys with no relevant experience, no realistic approach, and no past proof of success other than dashstickers.xyz that this is the team that will get us 100x return??!
So if we follow a strategy that mathematically cannot result in a positive expected value through these investments, then are we really doing what we promised when we asked for the funds to be reallocated?
The idea that we have the funds so we should use them on any random people or half baked project is extremely irresponsible and basically a complete misuse of funds. We should look at all of these projects and really ask ourselves. Is this team the right team to create value so that in the X*Y equation that Y is in fact greater than 1. If the answer is yes, then we should approve it. If the answer is no, then we should pass on that project and go to the next (regardless of how attractive the idea looks).
-Ed
If we continue funding projects like this payment processor, with no experienced team and no real plan, then we are going to wind up with a bunch of half baked projects the vast majority of which will fail (and I'd put that failure rate at around 99%). In the long run we will simply be taking money and turning it into less than we started. Even VC's with incredibly rigorous vetting have a failure rate of around 80 to 90%, so quantifying our failure rate on projects like the payment processor at 99% is not unreasonable.
It's very easy how the VC model works. Let me explain, and maybe the group see the importance of being much more selective about who they fund. VC's invest in 10 companies hoping that they get returns of greater than 10x (good VC's like to truly believe that their investment has a chance of getting them a 100x return). If 9 fail and 1 gets 10x they basically break even. If 8 fail and 2 succeed they get a return. They span across a large enough sample size to ensure that they can withstand the natural variance of the strategy and lock in a few winners to offset all the losers and then some.
Building a business is not easy, let alone one where you can provide a multiple return of 10x +. This extremely tough to do and requires some serious talent behind the startup. Now getting a 100x return is extremely rare. You need a very seasoned team, good strategy, perfect execution and a ton of luck. Those kinds of returns would likely get them near unicorn status. This is why they call them unicorns, because they are so hard to find they are considered mythical (technically a unicorn is a company that is worth over $1B but the point here is that 100x returns on an investment are extremely rare roughly at the same order of magnitude).
Now imagine they were making bets that were 99% to fail (as opposed to their usual 80 - 90% to win rate). Then it's impossible to win. Basically they would be hoping they are lucky enough to find someone who can return 100x. And as I've said before, hope is not a strategy. They would find themselves in a spot where they need to catch something near unicorn status just to break even. Good luck with that.
This is why guys like Jason Calacanis look to try to believe a start up will get them 100x return on their money even with an amazing team (that is likely to have 80-90% failure rate). So what this means is that they sit around and say no pretty much 99%+ of the time.
https://www.quora.com/What-are-the-...up-that-can-make-you-say-Yes-I-want-to-invest
Now you might say "these are not investments, they are more like grants". But in the end that is arbitrary. We have asked to take funds that miners should normally have received and told them we believe these funds are better utilized to fund companies through voting. We are saying we can take money X and create value with it that will help the ecosystem in the amount of X * Y (where Y is > 1). But in order for it to be helfpul to the ecosystem our bets need to be positive expectation. Bets with mediocre teams that have a success rate of around 1% are not the kind of bets that are expected to give a return in value. If we make 100 bets and 1 of them has a success rate of 20x (remember banking on 100x is as insane as saying your going out into the woods to find a unicorn) then we are losing 80% of the value. 1 * 20 + 99 *0 = 20 (from 100 that we started). Even if the bet has a 50x return we are still set up in a spot where we lose money. So can you honestly tell me that when we are investing in a couple guys with no relevant experience, no realistic approach, and no past proof of success other than dashstickers.xyz that this is the team that will get us 100x return??!
So if we follow a strategy that mathematically cannot result in a positive expected value through these investments, then are we really doing what we promised when we asked for the funds to be reallocated?
The idea that we have the funds so we should use them on any random people or half baked project is extremely irresponsible and basically a complete misuse of funds. We should look at all of these projects and really ask ourselves. Is this team the right team to create value so that in the X*Y equation that Y is in fact greater than 1. If the answer is yes, then we should approve it. If the answer is no, then we should pass on that project and go to the next (regardless of how attractive the idea looks).
-Ed
Last edited by a moderator:
