But if VCs invested in every company with a story they thought was 0.1%-plausible, they wouldn’t make any money.
This is pretty much exactly what they do, if by “0.1%-plausible” you mean “has a 0.1% chance to give us a 10,000x return”. The vast majority of VC investments lose money, and that’s fine, because one 10,000x pays for a lot of failures.
Now, that probably doesn’t mean VCs shouldn’t filter startups at all (though I’d be interested to see someone try that as an experiment). So it’s worth considering what made Bitcoin “not nonsense”. My first take is that it was a genuine technological innovation, which also got interest from a decent number of smart people. But this is a really unintuitive game. You have to be OK with usually losing all your money. Your system 1 isn’t going to like that.
My understanding is that VCs only invest in about 1% of startups, even though probably 5-10% of startups have reasonably good stories for why they’ll be super successful, and where you could argue “surely they have at least a 0.1% chance of succeeding, so let’s invest in all of them.” If VCs lowered their standards by 5-10x, they would not make any money; that’s what I was trying to say.
The question isn’t how do you distinguish bitcoin from the 1% of startups that are worth investing in; it’s how do you distinguish it from the 5-10% of startups that look like they’re worth investing in according to the arguments in OP?
It seems to me that you’re conflating “succeeding” and “returning 5000x my money”. I think it’s obviously true that most startups don’t have a 0.1% chance of returning 5000x your money.
Notice that the most important factor in that calculation is generally not “chance of success”, but rather “chance of 5000x return, given success”.
This is pretty much exactly what they do, if by “0.1%-plausible” you mean “has a 0.1% chance to give us a 10,000x return”. The vast majority of VC investments lose money, and that’s fine, because one 10,000x pays for a lot of failures.
Paul Graham has a good essay on it: http://www.paulgraham.com/swan.html
Now, that probably doesn’t mean VCs shouldn’t filter startups at all (though I’d be interested to see someone try that as an experiment). So it’s worth considering what made Bitcoin “not nonsense”. My first take is that it was a genuine technological innovation, which also got interest from a decent number of smart people. But this is a really unintuitive game. You have to be OK with usually losing all your money. Your system 1 isn’t going to like that.
My understanding is that VCs only invest in about 1% of startups, even though probably 5-10% of startups have reasonably good stories for why they’ll be super successful, and where you could argue “surely they have at least a 0.1% chance of succeeding, so let’s invest in all of them.” If VCs lowered their standards by 5-10x, they would not make any money; that’s what I was trying to say.
The question isn’t how do you distinguish bitcoin from the 1% of startups that are worth investing in; it’s how do you distinguish it from the 5-10% of startups that look like they’re worth investing in according to the arguments in OP?
It seems to me that you’re conflating “succeeding” and “returning 5000x my money”. I think it’s obviously true that most startups don’t have a 0.1% chance of returning 5000x your money.
Notice that the most important factor in that calculation is generally not “chance of success”, but rather “chance of 5000x return, given success”.