Coinbase - the biggest marketplace for trading cryptocurrencies did its IPO last week. At the same time, my Twitter feed was loaded with tweets digging up this old link dated 9 years ago.
It’s a post that Brian Armstrong wrote on Hacker News back in 2012 looking for a co-founder to join Coinbase with him to apply to YC.
The title of the post was “Apply with me to YC in the next 3 days and change the world"
The interesting thing is that if you check out its comment section, you’ll see that most of the replies were negative, dismissing the idea as crazy and advising Brian to quit. To be honest, the thesis of creating a new form of digital currency which renders banks obsolete sounds kinda grandiose and improbable even for a dreamer like me. 😬😅
Yet, today Coinbase conducted its IPO and reached $83 billion in market cap, Brian is becoming a billionaire or in Silicon Valley’s slang is joining the three-comma club. Well =))
Okay, so what's the moral lesson here?
Perhaps the following quote by GitHub CEO - Nat Friedman is the best way to frame it.
Unreasonable Man
George Bernard Shaw once said
“The reasonable man adapts himself to the world. The unreasonable one persists in trying to adapt the world to himself. Therefore, all progress depends on the unreasonable man.”
Steve Jobs, probably had the same thing in his mind when he shared advice for new grads in his famous commencement address at Stanford.
"Stay Hungry, Stay Foolish.
I have always wished that for myself. And now, as you graduate to begin anew, I wish that for you."
Perhaps, after all, if you're working on something the world has never seen before, it does pay off to ignore common sense and be a bit crazy.
Indeed, without Brian’s unshakeable conviction, Coinbase would certainly not exist.
The screenshot above was from its first alpha version, called BitBank back then. Notice the tiny, blue line - “What is Bitcoin?” there?
Yeah, back in 2012 when Coinbase was founded, very few people knew what Bitcoin is, let alone believing in its potential.
Brian also shared in a recent thread that even he thought he was crazy for believing that that back then.
If you’re changing the world, self-doubt is probably normal. Just keep going.
Startup Investing - Why it pays to be an optimist?
VC is an unusual business. You might lose money in 90% of investments but if the remaining 10% of your portfolio wins big, you will still be considered a successful VC. This is because of the classic power-law distribution in the returns of startups. Most startups fail, but a very few that succeed brilliantly might yield an outsized return, 100-1000X. Therefore, if you missed those rare unicorns, you're done.
Marc Andreessen once said, the biggest regret of VC is not in deals that they invested in and failed, but the ones that they passed but turn out to be a great company - also known as "Error of Omission"
The rationale behind this is - in the former case, if the investment fails, VC will only lose the amount that they put in - the downside is capped. However, in the latter case, if the startup they passed becomes one of those rare fund-returners, the downside of their mistake is not capped. As the more successful the startup is, the more valuable the stake that they should have owned, had they said "Yes", becomes.
Imagine you were invited to invest in Google but decided to pass and now Google is worth hundreds of billions. For those misses, "It hurts every single time you look at its market cap" as Marc shared from his experience.
All renowned VC firms in Silicon Valley have made such mistakes in the past. Bessemer Venture even went further to publish an anti-portfolio - a list of successful companies that they've passed as a reminder that VC is a humbling profession, any ideas that you consider to be crazy-sounding have a shot at becoming the next billion-dollar startup.
Facebook, Google, Apple, eBay, Tesla ... are all on this list, you can check it here:
Honestly, this list is even more impressive than their actual portfolio.
The hardest thing about early-stage investing is probably that good startup ideas usually look bad at first. Chris Dixon - a partner at a16z, had a great speech on this counterintuitive point. The reason behind this is because:
“Good ideas that look like good ideas are obvious; everyone can see that. Therefore, these ideas are already being worked on by academics, government, or large companies. For example, everyone wants a smartphone with a 10x battery and a better screen, camera, etc. So Apple, Samsung, and everyone else is hard at work on that. So, sort of by definition, we - entrepreneurs and investors are kind of in the business of the leftovers. The things that everyone else thinks are bad ideas, but we discovered that it’s actually good ideas ” - Chis Dixon.
Think about it, hottest consumer tech startups in the last decade were all considered as dumb/weird ideas when they started.
Uber - Who would get in a stranger's car? Conversely, who would willing to risk letting a total stranger into their car in the middle of the night?
Airbnb - Similarly, Who would stay in a someone else’s couch? On the other hand, who would be comfortable with having a stranger sleep in their house? What would happen if these guests were actually thieves?
"At the time, a lot of people just said that it was the worst idea ever, and yet somehow it worked"
- Brian Chesky - Airbnb’s CEO.
Snapchat - “Oh, come on, disappearing images? That "sexting" tool is only for teens” - a VC once said.
The same thing could be said for Coinbase. It’s not an exception, there is definitely a pattern here as Chris Dixon pointed out.
It is no coincidence that investors in Silicon Valley foster a culture of “taking moonshot ideas seriously”. Once you got the scars from passing FB, Google, Shopify, early on, you will look back at your own judgment and start listening to all ideas from a thoughtful point of view instead of dismissing wild ideas right off the bat.
In other words, in startup investing, it pays to be an optimist.
This is a significant advantage for founders when it comes to raising money from SV compared to other parts of the world, since most VCs in other regions haven't been in the game long enough to see that kind of mistakes. Unless they experience that firsthand, otherwise, it pretty hard for investors to feel how humbling startup investing is, Michael Seibel - partner at Y Combinator once shared.
To finish our story, let's hear from Garry Tan, one of the first investors in Coinbase in 2012, whose $300k seed turned into $2B+ in the IPO last week.
A 6000x return 🤯🤯🤯
That’s all for now. Thanks for reading, and see you soon, cheers!
Minh Phan 👋
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