I'm often in the position where I see startups with plans that *don't make sense* to me, as business models or as research programs. Sometimes brilliant people with stellar career track records join these companies. Sometimes they get highly funded. I'm puzzled.
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From my perspective, as a founder of an early-stage startup, I'm starting on the ground floor. Zero credibility. How can I earn credibility? Pretty much *only* by generating results and by having a well-thought-out plan with good evidence it can succeed.
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In a biotech context, where actual revenue may be a decade away, and where even experimental data is expensive to collect (atoms, not bits!) pretty much *all* the credibility of my project resides in the plan. Capable people, too; but recruiting them reduces to the same problem.
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In fact, the people I *have* recruited and fundraised from so far, who are excellent, were sold on the basis of the plan: why it makes sense & seems likely that we'll discover anti-aging drugs through large phenotypic invertebrate drug screens.
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So, of course, one possibility is that I'm wrong when someone's plan doesn't make sense to me.
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I've definitely made mistakes of the form "that's not possible, the technology isn't good enough/cheap enough" based on outdated information, and it turns out things have rapidly progressed since I last checked on the field.
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But simple logic stuff like "a plan that depends on A, B, *and* C going right is riskier than a plan that depends on A, B, *or* C going right" or "experimental evidence is more credible than correlational evidence, ceterus paribus, in ascertaining whether an intervention works"
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that kind of reasoning seems valid to me. Long chains of reasoning about an uncertain future are questionable, indeed -- that's why too much a priori reasoning is unwise -- but the logic I'm talking about is precisely *about* cutting down on model risk!
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Replying to @s_r_constantin
I don’t think most early-stage investors are optimizing for just likelihood of success. They’re optimizing for likelihood * magnitude of success. So sometimes having an unlikely plan that would be hugely profitable if it works is enough for them.
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I work in aging, so "hugely profitable if it works" is a pretty easy target; *everybody* stands to be hugely profitable if they succeed, and "if" is a big question.
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Replying to @s_r_constantin
In that case, anti-correlation of portfolio companies’ approaches may be valuable to investors: they may rationally be willing to invest in a less than optimal plan if it’s different enough from others’ plans (and has at least some chance of success).
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