<story><title>Black Swan Farming</title><url>http://paulgraham.com/swan.html</url></story><parent_chain><item><author>mnutt</author><text>It would hurt founders&apos; perceptions but wouldn&apos;t actually decrease any individual founder&apos;s chances of success.  YC would just accept a bunch of people who aren&apos;t likely to get funded.&lt;p&gt;What would happen if you split up the batches into two groups, YC Classic and YC Black Swan, and placed founders into the groups post-interview?  People who were placed in YC Classic could continue to have the expectation of ~100% demo day success they do now, while the people placed in YC Black Swan would be told &quot;I find your idea interesting and we&apos;ll let you in but don&apos;t expect funding after demo day.&quot;  People could take the Black Swan offers as rejections if they wanted.&lt;p&gt;There are a bunch of problems with this approach, but I wouldn&apos;t be totally surprised if way more than 30% of YC Black Swan was funded.</text></item><item><author>cperciva</author><text>Quoth pg: &lt;i&gt;It would hurt YC&apos;s brand (at least among the innumerate) if we invested in huge numbers of risky startups that flamed out.&lt;/i&gt;&lt;p&gt;Paul, you&apos;re sounding like a venture capitalist who is worried about whether he can find investors for his next fund.&lt;p&gt;I would posit that the people whose opinions you should care about are &lt;i&gt;potential founders&lt;/i&gt;; and that their primary concern is &lt;i&gt;themselves&lt;/i&gt;, not the performance of a fund (oops, I mean class) as a whole.  You&apos;re damn right that it would hurt YC&apos;s brand if 70% of each class didn&apos;t survive past Demo Day -- because for an individual founder, success is pretty much binary, and having a 50% chance of becoming a millionaire is more attractive than having a 5% chance of becoming a billionaire, despite the 100-fold reduction in mean wealth.&lt;p&gt;You may be in in the business of farming black swans, but if they&apos;re all you worry about you&apos;ll find that &lt;i&gt;all&lt;/i&gt; the swans end up laying their eggs elsewhere.</text></item></parent_chain><comment><author>brc</author><text>The problem is you are applying post-hoc analysis.&lt;p&gt;While a theme was that the outsized returns can come from ideas which sound bad, it doesn&apos;t necessarily say that &lt;i&gt;all&lt;/i&gt; outsized returns come from bad-sounding ideas.&lt;p&gt;Not only that, but I think reading the essay will show that the outsized returns are not known until several years after demo day.&lt;p&gt;Sometimes bad ideas are just bad ideas.  In the Venn intersection between bad-sounding-ideas and good-ideas - the &apos;bad sounding and not good&apos; is a much bigger area.&lt;p&gt;To me, the entire essay is about making sure that institutionally, the bad-sounding-but-ultimately-good ideas are not left out.  Trying to further identify and silo them at application stage would be even more fraught.</text></comment>
<story><title>Black Swan Farming</title><url>http://paulgraham.com/swan.html</url></story><parent_chain><item><author>mnutt</author><text>It would hurt founders&apos; perceptions but wouldn&apos;t actually decrease any individual founder&apos;s chances of success.  YC would just accept a bunch of people who aren&apos;t likely to get funded.&lt;p&gt;What would happen if you split up the batches into two groups, YC Classic and YC Black Swan, and placed founders into the groups post-interview?  People who were placed in YC Classic could continue to have the expectation of ~100% demo day success they do now, while the people placed in YC Black Swan would be told &quot;I find your idea interesting and we&apos;ll let you in but don&apos;t expect funding after demo day.&quot;  People could take the Black Swan offers as rejections if they wanted.&lt;p&gt;There are a bunch of problems with this approach, but I wouldn&apos;t be totally surprised if way more than 30% of YC Black Swan was funded.</text></item><item><author>cperciva</author><text>Quoth pg: &lt;i&gt;It would hurt YC&apos;s brand (at least among the innumerate) if we invested in huge numbers of risky startups that flamed out.&lt;/i&gt;&lt;p&gt;Paul, you&apos;re sounding like a venture capitalist who is worried about whether he can find investors for his next fund.&lt;p&gt;I would posit that the people whose opinions you should care about are &lt;i&gt;potential founders&lt;/i&gt;; and that their primary concern is &lt;i&gt;themselves&lt;/i&gt;, not the performance of a fund (oops, I mean class) as a whole.  You&apos;re damn right that it would hurt YC&apos;s brand if 70% of each class didn&apos;t survive past Demo Day -- because for an individual founder, success is pretty much binary, and having a 50% chance of becoming a millionaire is more attractive than having a 5% chance of becoming a billionaire, despite the 100-fold reduction in mean wealth.&lt;p&gt;You may be in in the business of farming black swans, but if they&apos;re all you worry about you&apos;ll find that &lt;i&gt;all&lt;/i&gt; the swans end up laying their eggs elsewhere.</text></item></parent_chain><comment><author>xianshou</author><text>I love this idea, because it addresses the two fundamental issues at play here: the social and the financial. Considering YC as a single entity, the optimal funding strategy must take into account both the power law on returns and the prestige of the program. If YC loses its place as the most prominent and well-respected startup incubator, the Dropboxes and Airbnbs of the future will either forgo the application or suffer from lack of investor interest. If YC limits itself to only those companies that have an extremely high chance of getting funded, the outliers will never find a way in.&lt;p&gt;Let&apos;s say that p_accept is the probability that YC accepts the founders of the next Dropbox. YC itself cannot optimize for p_accept because of the factors mentioned above: instead, it has to optimize for p_apply * p_accept * p_fund, the product of the chances that those golden founders will apply to the program, be accepted, and find the funding they need to grow and thrive.&lt;p&gt;With the hypothetical YC / YC Black Swan split, the original YC can optimize for p_apply * p_fund, and YC Black Swan can optimize for p_accept. Not only that, but since all Black Swan candidates would have started as applicants to YC, Black Swan&apos;s p_apply would equal that of the original YC. Numerate investors with the same sense of the power law as pg would take care of Black Swan&apos;s p_fund.&lt;p&gt;Thus, all the prestige, cultural appeal, and midsize exits would derive from the original YC, but all the power-law returns would emerge from Black Swan.&lt;p&gt;So, pg, new business model?</text></comment>