Paul Graham, one of my favorite essayists and venture capitalists, shares his experience in start-up investing and the strategy that he calls “Black Swan farming”. The two main lessons:
1) all the returns are concentrated in a few big winners
2) the best ideas look initially like bad ideas
the best startup ideas seem at first like bad ideas. I’ve written about this before: if a good idea were obviously good, someone else would already have done it. So the most successful founders tend to work on ideas that few beside them realize are good. Which is not that far from a description of insanity, till you reach the point where you see results.
..History tends to get rewritten by big successes, so that in retrospect it seems obvious they were going to make it big. For that reason one of my most valuable memories is how lame Facebook sounded to me when I first heard about it. A site for college students to waste time? It seemed the perfect bad idea: a site (1) for a niche market (2) with no money (3) to do something that didn’t matter.
Wait, it gets more complicated.
You not only have to solve this hard problem, but you have to do it with no indication of whether you’re succeeding. When you pick a big winner, you won’t know it for two years.