Black Swan

the_black_swan_by_galen_marek-d67j4alImage by Etienne-Ripzaad

 No. This post is not about Natalie Portman. Even though you can call her a black swan. Rare and hard to come by.

What I am addressing is the likelihood of a Facebok, Uber etc. in the west; Ali Baba, Wechat, Jobstreet, My Taxi etc. from the east. As much as we might categorize these firms as black swans, the sizes are different. We don’t yet have a billion dollar venture capital backed firm in the east, and yet everyone is trying to build the first few billion dollar firms in Asia.

But if you take into account of the number of successful ventures from Silicon Valley, black swan doesn’t seem so black after all. Bubble or not? That is a question that venture capitalists are trying to figure out. Let’s take a step back and look at our basics. When Nassim Nicholas Taleb developed the black swan theory, he defined black swan events as events that:

  1. causes huge impact
  2. are unable to be explained by scientific method
  3. are unforeseen or unexpected due to psychological biases

Any successful venture would obviously tick the first check box of having a huge impact. If we take a step ahead, we can extrapolate and do up a hypothesis that says “existing or previous successful ventures are making the function of a successful venture more explainable by scientific method and less unforeseen due to the changed psychological biases. With Uber being a case of success, there is less doubt that firms like My Taxi could be very much successful as well. The key is implementation and that depends on the people who implements the strategies. My point here is that as these black swans are becoming more of a white swan, the traditional methodology of defining a black swan may no longer work. Given such, the expensive valuations that venture capitalists are paying may be justifiable at the end of the day and it may no longer be called a bubble, but more of a higher-cost-of-living kind of scenario.

I believe valuation should come fourth in ranking when a venture capitalist evaluates a deal. Instead, the more scientific methodology should be:

  1. Concept evaluation
  2. People and team dynamics
  3. Sustainability of chemistry of the two points above
  4. (Finally) valuations and agreements

At the end of the day, percentage of ownership is not the main concern if what we are trying to do is just to get into a good deal.

Done with my ranting and two cents.



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