tucker max: a surpsingly good economic sociologist

Tucker Max is most well known as a “fratire” writer, but he’s also an law school graduate, investor, and successful business owner. He recently wrote a column for the Observer about his experience as angel investor and his analysis is highly sociological. The basic point is that the VC field is structured by networks. Yes, the next Google or Facebook is out there, but you can only get a chance to invest if you work with one of a very small number firms who get “first dibs” on the start-ups that have a chance at making it big:

The other problem is that there are, at BEST, only a few of these massive home run companies formed each year. You think you can predict, out of the thousands of start-ups launched each year, which ones will be the winners? A lot of people think they can. Almost all are wrong. But here’s the most messed up part: even if you can reliably pick the winners with some degree of certainty, you’re still probably going to lose. Why? Because you probably can’t get into the winners. This is because the best companies (at least in Silicon Valley) tend to get identified early, and as a result, they have a lot of people trying to put money into them. And to even be able to put money in, you have to have a way in, which means one thing: It almost always takes the right social connections to get into very early stage companies. Let me be super clear about this: all the great deals I got into were because of my social network. That’s it. No other reason.

Another great sociological lesson: good ideas don’t make money, good people make money. The problem is that there are very few people who are “good” entrepreneurs that can successfully turn a small start up in a larger firm. Simply put, there are a lot of immature men and women running start ups and many of them are horrible at taking advice. Thus, the angel investor isn’t just working with products, they are working with people who may be unable to take direction:

Most of the founders are young, and young people are inexperienced, which might be great for a lot of reasons (energy, enthusiasm, flexibility, no assumptions), but it almost automatically makes them stupid at entrepreneurship. I was exceptionally stupid when I was young, so I speak from experience here, but without an experiential framework to fall back on, you have no way to understand and solve many of the hundreds of problems that come up when you start a company. The younger you are, the less experience you have, the harder this whole thing is. This doesn’t mean young people can’t excel at entrepreneurship. Yes of course some young people can and do build companies and become amazing CEO’s. Please, do not point to Mark Zuckerberg and Evan Speigel as your rebuttal; they are by definition the exceptions that prove the rule. For every one of them, there are 50 founders who torpedo their previously hot company by making all the standard mistakes of youth. Ask any VC you know to tell you those war stories. They have way more of the bad than the good.

 Great article… and invest in mutual funds!

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