Thread by @s_r_constantin

@EpistemicHope @ben_r_hoffman I think something has gone a bit wrong in this conversation and I need to regroup and think things over. Sorry, yesterday I said a bunch of stuff and now I'm not sure how true it is.

@EpistemicHope @ben_r_hoffman "Tech development doesn't happen in startups" is a slogan, and whether it's true depends on what you count as a startup (is Google a startup? Is a 10-year-old company with 100+ employees still a startup?) and what you count as development (original inventions? application?)

@EpistemicHope @ben_r_hoffman but that wasn't the real point I was making and it was a mistake to go down that path in the argument. whoops.

@EpistemicHope @ben_r_hoffman the real point is that you (Eli) seem to be thinking about the "big good thing" with "real tech" and "eating the world" as something that can be pretty separate from whether a company makes money and/or makes happy users.

@EpistemicHope @ben_r_hoffman In other words, I think you're talking about the kinds of technology development that have positive externalities. Inventions can enable further inventions, producing value that doesn't go to either the firm behind the invention or its direct users/beneficiaries.

@EpistemicHope @ben_r_hoffman It sounds like you (Eli) are saying "YC promised to promote positive-externalities tech, but it didn't, and this is a betrayal". And I don't think I concede that they even made such a promise?

@EpistemicHope @ben_r_hoffman There's a difference between "we are a business whose purpose is to make money, and it just happens that sometimes we think the best way to do that is promoting positive-externalities tech" and "our mission is to promote positive-externalities tech."

@EpistemicHope @ben_r_hoffman I don't think the most positive-externalities-ish thing to do is always the locally profit-maximizing thing. In fact, it's sometimes pretty hard to do big-positive-externalities hard tech within tight market constraints.

@EpistemicHope @ben_r_hoffman So, the thing I'm kind of pushing back on is a.) global YC-bashing, if it's not based on a coherent & justified model; I get the feeling that Ben was jumping from one claim to another and just stringing them together with negative affect, though I'm not sure.

@EpistemicHope @ben_r_hoffman b.) the pattern I'm getting from Eli that ordinary not-too-technological commercial activity is somehow bad when a "tech startup" does it, even if the startup's existence makes customers and investors better off and they're only getting modest financial rewards.

@EpistemicHope @ben_r_hoffman it seems like "new company is more boring and less ambitious than nerdy idealistic bystander would have hoped" is not actually an example of that company cheating someone.

Someone would be cheated if they overpaid for a worse outcome than they'd been led to expect.

@EpistemicHope @ben_r_hoffman (the company in Alyssa's OP seems to have cheated *its early employees* by misleading them about compensation, but IMO they don't seem to have wronged YC, other tech entrepreneurs, their customers, or the general public.)

@EpistemicHope @ben_r_hoffman (well, the CTO also wronged YC and his fellow YC applicants by lying about his background and contribution to the work.)

@EpistemicHope @ben_r_hoffman There *is* a sense in which I think YC and the "startup mystique" may have been obtaining something like unearned "coolness points". There's maybe a way in which a mattress company like Casper "borrows" or "steals" an aura of association with, e.g. fusion energy tech from MIT.

@EpistemicHope @ben_r_hoffman This is way too inchoate for me to take very seriously, though, because how many people really do give Casper extra "coolness points", and does it cash out into more money than they'd have if they were "just a mattress company"?

@EpistemicHope @ben_r_hoffman And is it really Casper's fault if they *do* profit from people associating them with a notion of "tech" that derives its glamour from genuinely epic "hard tech" innovations? Casper didn't *say* its mattresses were the same as fusion reactors.

@EpistemicHope @ben_r_hoffman I think the fact that the OP company misled its employees and that their CTO lied is an example of clearly unethical behavior.

YC presenting itself as providing great guidance/mentorship to startups and not being that great IRL is arguably unethical.

@EpistemicHope @ben_r_hoffman The OP company getting into YC and then becoming kind of a steady-state small business that doesn't use technology is a lot less plausibly an example of wrongdoing, in my view.

@EpistemicHope @ben_r_hoffman Yes, if the founders never intended to use technology, then they conned YC out of $250k that should have gone to another applicant. This is bad.

@EpistemicHope @ben_r_hoffman On the other hand, they've kind of already received their "punishment". It sounds like they're not that financially successful anyhow, and it sounds like they could have gotten to their current level without YC's $250k.

@EpistemicHope @ben_r_hoffman And YC already expects to lose money on most of their investments. It may not be worth it to them to try to recover the $250k investments they gave to companies who never intended to really "make it big" and essentially took the "prize money" and went home.

@EpistemicHope @ben_r_hoffman In principle you could track down, by auditing emails or something, which failed YC investments were "honest" failures and which were "cynical" failures by companies who never intended to grow much after YC, and sue the "cynics" for fraud? But expensive.

@EpistemicHope @ben_r_hoffman My point is, "some early-stage entrepreneurs present themselves as more ambitious than they are in order to get money and go home" is not a *big systemic problem*. These people exist, but they're small fry. Very little money, by business standards, is lost to them.

@EpistemicHope @ben_r_hoffman And while seed/angel investment is noisy enough, and enough investors are bad enough judges of investment, that lots of investors *are* fooled, they are generally *punished* for their folly by losing money.

@EpistemicHope @ben_r_hoffman My model of Michael and Ben says "why are you even talking about incentives? We've already established that Paul Graham isn't always moved by financial incentives."

@EpistemicHope @ben_r_hoffman My point is, if you see a bad behavior, that's not enough to convince me it's a Big Social Problem unless you also show it's prevalent/impactful *and* inadequately disincentivized.

@EpistemicHope @ben_r_hoffman (or, that the bad behavior is *staying* prevalent/impactful despite strong disincentives.)

@EpistemicHope @ben_r_hoffman So far my lit review on investment turnover, which will be a blog post, and is admittedly based on public companies not private startups since that data's more available, is showing that bad investors *do* go out of business sooner and get smaller inflows.

@EpistemicHope @ben_r_hoffman It's harder to quantify the exact question I care about, but it's looking more likely to me that market incentives *do* shrink the size/impact of bad investment, despite bad investment being common and irrational/avoidably-bad choices by investors being common.

@EpistemicHope @ben_r_hoffman The market distortions I think do the *most* harm are the ones that involve using coercive means (bailouts, de facto gov’t enforced monopolies, favoritism by the Fed/IRS/SEC/etc, laws limiting hostile takeovers) to protect bad incumbent companies from failing.

@EpistemicHope @ben_r_hoffman I think “corporate welfare or “crony capitalism” broadly understood *is* a Big Social Problem.

It moves a lot of money, it’s clearly wrong by my lights, and there is no mechanism to penalize it.

@EpistemicHope @ben_r_hoffman I want to distinguish crony capitalism (which protects malinvestment at the expense of the general public) from malinvestment generally.

Dumb investment would not be a problem if it were not artificially protected.

@EpistemicHope @ben_r_hoffman Michael’s model is that racism (whites favoring whites) or classism (upper-class favoring upper-class) works the same way as crony capitalism even when gov’t is not involved, so malinvestment by privileged people always gets protected.

@EpistemicHope @ben_r_hoffman This is plausible to me but I think you always have to go to empirical evidence to see how big it is, and it’s hard to get quantitative evidence about something people are so motivated to conceal.