In defense of hype

For a startup ecosystem that is all about optimism, it’s ridiculous how much petty backstabbing and general negativity there is when new stuff comes along.

To pick only one topic area, here is a random assortment of negativity on the general funding environment I’ve heard just in the last week:

  • AngelList is overhyped. It’s adverse selection for people that either cant raise money elsewhere or are more concerned with their follower count by celebrity-valley types than actually building a business.
  • YCombinator is overhyped and generates mostly trivial businesses (with the odd exception and those haven’t exited). Worse, it means everyone is too busy starting a company to be part of the frat instead of helping build a great company. 
  • Super Angels / MicroVCs are overhyped and are going to cause the bust. They are simply pricing up the market past a realistic valuation, hurting a companies’ chance to raise their next round. And they won’t have the dry powder to support those same businesses because of their fund size. This will cause a collapse in the whole market.

I’m not even talking about the general skepticism of whatever company happens to be a “hot” company right now. From Highlight, to Pinterest, to Voxer, to Socialcam there’s all kinds of naysaying. 

I remember this same skepticism about Twitter (“I don’t need to tell people when I use the toilet”), Zynga (“I heard they make all their money on scammy offers!”), and countless others. To be sure, some of this skepticism might actually be true. But in a world where we bank on the exceptional happening, it seems incredibly small minded to constantly assume the exceptional won’t happen.

Personally, when I feel the hype coming on I try and remember two things:

1. I am not a short seller.
It isn’t my job as an entrepreneur, and it’s not my job when investing, to pick the losers. So it’s not worth spending a lot of energy trying to prove that a particular company isn’t going to make it, most aren’t. Much more important is trying to figure out those rare few companies and few individuals that might break through, and the ripple effects if they succeed. I try and focus my effort spending time there. 

2. Hype is often necessary, it’s just not sufficient.
Just because an entrepreneur is starting to speak at a lot of conferences or is becoming a quasi celebrity doesn’t mean they are all hype. Yes, many of those people are hopelessly useless. But the ability to generate hype is not a bad thing, it’s really important to commanding thought leadership and shaping a market. Building something isn’t enough, if you want to grow really fast, and fight off competition, you often also have to make people believe in your future. 

It matters that Square is not just growing revenue-wise but commands thought leadership to potentially change payments. It matters that AngelList is materially effecting how some people are fundraising, and worth planning how that could possibly effect everything else. It matters that the YCombinator alumni could get large enough, and wealthy enough, to completely self fund each class internally and separate from the early stage ecosystem altogether. 

Combining those two ideals I’d rather focus on what could happen if the hype comes true, and spend my time planning for the few situations where I believe it will. 

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  1. dmitriblog reblogged this from nabeel
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    Today, three different people all around 60 years old talked to me about ‘computers’ and how “it’s the place to be” and...
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  4. gbattle reblogged this from nabeel and added:
    gbattle sez: There are both ethical and structural reasons why Nabeel is not a short seller (and I love that he used...
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