At several Startup School talks, Ron Conway, probably the most successful angel investor in SV, has frequently said "you never argue with metrics." In a talk at Startup School 2012, he said that he "didn't get" Facebook, but he invested (I think it was the round after Peter Thiel's investment, so very early) after seeing the metrics, "way up and to the right."
Somewhat similarly, USV has a well-known blog post detailing how they really liked the Airbnb team, but they "didn't get" the idea, missing out from investing at the seed stage in a multi-billion dollar company.
There is a reason that metrics (growth) and/or a stellar team are commonly cited by investors as being more important than (getting) the idea.
> Ron Conway, probably the most successful angel investor in SV, has frequently said "you never argue with metrics."
I disagree. Metrics only indicate what people think they want, not what they need. Metrics are only accurate if you look for trends. Long-lasting businesses don't rely on trends.
> In a talk at Startup School 2012, he said that he "didn't get" Facebook.
Facebook, just like AirBnb, make a lot of sense. You don't need metrics to understand that.
The big problem with most investors today (not all of them) is their mindset and lack of vision. They're sheeps, just like everybody else. The only difference is that they had success and experience, which skew reality and reinforces old ways of thinking, which they try to apply to future investments. It doesn't work that way.
Do you want to live in a world where investors all throw their money at the next Instagram? Or do you want to live in a world where they invest in the next Xerox Parc?
People used to have dreams, people used to have big ideas. Now, it's all about quick money. Heck, the goal of many startups now is to get acquired by larger players. How sad is that?
Pinterest is not an awful idea, but unless they have a larger vision in mind, they're going nowhere.
> Metrics only indicate what people think they want, not what they need. Metrics are only accurate if you look for trends. Long-lasting businesses don't rely on trends.
This really does not make any sense. Metrics as a general concept can and do encapsulate all the positive things you just mentioned (long-lasting value, what people need, etc). Just because a subset is shitty/misleading does not invalidate my argument. Obviously an investor must sift shitty metrics from good metrics, and shitty teams (that appear good) from good teams.
> Facebook, just like AirBnb, make a lot of sense. You don't need metrics to understand that.
Firstly, hindsight is 20/20, so that's easy for you to say. Obviously everyone now believes Facebook is a good idea; the same is not true back in 2004. Good investors recognize that they cannot necessarily tell the good ideas from the bad ideas, so they focus on team/metrics. The most revolutionary ideas typically seem like bad ideas.
> Do you want to live in a world where investors all throw their money at the next Instagram? Or do you want to live in a world where they invest in the next Xerox Parc?
You have not provided a reason we cannot have a world with both. Those are not mutually exclusive.
It fails when the metrics obscure fundamental problems with the business model which will lead to the metrics cratering later.
The most obvious example in recent memory is Groupon. They had insane metrics, huge revenue growth, and lots of adoption. The problem is that their value proposition was based on companies selling at a loss, treating it as a marketing expense, and then making it up in repeat business later. Many companies bought into that proposition at first, tried it, but then the repeat business failed to materialize, and they vowed never to go near Groupon again. When Groupon exhausted their initial market, sales collapsed. Groupon may survive based on the smaller market of companies where their value proposition holds, but they aren't going to meet initial investors' expectations.
An older example would be online retailers like Webvan and Kosmo.com that sold below cost, hoping to make it up in volumes. Here the problem is that the investors were looking at the wrong metric; the stocks climbed to astronomical heights based on userbase and revenue, but the key metric for a retailer is operating margin, and this was negative for these companies.
There are a few reasons. For large institutional investors, they have a responsibility to stand behind their decisions: saying "I didn't really understand what it is they were trying to do, but their metrics, whoa!" does not stand up.
And a lot of more conventionally-minded investors look to truely understand what a companies value proposition and product is. If you could invest earlier in Pinboard, or a company which has found a revolutionarily cheap way to manufacture toilet paper - you know which one has a more steady and obvious demand, right?
Although SV, the YC/VC world, operates very different. Just a few ideas.
I am sure many investors look to invest in companies that they understand, so they can leverage any expertise they have to evaluate why this startup is the special snowflake that will make a gazillion dollars.
If a startup has insane metrics but you don't "understand" their secret sauce, it may still be a sound investment, but I imagine you'd ask yourself if it was too good to be true, or due to temporary conditions, or rigged data, or something else, since you lack the expertise to understand why the numbers are so good.
Somewhat similarly, USV has a well-known blog post detailing how they really liked the Airbnb team, but they "didn't get" the idea, missing out from investing at the seed stage in a multi-billion dollar company.
There is a reason that metrics (growth) and/or a stellar team are commonly cited by investors as being more important than (getting) the idea.
Notwithstanding that Pinterest is a great idea.