ChristianKleineidam comments on Update on Effective Altruism Funds - Effective Altruism Forum

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Comment author: Kerry_Vaughan 21 April 2017 05:11:07PM 9 points [-]

But if I can't convince them to fund me for some reason and I think they're making a mistake, there are no other donors to appeal to anymore. It's all or nothing.

The upside of centralization is that it helps prevent the unilateralist curse for funding bad projects. As the number of funders increases, it becomes increasingly easy for the bad projects to find someone who will fund them.

That said, I share the concern that EA Funds will become a single point of failure for projects such that if EA Funds doesn't fund you, the project is dead. We probably want some centralization but we also want worldview diversification. I'm not yet sure how to accomplish this. We could create multiple versions of the current funds with different fund managers, but that is likely to be very confusing to most donors. I'm open to ideas on how to help with this concern.

Comment author: ChristianKleineidam 23 April 2017 07:30:23AM 2 points [-]

As the number of funders increases, it becomes increasingly easy for the bad projects to find someone who will fund them.

I'm not sure that's true. There are a lot of venture funds in the Valley but that doesn't mean it's easy to get any venture fund to give you money.

Comment author: Daniel_Eth 24 April 2017 01:32:39AM 1 point [-]
Comment author: MichaelDickens  (EA Profile) 24 April 2017 03:11:23AM 4 points [-]

There's no shortage of bad ventures in the Valley

Every time in the past week or so that I've seen someone talk about a bad venture, they've given the same example. That suggests that there is indeed a shortage of bad ventures--or at least, ventures bad enough to get widespread attention for how bad they are. (Most ventures are "bad" in a trivial sense because most of them fail, but many failed ideas looked like good ideas ex ante.)

Comment author: Daniel_Eth 24 April 2017 04:32:46AM 3 points [-]

Or that there's one recent venture that's so laughably bad that everyone is talking about it right now...

Comment author: ChristianKleineidam 24 April 2017 08:13:49AM 0 points [-]

It's not clear that Juicero is actually a bad venture in the sense that doesn't return the money for it's investors.

Even if that would be the case, VC's make most of the money with a handful companies. A VC can have a good fund if 90% of their investments don't return their money.

I would guess that the same is true for high risk philanthropic investments. It's okay if some high risk investments don't provide value as long as you are betting on some investments that deliever.

Comment author: Kerry_Vaughan 23 April 2017 07:32:52PM 1 point [-]

I'm not sure that's true. There are a lot of venture funds in the Valley but that doesn't mean it's easy to get any venture fund to give you money.

I don't have the precise statistics handy, but my understanding is that VC returns are very good for a small number of firms and break-even or negative for most VC firms. If that's the case, it suggests that as more VCs enter the market, more bad companies are getting funded.

Comment author: Ben_Todd 24 April 2017 03:28:44AM *  3 points [-]

This is a huge digression, but:

I'm not sure it's obvious that current VCs fund all the potentially top companies. If you look into the history of many of the biggest wins, many of them nearly failed multiple times and could have easily shut down if a key funder didn't exist (e.g. Airbnb and YC).

I think a better approximation is an efficient market, in which the risk-adjusted returns of VC at the margin are equal to the market. This means that the probability of funding a winner for a marginal VC is whatever it would take for their returns to equal the market.

Then also becoming a VC, to a first order, has no effect on the cost of capital (which is fixed to the market), so no effect on the number of startups formed. So you're right that additional VCs aren't helpful, but it's for a different reason.

To a second order, there probably are benefits, depending on how skilled you are. The market for startups doesn't seem very efficient and requires specialised knowledge to access. If you develop the VC skill-set, you can reduce transaction costs and make the market for startups more efficient, which enables more to be created.

Moreover, the more money that gets invested rather than consumed, the lower the cost of capital in the economy, which lets more companies get created.

The second order benefits probably diminish as more skilled VCs enter, so that's another sense in which extra VCs are less useful than those we already have.

Comment author: ChristianKleineidam 24 April 2017 07:46:39AM -1 points [-]

I don't think the argument that there are a lot of VC firms that don't get good returns suggest that centralization into one VC firm would be good. There are different successful VC firms that have different preferences in how to invest.

Having one central hub of decision making is essentially the model used in the Soviet Union. I don't think that's a good model.

Decentral decision making usually beats central planning with one single decision making authority in domain with a lot of spread out information.