[patio11]

Seems like there's an adverse selection problem here. (And, relatedly, a signaling problem.) This is not an attractive option for companies at the head of the distribution or anyone aspiring to be there, and to the extent that you talk about it, VCs are going to read that as "You're a loser planning on losing."

From a practical perspective, one largely buys insurance to smooth out either cash shocks or future decreases in earning potential rather than for diversification. Having a startup fail is not going to be a cash shock. Your earning potential if your startup fails should go up, because you're worth six figures on the open market trivially, and you probably were not paying yourself that previously.

[waterlesscloud]

--VCs are going to read that as "You're a loser planning on losing."--

Then I'm going to read VCs investing in lots of companies as losers planning on losing.

VCs hedge their bets, almost by definition. What's wrong with founders doing the same?

I'm not really in favor of this particular proposal, but the idea of one-standard-for-you-another-for-me is a major turnoff.

[patio11]

If it isn't obvious, I'm not a VC and don't exactly swing that way either, I just try to have a mental model of them that approximates reality.

[zachalexander]

That's a great argument for proving that startup founders are a braver group of people than VCs.

It's a terrible argument, however, for convincing a VC to fund you.

[waterlesscloud]

When did founding a startup become about proving how brave you are? That seems like a very poor standard of evaluation.

All else being equal, it seems to me that a founder with a smart approach to managing risk is a better bet than one who is reckless about it.

[zachalexander]

> When did founding a startup become about proving how brave you are?

It's not. What I was trying to say (perhaps unclearly) is it seems like you're arguing a moral point, that since VCs can diversify to reduce their risk, it's only fair that founders get to do the same.

And that's true. If you're founding a startup, and want to pool equity with other startups, nobody is going to prevent you. But VCs might be less inclined to fund you too.

So it's a question of what matters more to you -- taking more risk and perhaps getting more funding, or having less of both.

[diego]

The goals of VCs are very different than the goals of entrepreneurs. Their job is to return at least 3x cash-on-cash in 10 years with relatively low beta. Why should their standards be the same as those of entrepreneurs?

In fact, I wrote a blog post that's very relevant to this point:

http://diegobasch.com/traditional-vcs-and-first-time-entrepr...

[zachalexander]

>Seems like there's an adverse selection problem here.

Agreed. I just wrote an essay about this underlying issue of founder risk management [1], in response to PG's recent essay, and along the way I had this exact idea (swapping equity with other startups), and abandoned it because it seemed too complicated, as well as the adverse selection problem.

If it were to work, a major key would be the OP's first bullet point (in the "Gotchas" section of the original proposal) -- implementing a voting system, to ensure the startups in the pool are high quality.

[1] https://news.ycombinator.com/item?id=4577525

[danielweber]

One thing you should do at the start of a company is figure out how you will dissolve the company. Every time I've seen someone bring it up, it's shouted down as being negative. More than nine times out of ten, they regret this decision, as there is a bunch of fighting later.

But, like you said, no one wants to admit that they might fail.

[tptacek]

There's more to it than confronting that you could fail; now there's an incentive not to see your own venture through if a peer's venture has a better chance of being remunerative.

"Advisors" to other companies also have this incentive, but that incentive is a pittance.