# Why I suspect I may be able to generate excess returns as a seed-stage micro-VC.

Ascending to Angelhood, Version 1.
Part I: "Ideas don't matter", really?
The Silicon Valley entrepreneurial sector has a saying "Ideas don't matter." Venture capitalists go around proudly announcing that they fund people, not ideas.

This saying is patently false. Google could not have become Google if the same people were executing on the idea from Pets.com.
At the same time, it also seems straightforward what kind of pressures might support the proverb. Part of it, I expect, is people who go around thinking that they have an incredibly valuable idea ("Hey, let's try Pets.com again!") and who want 50% of the company in exchange for the idea while somebody else does all the work. Repeating "Ideas don't matter" can be a way to express frustration with those clueless people and slap them down quickly.

Yet this doesn't seem sufficient to explain why venture capitalists also go around saying that they fund teams, not ideas. It seems intuitively obvious that part of why Google equity had higher returns than Pets.com equity is that the Google cofounders had a better idea. You would naively expect VCs to be trying hard to assess how good ideas are, as part of their quest to fund the next Google.
But suppose VCs try to assess how good ideas are, and find that they *can't*. They discover that when they fund companies that seem to be based on really good-sounding ideas... somehow the desired returns don't materialize; and yet when they fund teams that have really good people, they do sometimes get returns. We then ask: how could *that* condition end up being true? Well, suppose that among startups who pass some very preliminary sort of screen, the VCs have no better ability to distinguish good ideas than the startup entrepreneurs themselves. Then, conditioned upon an engineer thinking that Pets.com is a good enough idea to start up, the vast majority of VCs are unable to do any finer discrimination than that. And suppose on the other hand that these same engineers don't have VC-level people skills, so a VC can indeed get some further mileage, not out of judging the idea, but out of judging the assembled team.
So those VCs say, "Ideas don't matter," even though it's very clear that part of Google's returns were based on the Google idea, because those VCs don't make conscious distinctions between map and territory, and if they did, they would be too proud to say: "Ideas obviously matter, but I haven't yet been able to subjectively distinguish good ideas from bad ideas within the range of funding opportunities I've been given, so now I just fund subjectively good-seeming teams."


### Part II: Can you profit by distinguishing good ideas?

Suppose someone did have a capability to usefully discriminate, among entrepreneur-approved ideas seeking funding, good ideas from bad ideas. Could they earn an excess return using this ability?

The naive answer would be, "Sure! Just fund the startups with good ideas!"
But this is the kind of non-modular, non-careful reasoning that I think is responsible for difficulty discriminating good ideas from bad ideas in the first place; so let's think out the steps more carefully.

The first class of difficulties will be getting access to deal flow. Accredited investor laws and other regulatory barriers may make it illegal for you to invest, unless you pay a lot of up-front legal costs and jump through other hoops. There may be a word-of-mouth network on the best deals, and gaining access to this network may require you to make friends with key people in the network - and having the postulated capability to recognize good ideas does not mean that people will recognize you as recognizing good ideas. (This is an instance of the generic condition "Often, for a problem to be solved, it's not enough to have a good solution, other people have to recognize that solution as good", which is one go-to explanation of persistent inefficiencies that are not easily exploitable.) Similarly, if you don't already have millions of dollars to invest yourself, people who do have money may not be able to perceive your postulated ability to usefully distinguish good ideas.

Leaving aside these barriers to even trying, I see two obvious complications if you do have the ability to invest using a real capacity to discriminate good ideas:

First, if you don't *also* have VC-competitive ability to distinguish good teams, you may be faced with adverse selection. Attractive-seeming entrepreneurs that are still seeking money, who are not yet oversubscribed, may be the entrepreneurs with unusually good ideas and especially poor teams. Perhaps the entrepreneurs with good ideas *and* good teams have already received all the funding they need from VCs that can perceive good teams.

The second problem was pointed out to me by Peter Thiel: If a company requires multiple rounds of venture funding, and you fund the seed round or angel round on the basis of a characteristic, such as a good idea, that other VCs can't distinguish as a selling point, then later funding rounds may fail because that company is not good at selling itself to VCs. With acquisitions acting as a major exit channel, perceived promise by Google or Facebook acquirers is also a major determinant of returns on investment. So while it's not quite a pure Keynesian beauty contest, in many cases a company that has difficulty selling itself to ordinary VCs - whose best features are not apparent to ordinary VCs - will be at a disadvantage in later funding rounds, or attempts to exit via acquisition. But if a company has no difficulty selling itself to ordinary VCs, can you get a good price on the equity and earn an excess return?

I see two obvious strategies for turning the ability to distinguish good ideas (but not necessarily a competitive ability to distinguish good teams) into an excess return on investments.

The first strategy is to invest in the company of other investors, who are then doing the work of distinguishing good teams and ensuring that your investments are not adversely selected for bad teams, plus ensuring that the companies are marketable to VCs and not adversely selected for unmarketability. You foresake any hope of investing in companies that otherwise wouldn't be funded, and try to use your ability only to *not* invest in all the companies that seem to you to have unworthy ideas. You thereby hope to earn an excess return despite not leaving the crowd entirely, nor getting an unusually good price on any single deal.

The second and more dangerous strategy would be to invest in companies that *only* need your seed money, and intend to be profitable after that, and to exit via e.g. share buybacks or dividends or SecondMarket rather than by acquisition. Or invest in companies which, if their idea works, will have visible VC-selling characteristics (revenue, growth rates) so that they can get a series A round later. (Of course any company can promise growth, so it probably sounds like a 'cheap' promise to someone who's used to all companies making those promises; but the hypothesis here is that you actually have an ability to distinguish good ideas from bad ideas, so you can try to condition on the company *actually* having this property rather than it being a generic selling point that all companies claim to have.)


### Part III: So, could I plausibly be able to better distinguish good ideas?

With all those barriers and caveats admitted: I think I might be able to look at a set of entrepreneurial ideas and select the ones that promise to generate large amounts of economic value and capture some of it.

It seems to me that when I look at other VCs trying to analyze the ideas behind companies, they do not see the things I see. And it is not easy for me to describe the cognitive differences; if it was (a) easy to explain and (b) obviously correct once explained, then everyone over a certain IQ level would be doing it. But having a lot of thoughts like "Ideas don't matter? No, you mean that you can't distinguish good ideas from bad ideas among those ideas already selected-on by the time you're seeing an entrepreneur presentation" could add up.

I look at other entrepreneurs and their startups, and I don't see them talking about the pattern of micro-ows and micro-yays experienced by their users, which isn't surprising. Generally speaking, most people don't know about microhedonics or pays attention to how small ows and yays shape their own life, so it wouldn't be surprising that most entrepreneurs and VCs wouldn't check a startup idea using those goggles... which I can't really take the length to explain here, unfortunately. If you've hung out in the right crowd then you already know there's this rare, super-important lens of viewing life in terms of tiny operant conditioning events, like the tiny twinge you feel when you imagine shifting away from a video game and starting work. If you don't already know, it probably sounds like I'm talking gibberish, but suggestive gibberish that at least sounds like it might mean something.

And there are many other sets of goggles that I also use to check everything, like my inexploitability goggles, and my economic trade-barrier goggles. I don't see VCs or entrepreneurs checking the view through those goggles, I don't think they get what I get on my heads-up display, and this is not surprising because these goggles are all rare individually.

I suppose the view from 20,000 feet is something like, "So you've read a lot of Yudkowsky by now, right? You've been given some lenses through which to view the world that you don't usually see other people using? I've got a bunch more of those lenses, most of which I haven't written about, and they show me different things when I look at a startup *idea* - those legendarily worthless things that are actually obviously super important - than I hear other people talking about."

I also observe that only people at the very highest tiers of venture capital seem to be, from my perspective, capable of holding up their end of a conversation and having interesting thoughts on-the-fly. The average venture capitalist I've met, in rooms full of average venture capitalists, seems sort of uninspired compared to, say, a hedge-fund quant at Jane Street. This doesn't mean the VCs aren't competent at their daily work, but it also wouldn't make it very surprising if I could beat their returns, just like it wouldn't be surprising if I could become a successful hedge-fund quant. It wouldn't be surprising if I failed, to be sure; but it wouldn't be surprising if I succeeded, either.

### Part IV: Pivoting.

The first draft of this essay got back a reply: "But it takes more than one idea! You also need a lot of little good ideas in order to execute!" This has the general form "Besides a good central idea, you need X, Y, and Z" which can well be true but not change that the central idea is still important. Also, if X is equal to "lots of small good ideas to execute" then it is more than usually likely to correlated to the entrepreneurs having successfully invented and filtered a central idea worth executing on.

A larger point that has now come up twice is "pivoting", which, much like "ideas are worthless", strikes me as being processed in an ideologically laden or psychologically weird fashion. Why yes, some of very top-flight entrepreneurs have sometimes been known to *actually change their mind*, while other top-flight entrepreneurs have been known to get the central idea right the first time. But it's not a coincidence that Pets.com didn't pivot to be Amazon because the people at Pets.com were the sort who came up with the Pets.com idea in the first place rather than the Amazon idea. To the extent that goodness of post-pivot ideas correlates with my goggles checking out the pre-pivot idea, I'd still be getting useful information. It's also possible, though by no means certain, that I can try for a conversational check on e.g. "How would you test this hypothesis?" or "What would cause you to change your mind?" or "What is your line of retreat?" or "What do you currently think you know and how do you think you know it?" that would proxy ability to pivot well.

I suppose you could call this judging the person rather than the idea, but the point from my perspective is something more like, blindly hoping for a pivot is akin to the Orthodox Jewish perspective on praying to God without even trying to solve your own problems. Your current company should be set up to strike hard at the current central idea *while* being ready to pivot, and part of that hard strike is careful judgment of the current central idea.

It could be, perhaps, that the entire crop of entrepreneurs is not much better at judging ideas than VCs, that they cannot usefully try to see problems coming in advance and can only be wait to hit by them and pivot, so that nothing except mental flexibility is of any use at all. If that is the case *and* I can't assess proxy factors for the goodness of the new idea, sensitivity to evidence, or ability to change one's mind, then indeed my goggles will not produce any excess returns - just an endless stream of rejected bad ideas, some of them from companies whose wonderful teams go on to pivot to good ideas. In this case, I would give up and change my mind. Or maybe I'll gain some surprising piece of experience that causes me to see an unexpected good pivot, but I don't make plans that rely on my ability to pivot - if I'm thinking that my current plan isn't good enough, I should just pivot in advance and save myself the time. I consider the ability to just give up on a bad idea to also be important.

### Part V: VC has weird, inefficient traditions that may be worth defying.

I'm not the first to observe this, but venture capital has a lot of weird traditions, most of which seem to pointlessly de-financialize the sector, and some of which actively annoy entrepreneurs. If I buy in at a seed round, then it would be a Horrible Terrible Bad Sign if I tried to sell my equity in a following A round or C round, because it would mean I'd Lost Faith in the Company. It's Just Not Done. Which is ridiculous. I mean, I'm sure it's a bad signal if everyone already *is* reasoning that it's Just Not Done so that nobody sells except in extremis, but do you hear people talking about how terrible it is if an equity buyer buys a stock, watches it go up, and then sells it? Do you say that they've lost faith in the stock and must expect it to tank? No, they just think that their knowledge advantage is gone, and they should move to somewhere else where they can get an excess sector return again.

By the time a company has clearly visible revenue flows and an excellent picture of basic operations, a lot of the excess expertise I think I have, will be gone - compared to the ability of Series C funders to distinguish among good companies that already have revenue and established growth rates, I wouldn't be very confident of my own ability to earn excess sector returns. The C round is already pricing in the info that used to be private to me. So now that my advantageous computation is no longer private, no longer generating *excess* sector returns, I ought to sell and reinvest the proceeds somewhere I think I have unusual info. I suppose if I had unlimited access to capital and I thought venture capital as a whole had excess returns, or that the company was going to go on generating excess returns compared to the S&P 500, then - given the lack of liquidity and the entry barriers in VC - I ought to hold my old investment, go on capturing excess returns compared to the S&P 500, and make new calls on my limited partners when I encounter a new seed round worth investing in.

But mostly, VC is downright superstitious compared with more liquid markets. *Sell* your equity to *another investor* because you think the company's recent run-up already reflects the private info you had, and now you want to recycle your investable funds somewhere? It's Just Not Done! And I might end up having to obey these superstitions, but it's worth mentioning as one of the things that my Finance Goggles show me when I look at VC in general, and as general evidence that this sector is inefficient. Not every inefficiency is exploitable, but exploitability does require inefficiency.

Among other things, I would hope to offer less superstitious venture funding, lowering the effective price to the entrepreneur. By, e.g., making decisions very quickly and having very low-cost meetings where your team doesn't have to prepare; I care about those legendarily worthless ideas, and I'll go in with a pretty sharp concept of which questions I'll need answered. I think some of this spirit is already spreading through VC - at least the notion of not pointlessly torturing entrepreneurs - which would make it not a unique selling point. But the market as a whole is broken and inefficient, and fast decisions from me would be *a* selling point. I would know when I didn't really need more information, and not require careful soothing.

The standard 2-and-20 deal in VC (the VCs get 2% of assets under management per year, plus 20% of nominal profits if any) strikes me as another strange notion embedded into the sector. It's a deal that's very generous to the VCs, even incompetent VCs, and so acts as a driver for excess VC entry, like with real estate agents who protected their 3% of house values per deal and so simply induced the entry of a lot of mostly idle real estate agents. The uniformity of this pricing deal says that it's not responsive to particular conditions. Like a rent-controlled market, this high price will tend to make VC mostly about who has the privilege of access to LPs and then gets to drink deeply of the generous fees. In turn, LPs will be very suspicious of who wants to be a VC.

I expect someone to say that charging less than 2-and-20 would send a signal of thinking one is not worth the standard price. (In fact I have already heard that said, in the hedge-fund world.) But it does seem to me to be worth trying to do this the financially sane way, where, if I'm coming in without a track record but with some degree of promise, I offer a deal where I only benefit if I can deliver the goods. I would ask for 20% of the *excess* return over and above either the S&P 500 or the Vanguard bond index fund, whichever returned more over the timeframe. So far as incentives go, this encourages trying to shoot for the moon and taking risks... which is where VC returns come from in the first place, so no problem there.

The usual sort of VC tries to advertise that they will be mentors to their companies. While this has a clear rationale for sometimes adding value, the *mandatory* aspect seems to me like part of the strange psychology of VC, in which, owing to excess entry, VCs have to make unusual efforts (compared to e.g. hedge funds) to convince their LPs that they are adding value. Hedge-fund traders don't usually advertise their ability to mentor companies they invest in. If somebody funded my ascension to angel investor, I'd be trying to trade my hypothetical ability to filter out terrible ideas and discriminate good ones and thereby earn excess sector returns, in exchange for a cut of the resulting profits only if there are excess profits. It might be that I *could* counsel or mentor the right sort of person to accept instruction, but that would be very labor-intensive and the critical opportunity to test is whether there's a *straightforward* way to earn excess returns by using my goggles to look at those proverbially 'worthless' ideas.

### Part VI: Why I'm interested in trying my hand at angelicism.

It seems plausible that I could generate excess returns, given investors who trust me enough to risk some capital, if some of the background variables turn out to have the right values. Why is this something that I'm considering diverting attention to, when I'm not considering, e.g., trying to become a hedge-fund quant?

1. I have hopes that venture idea-checking, especially on projects otherwise already vetted, can be a fast process for generating excess returns on a significant scale from this illiquid market, compared to other means I've thought of so far for trying to turn my putative cognitive abilities into excess returns.
The rest of this needn't really interest the potential investor, but:

2. I think that access to finance is a critical part of the collective health of people trying to master the methods of rationality. People who have good opportunities in life will tend to hang out in places that ultimately lead them to access to the best opportunities. If you don't have the best opportunities, people who have better opportunities won't want to hang around you or spend their bonding time there. They'll go someplace duller that does have a reputation for leading up to access to finance.

3. Money is society's unit of actually caring about things, and it has increasingly dawned upon me how impossible it is to get anything done without large money flows. Even reputation largely follows money except under certain very odd circumstances. If you want prestige, if you want to be taken seriously, if you want to be listened to in the moment of crisis, I'm starting to think it's more important to have a big heap of money than to have good ideas - or at least that the ideas will not be listened-to without the money. Status follows money, respect follows status.

4. As mentioned in my recent Author's Note in HPMOR, I think that using my best abilities at their full extent requires me to move into a position where I can be controversial without attracting lightning to innocent bystanders. If society were to understand me as a VC-ish person, I would be taking on a different status and a different role, and while I don't fully understand how the social dynamics work, it does seem to me that I might well be perceived differently, and also to some extent as my own person. Asking in my HPMOR Author's Note if anyone wanted to ascend me to angel produced a lot of backlash from the "How DARE you ask that, you mere fanfiction author!" crowd, which suggests that a VC is seen as part of the sacred magisterium in a way that these same people don't currently see me. (Thank you to those people who wrote me with their interest, by the way. I'm glad that actual Silicon Valley investors don't think the same way as Internet status-slappers.)
### VII: So, shall we try it?

As previously mentioned, I would not want to charge 2-and-20 for an idea that might or might not work and has been optimized for speed on my end, besides I don't see how that's a good incentive structure even for proven VCs in the first place. I would charge 20% of excess profits over the returns of either the S&P 500 or a Vanguard bond index fund, whichever is greater. I would estimate a ~50% chance that I do worse than the overall VC cohort, and a better-than-10% chance that I can return 10X. Good companies *do* routinely rise by a *lot* in the illiquid venture space, and if I cannot produce *significant* excess returns then the attempt is not worth continuing. But this would be, obviously, risk capital.

I haven't worked out a number of specific details, but those look costly to work out so I am checking for general interest first.

So is anyone interested in possible ascending me to angel, if the details work out?



# Ideas stand out to my startup goggles when they...

## Generate large amounts of real economic value.

Paul Graham has a famous bit of advice to startup entrepreneurs: "Make something people want."

I worry that this advice is overly general. Let's say you make a Flash game called RescueKitten that involves finding a cute kitten in a box, that you then feed, bathe, and so on. Soon the kitten contracts a disease that causes it to mew pleadingly as the diseases progresses, and the kitten will eventually die unless you get two of your Facebook friends to give it 'medicine' (you can also buy the medicine for $0.99).

As the author of RescueKitten, you can easily claim that you're making something people want, namely, the experience of rescuing kittens. Or on a less evil level, people who think they can build webpages that enchant readers, and then sell ads on those webpages, are trying to make webpages that people want to read; they're also following the letter of Graham's advice.

Peter Thiel worries that most modern startups are not the sort that can produce enough real economic growth to sustain the larger economy. When I think about Peter Thiel's worries, it also seems to me that there is a larger economic difference between the RescueKitten startup versus, say, building a more efficient steel plant.

But what is this difference, exactly? It can't just be profitability, or measured return on capital. Zynga (which makes games like RescueKitten, only evil) went public and delivered a large return to its early investors.

I've been pondering Thiel's concern for a number of years now, and here are three ways I've devised to poke at the difference:

- Cost vs. use-value: how much would people pay for your product if they had no other choice?
- Marginal replaceability: what would people use instead of your product if it didn't exist?
- Reinvestability / real compounding: is it the 'value created' the kind that can feed into creating even more value?

*

### Part I. Cost vs. use-value.

How much economic value does Google Search generate?

The first obvious way to misinterpret "Generate large amounts of real economic value and capture some of it" is that it takes the advice "Make something people want" onto "Make something people want enough to pay for." But this advice is now overly narrow, because economic value isn't the same as monetary cost. Google search is free - but imagine that you had to pay for it. How much would you pay? Imagine that it was literally Google Search or nothing, that there were no other search engines and no other way to search the Internet; what is the most you should personally pay monthly to be able to use Google Search? At least in my case, this quantity is probably something like a thousand dollars a month, maybe more. Google can't capture all this value from me, they don't have that much pricing power, there are alternatives to Google and if Google tried to start charging that much money there would soon be even better alternatives to Google. But the true economic value generated by Google is far in excess of what they have the pricing power to capture directly from me.

Standard economics says that if you're selling me a used car for $5,000, then the use-value of that car must be less to you than the use-value of $5,000, and the use-value to me must be greater than $5,000; otherwise, says classical economic theory, we won't make the trade. (Yes, human psychology is more complicated than this, but don't let that distract you from the underlying concept.) People who haven't studied economics sometimes accuse economists of confusing the price of something with its value, which is ironic because prying apart the concepts of monetary price and user value is literally the first theoretical step toward understanding why any trade ever takes place. Imagine that if there was only one supermarket in the world, I would stop buying salmon there when the price reached $11/lb. If in the real world the actual supermarket sells me salmon for $7.99/lb, I am capturing a 'consumer surplus' of $3.01. (A richer person might be capturing a consumer surplus of $100 on the same trade, since each unit of money is worth less to them while the experience of eating salmon is the same. Maybe consumer value should be quantified in units of experience or in utilons, rather than in money, but as no standard metric for this exists, we convert consumer value into monetary units and then calculate consumer surplus.)

(The fact that a lot non-econoliterates haven't understood on a deep emotional level why price and value are almost never the same thing, and shouldn't be, is probably why they acquire a sense of injustice at market pricing. They observe that economists don't seem to be outraged by market prices that depart far from their intuitive sense of value, and conclude that, given this lack of outrage, the economist must believe the price is the fair one, ergo that the economist must think that price and value are the same thing. Ironic, isn't it?)

So if my slogan is "Generate large amounts of economic value and capture some of it", I don't mean that you should make a product for which people will pay lots of money... though, if they will pay lots of money, that's a good sign. I mean that you should try to make a service whose use-value is high, and be able to capture some of that value somehow. (E.g. Google can sell ad space for air conditioners that is more valuable than other companies' ad space, because you are on the Google Search page at the time you are looking for a new air conditioner.)

But why is that good startup advice? Lots of services manage to attract many eyeballs by offering small, trivial 'hits' of reinforcement for looking at their pages, and then they undergo hypergrowth and sell ads and VCs buy their equity at high valuations.

Okay, but I don't understand the skills required to do that, or rather, I don't think I understand them better than other venture capitalists and probably worse. VCs know about eyeballs. I don't hear most VCs talking about a startup trying to analyze how much use-value they generate (how much real economic value, irrespective of how much is being captured) so I think I can generate an excess return by wearing those goggles.

To illustrate the difference, consider Craigslist. If you talk to a traditional VC about Craigslist, they'll probably say something about Craigslist's number of users, and how fast it grew, and how it has lock-in because everyone is using it and there are network effects, and maybe mourn that Craigslist doesn't sell more ads and get more revenue. They would talk, in the old days, about how Craigslist connects buyers and sellers using the Internet as a free service, and competes against newspaper ads (though by now all that is such an obvious observation that it hardly needs saying). They'd talk about users who want to sell things and users who want to buy things and how Craigslist is giving them what they want.

When I look at Craigslist, the first thing I see is that it's generating huge amounts of economic value, far more than other services that give people things they vaguely want. It's capturing almost none of it, but holy smokes is it generating value. That value isn't measured by total sales intermediated by Craigslist (that would be confusing price with value). It's measured in sellers and buyers who have different use-values for items, so that when the item goes from seller to buyer, utility goes up. Maybe the seller captures most of the surplus (high price), maybe the buyer does (low price), but the exact price doesn't much change the amount of economic value being generated (until we zoom back and consider larger supply-and-demand issues). Of course, some of those trades took place back when people placed newspaper classified ads... but those ads cost money up front and might not sell the item, hence few people used them.

Craigslist caused a huge number of economic trades to take place that would not have taken place before, and also stole the classified ads' business. The surplus value of those new trades, not the currency changing hands over all Craigslist-mediated trades, is the real economic value generated by Craigslist. (I'm genuinely curious as to whether anyone would find even one VC talking about that, distinguishing consumer surplus from selling price and new trades from old trades; especially if they weren't quoting an economist.)

But then again - why care about this peculiar quantity of 'real economic value', from a VC standpoint? Why would caring about this 'real economic value' generate excess returns on invested capital? Actual profits are determined by how much value you capture, not by how much value you create. Craigslist captures very little of the value they create, so they're not super-profitable.

To this I reply that my investment thesis, or rather hope, is that generating lots of real economic value is something like following a potential energy gradient downward; it improves the probability of the startup succeeding. Craigslist may not be super-profitable but it is wildly popular and has vast numbers of users; people are heavily motivated to use it because of all that real economic value it's generating. The fact that Craigslist causes many new trades, instead of just capturing existing ad inventory, means that it's generating much more value for its users than just 'save $20 on the cost of an equivalent classified ad' and that people were thereby much more motivated to use Craigslist, there was more energy pouring into Craigslist, than the mere force of saving $20.

Craigslist is also a horrible user experience in a number of ways, and indeed, the fact that it succeeded despite that is a testament to how much economic force was going into it.

And Craigslist is in desperate need of replacement - a number of services have tried and failed already. But if you were thinking about how to replace Craigslist, I would tell you not to imagine better user experiences but instead to start from the question of: how can I generate more new economic trades than Craigslist does? Also try to build a wonderful user experience around that, certainly - people won't trade through your site if they don't want to be there - but begin the idea-generation process, I should much advice, by thinking in terms of increasing economic value generated by trades... rather than eyeballs or UI flow or virality or freemium pricing. Once you have the gradient, you need to follow it down using techniques like that; you must generate economic value and also capture at least some of it. But you'll have an easier time by far if the gradient is there.
*
### Part II. Marginal replaceability.

I look back and see that I've already touched heavily on this subject abvoe, but one of the ways we can see that RescueKitten (the flash game where you pretend to take care of a kitten) isn't generating enough 'real economic value' is that it is probably replacing some other flash game that offers much the same experience. Even if people enjoy playing the game (leaving aside that I described RescueKitten as a game that mainly exploits behavioral psychology to cause a subset of users pain if they don't buy in-app products), the pleasure they experience per hour is not your real value; your real value, if any, is the difference between the pleasure they feel playing your page vs. playing someone else's.

Part of the reason why Thiel is justly worried about whether all the apps and sites can sustain real economic growth in developed countries, and the reason why capturing value only by selling ad inventory is a bad sign, is that there are only so many eyeball-hours, only so many people wasting time on the Internet, and everyone in the 'waste time on the Internet industry' is competing for the same eyeball-hours and the same ability to sell ads. It's not like any of these sites are creating new eyeballs (unless somewhere out there is an ad-supported site that connects sperm donors and/or surrogate mothers with couples). And in turn, that means that even if you invent a really brilliant way to waste time on the Internet and capture lots of eyeballs and sell lots of ads, in another year somebody else is liable to invent an even better form of procrastination and steal the eyeballs. Why wouldn't they, if there's no coupling to real economic phenomena? Why would this year's predator always be best predator?

(Of course there's a pseudo-business-model where you capture a lot of eyeballs and then try to raise a lot of venture capital from gullible VCs (not all VCs need to be gullible for this model to work, you just need some gullible VCs) and maybe even IPO before anyone catches on. See also, Zynga's current stock price. I hope it's not making you nervous if it seems like my investing philosophy and my ethics are suspiciously aligned, but first, this sort of thing is probably a worse bet for VCs than for entrepreneurs, and second, I think you'd have to know a lot about acquirers and market timing and how to tell which entrepreneurs will be able to exit successfully at the peak of their bubble. Most of all, I don't think I can tell who can just 'capture lots of eyeballs', in advance during the seed round, better than other VCs, when there's no economic story behind it. So I don't think I could generate an excess return by investing in those startups. I'll leave that to VCs who invest in teams, not ideas.)

To follow a steep economic gradient to success, try to generate new economic value, try to make new trades take place that would not have taken place otherwise, try to have your user's current next-best-alternative be pretty awful compared to you.

Google doesn't have much pricing power on its core search service because it would be easy for someone else nowadays to replace... but before Google came along, I was using a search engine called Altavista, which did a whole lot worse at matching keywords to relevant and high-quality pages, and didn't let you see the context of the search term. (If you put in 'elephant', it would show you pages containing the word 'elephant', but not the place inside the page where 'elephant' occurred.) If Altavista was the only alternative to Google... then I'd pay less per month for Google Search then if there was no other option at all, but it would still be a lot. Google was following down a steep economic gradient when it first debuted because the value it generated was not very replaceable compared to the next-best thing its users would have done. And again, this is true even though Google charged $0 for it.

Even Google's ad inventory sells at a price, and appears at a place and time, that could not just be bought at the same price on a newspaper website. If you want to pay extra and show users an air conditioner ad at the time they're searching for an air conditioner to buy, that takes Google.

*
### Part III. Reinvestability.

The true reason why RescueKitten seems less like 'real economic growth' than a steel foundry isn't just that people would pay less for RescueKitten or that RescueKitten is more replaceable.

A steel foundry produces reinvestable economic value, the sort of value that you can take and use to build other things and feed back into the economy, so that the economy as a whole climbs a curve of compound real interest.

The most obvious form of reinvestability would be agriculture: You plant grains and grow stalks of wheat and eat some of the grain to sustain yourself and even at the end you have more physical grain then when you started. Going through this virtuous cycle with only one particular kind of material object (wheat grains) makes the virtuosity obvious.

And then people start trading things with each other, and some of them become smiths who make plowshares, and engineers who design better plowshares, and scientists who do experiments to find out which planting methods produce the most crops, and epistemologists who try to get the scientists to stop using p-values. All of these are part of one enormous complicated Virtuous Cycle, or they're trying to be.

Do all companies that produce webpages and sell ads on them fall outside the Cycle, because you can't eat webpages? But Google Search is an incredibly powerful scientific tool - I'm not sure I could exist in my present form without it. You can't plant Google results pages in the ground, but as a product they definitely contribute to the Virtuous Cycle.

As we get into the weirder and more abstract sectors of the economy, it becomes steadily more complicated to understand how things plug into the Virtuous Cycle. There's an old joke about three bankers who are stranded on a desert island, and when they're found a year later they've all become immensely wealthy by trading hats with each other. This joke has a biting element to its humor because it reflects a widespread suspicion that Finance has become unbound from the positive-feedback loops of trade that produce material things, and all the price fluctuations aren't really doing anything. This is not the conventional economic view, but it does get harder to understand how a commodities speculator makes the Virtuous Cycle produce more material goods.

Before the invention of wheat futures contracts, wheat prices were a lot more unstable. If I'm remembering the story correctly, sometimes when farmers arrived with their harvests the local price at the port would plummet, only to rise again in later months. Market traders who prevent predictable changes in asset prices also prevent wheat farmers from dumping their unsold harvests. Let's say that the value of wheat fluctuates predictably, going from $1/ton in September during the harvest when all farmers try to sell wheat simultaneously and there aren't enough local bankers to buy it, to $10/ton in November. In March, a financier steps in and buys a huge number of wheat futures contracts for September delivery, sending up the price to $2/ton. The real value produced by the financier, their contribution to the Virtuous Cycle, is that by adjusting the price of wheat they cause more wheat to be made... but there's also the question of whether such speculators can capture more value than they create, which might perhaps be deemed unjust; see the Appendix for further discussion.

I say all this to mention that being able to see the 'real economic value' generated by something is a complicated skill, a full-fledged set of Econoliteracy Goggles for perceiving the positive-sum cycles and figuring out where Google search results and commodity speculators fit in, even though they're not visibly planting grains.

But we can still consider the RescueKitten flash game and get an intuitive sense that it doesn't fit well into the Great Economic Cycle, that Peter Thiel is right to worry that companies like this can't sustain world economic growth. And one way of seeing this result is by asking whether we can use the output of RescueKitten to make anything else, the way you can use wheat grains to plant wheat, steel to build houses, or Google search pages to learn about economics.

Instead of asking "Will people pay for the RescueKitten experience?" or "Is RescueKitten making something that people want?" or even "Is RescueKitten generating value?" we ask, "Can you reinvest this alleged value created by RescueKitten?"

I'm a little worried that people will read the above, look at their startup ideas, try to figure out how to plant their products in the ground to grow steel foundries, fail to see how this can be done, and throw away good ideas. I'm imagining someone looking at the eBay page of search results, shaking their head and saying "Nope, can't plant one of them webpages" while actually eBay is a textbook example of a product that not only caused more collector's comic books to flow between households but created entire new businesses and maybe types of businesses that couldn't have thrived before.

But still... if you don't know where your product and your idea fit into the Great Virtuous Cycle, then at the very least you don't know something rather important about your product.

And from my perspective, when I'm trying to find the startups that I think have special advantages, like following down a steep gradient of real economic value, one of my tests will be whether the idea's output fits into the positive-sum economic cycle in a clear way.
*

### Appendix: A digression on the politics of 'real value', human instinct, and the finance industry. (Skippable if you don't care.)

The concept of things that generate 'real value' or 'fake value' has some degree of popular use, and this means that widespread concepts of what generates 'real value' end up politically charged. If you don't like a group, you'll be politically motivated to say that it's activities aren't generating value. For example, the old joke about three financiers (bankers, hedge-fund traders, Jews...) being stranded on a desert island, becoming immensely rich from trading hats with each other

The hat-trading joke summarizes a central nervousness about finance: a worry that even though all the financiers are apparently richer and the island's economy seems to be growing, the financial part is just a zero-sum game relative to the world of material things. Or, if you're part of a political group that devalorizes modern financiers, the joke is a bit nastier than that; you're *asserting* that they're getting rich without generating any real value.

This particular political issue is one that fascinates me because I suspect that many financiers may in fact be playing a positive-sum game *but* capturing more value than they create.

Let's say that wheat is in the process of transitioning from an illiquid market to an liquid market. Previously, the value of wheat would have fluctuated wildly, predictably going from $1/ton in September during the harvest when all farmers tried to sell wheat simultaneously and there wasn't enough local free money to buy it, to $10/ton in November once all the farmers were gone. In March, a financier steps in and buys a huge number of wheat futures contracts for September delivery, sending up the price to $2/ton; then the financier takes delivery, stores the wheat in a warehouse, and resells the wheat for $8/ton in November.

The real value produced by the financier, their contribution to the Virtuous Cycle, is that by adjusting the price of wheat and giving farmers a nice safe guaranteed delivery price, they caused more wheat to be made (which is why I assumed the total supply would increase and the selling price in November would be less). But the wheat trader is also capturing $6/ton of the wheat's total selling value, and either the farmer or the retail baker is liable to think that this $6/ton ought to belong to them, not the financier. Imagine a small speculator who hardly produces any shift in the exact prices, just buys wheat futures at $1.01/ton and watches them go up to $9.99/ton and collects the $8.98 price difference.

You can see why a baker or farmer might resent that, and maybe wonder if the speculator deserves the profit.

This speculator may even be capturing *more* value than they are actually *creating*. There is no theorem of economics that prevents this, so far as I know. By producing small adjustments in prices and anticipating future changes, the (successful) financier is playing a positive-sum game and contributing some amount of real assets to the Virtuous Cycle; removing the financier would shrink the total pie. But the financier may also be increasing the size of their own slice faster than the pie's total size is increasing, getting richer faster than the justice instinct says the financier 'deserves'. (Unless there's a theorem that prevents this from happening in a classical free market? If so, I don't know.)

Since assets aren't destroyed by transferring paper ownership of them, this isn't necessarily negative from a purely utilitarian standpoint. All the consumable goods still exist. If the financier spends their paper dollars on yachts, and the bakers who would otherwise have bought wheat at lower prices in September would have virtuously invested the gains in new ovens, then indeed the economy is worse off. But! We produced this conclusion by postulating that the financier spends all of their paper-owned wealth on conspicuous consumption, and that bakers spend none of their wealth on frivolity and invest it all in new capital assets. What we really did was assume that, on the margins, it is instrumentally better for the economy when the paperwork says that assets are owned by bakers rather than financiers. We then concluded that it's bad if the total pie grows at the cost of the ownership of some things being transferred on paper to financiers. This assumption sounds a *tad* prejudiced... but that doesn't mean it's actually false. The marginal utility of consumption by the already-rich *is* lower and a lot of them *do* buy yachts.

To pass judgment on the social utility of finance, we also have to worry about the opportunity cost of the financier, and whether a high-frequency trader might otherwise have been, say, designing liquid-fluoride thorium reactors. There are a LOT of the smartest, highest-energy people going into quantitative trading and the opportunity cost to Earth is probably surprisingly large. But if inventors are only able to individually receive a tiny fraction of the true value generated by their inventions, while quantitative traders receive a large chunk of large profits while generating small amounts of value, then we are collectively incentivizing inventors to become quants at cost to society. The invisible hand of the market is not always your friend, though it is certainly a lot friendlier than non-econoliterates imagine.

I do remark that it is futile to blame the individual for becoming a financier rather than a physicist. Almost everyone responds to the incentives set up by larger society. If you want people to become inventors again, offer a $5 billion prize that can be captured by *individual* physicists if they create a functioning thorium reactor. That's how much an individual physicist can make as a hedge-fund manager. You get what you pay for... though really you could probably just offer $500 million and have it work; I'm sure a lot of physicist-financiers would rather be designing thorium plants. How much of your annual income would you be willing to donate to a prize fund like that? If the answer is something like "10% of my annual income" then you are far more virtuous than average... but under the modern system someone would have to sacrifice far more than just 10% of their potential income to become a nuclear engineer instead of a quant trader. Don't expect other people to be *that* much more virtuous than you are. Why is it their responsibility to take the pay cut instead of you?

The situation as a whole - the notion of playing a positive-sum game but capturing more value than you create - is far outside the ontology of what human moral instincts evolved to handle, and it's not surprising that a lot of discussions make a hash of it.

## Generate hedons for the person making the decision to use the product.

Generate Hedons for the Decisionmaker

(in the Venture Investing series)

Just because a gradient of real economic value exists, doesn't mean that society generally or your customers in particular will be able to follow that gradient. A steeper economic gradient will by default make it easier for transactions to occur and easier for your startup to succeed, sort of like how a steeper potential energy gradient makes it easier for a chemical reaction to occur. By default, if more new real value is being generated by the activity, then your users have more of a motive to engage in that activity.

But that's only by default! The 'real economic value' potentially generated by your product is like the best-case hypothetical of what would happen if everyone in the world who has to the power to decide to use your product, magically made the decision to use it. Here's some of the ways reality could be unattainably distant from that hypothetical:

1) The person who benefits from your product might not be the person who decides whether to use the product, or might not be the only person who has to say yes. For example, you could have a product that benefits patients but has to be sold to doctors, a product that benefits doctors but has to be sold to hospital administrators, or a product that benefits housebuyers that has to be sold to five members on a city planning committee.

2) Your product might generate real economic value, but you might not be able to credibly convey this fact to the person who decides to buy it.

3) Your raw hedonics are bad. E.g., your product generates a hedon per day, but the purchaser is a hyperbolic discounter and would feel twenty dolors of pain at the moment of spending the money.

I've seen a surprising number of ideas that seem to fail on the step of 'appealing to the decisionmaker', including at least one startup that went on to actually fail. At least some of the trouble seems to be an empathy defect, the same thing that makes the Ideological Turing Test hard for other people, and the reason why most other authors don't have villains that sound persuasive. People seem to have difficulty really honestly putting themselves into their users' shoes and imagining the mind of somebody who starts out without any impulse to rationalize the use of their product. It's like asking them to imagine how the 9/11 hijackers saw themselves as heroes, or how a paperclip maximizer doesn't bother trying to preserve humans in case humans are a diverse source of creative insight.

So here are some common reasons why a product that generates economic value will fail to appeal to the purchasing decisionmakers:
*

### Reason I: The beneficiary is not the decisionmaker.

"The decisionmaker is not the beneficiary" is one of the go-to explanations for civilizational inadequacy. We shouldn't be surprised if, say, the European Central Bank is making textbook errors of monetary policy that cause trillions of euros in damage to Europe, because it's not like the decisionmakers at the ECB get paid an additional 50,000 euros per year for each percentage point of economic growth in Europe. They get paid in status points when they talk tough on interest rates, and paid in dolors when they have to argue with politicians about inflation. "It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest," said Adam Smith.

If I become a micro-VC, I expect to be exceedingly reluctant to invest in any startups that create medical devices or medical software or any sort of product that is subject to government regulation. Government bureaucrats are the classic examples of people whose 'No' can block your product, but who don't benefit in any personal way if they said 'Yes'.

But government regulation is only the most obvious example of decisionmakers who are not beneficiaries. I'll be reluctant to invest in medical-sector startups that generate goods or services that would save the lives of medical patients, but that require doctors to say Yes or allowed insurance companies to say No. I'd be reluctant to invest in a startup that generated software that made doctor's lives directly and personally easier, and that had to be purchased by a hospital administrator who wasn't a doctor. Because, again, the purchasing decisionmaker would not *directly* benefit from the product's use.

It's not that doctors feel zero happiness when they save a patient's life. But it's the sort of indirect incentive that's easily trumped if they have to think about an unfamiliar topic, try something for the first time, argue something to an insurance company, or otherwise encounter any sort of Trivial Inconvenience. And certainly if it means that they have to spend their own money, or forego the monetary incentive that someone else offered.

It's not that the problem of selling to hospital administrators is unsolvable. There are industry professionals who specialize in selling things (useful or not) to hospital administrators, and collecting the rents on the uncompetitive price premiums (since it's not like the excess premium is coming out of the administrator's own pocket). As with any price premium, this indicates a market that is hard for new entrants to break into; there will be lots of other people trying to sell things to hospital administrators. As with any stream of rent, those who drink from it will do their best to build walls that prevent anyone else from drinking; there will be regulations and prestige requirements and other 'Keep Out' signs.

If your startup does plan to sell things to hospital administrators, I want to see that you realize what an incredibly huge problem this is. I want to see that you realize this is *the* core business problem you face. I want to see that your first step was to find an experienced professional who specializes in collecting rents from hospital administrators, and that you added prestigious figureheads to make your startup be socially allowed to collect those rents. Otherwise you're Doomed (note capital D).

I expect that I'll be relatively reluctant to invest in B2B startups, where the decision to use the startup's product would need to be made by a Director of Purchasing Operations who won't directly use the software. It's not capital-D Doomed, because maybe you can initially sell to small startups and collect success stories that other businesses will try to imitate. Purchasing directors in many industries are not as totally disconnected from reality as in the vastly dysfunctional medical industry. But you're still making your life a lot harder, and at this stage of my VC career I'll probably play it safe and invest in a startup that has a more direct path to victory.
*
### Reason II: You can't cause decisionmakers to believe in your advantage.

Another go-to reason why any civilizational inadequacy persists is that the people who *can* do better can't credibly *signal* that they could do better. There are, certainly, a whole lot of people in the San Francisco Bay Area, including those who aren't even all that entrepreneurially experienced, who could do better at venture investing than, say, the top quartile of current venture capitalists. The trouble is that most of them wouldn't *predictably* do better than current venture capitalists. Even I don't know who they are, I just know that they're bound to exist. Any project predicated on that premise would immediately run into the extremely difficult problem of successfully discriminating them from everyone who only thought that they'd be a great venture capitalist.

The chronologically first problem I face in becoming a micro-VC is not being able to deliver excess returns, it is causing anyone else to believe that I can deliver excess returns. (Step one: volunteer to forego the standard 2-and-20 premium price that would incentivize me to claim or believe that I could deliver excess returns even if I didn't really alieve it. I might shift to standard pricing structure in a later fund if the first fund succeeds, since nonstandard pricing often creates random side problems and credibility would then not be as much of an issue.)

Or let's say you're selling a nutritional supplement. It doesn't matter if your supplement is really actually super-healthy, if everyone else is also claiming that it's true for their own products and your own voice is lost in the crowd, no louder than theirs; if they're the experts at marketing and you aren't. Are the expected health benefits long-term rather than immediate? Are they subtle rather than obvious? Even if the science backing your supplement seems very solid, your users will not have giant blatant visible benefits to tell their skeptical friends about (compared to other supplements also claiming subtle benefits and with equally enthusiastic users).

This was the gotcha that killed Metamed, a startup some friends of mine tried. They wanted to use better-informed and smarter people, who would read more papers and do more research, to offer superior diagnosis and treatment planning to that of standard doctors. I looked at this idea and immediately thought, "Well, actually doing better than doctors is easy, the difficult part is going to be integrating into the medical rent-collecting system, or causing any sufficiently rich individual to actually believe that Metamed can do what it says it does."

To any but the best-informed patient, modern medicine is going to functionally map onto witchcraft. Not that it *is* witchcraft, but everything humans don't personally understand on a deep causal level, like exactly what happens when they go to a hospital, is a ritual that they're doing because other people do it, because it's What's Done. Competing with an established ritual is *very* hard, and being actually-better often doesn't help very much.

(I also made the severe optimistic error of assuming that this difficulty was equally obvious to my friends, and that of course they'd be focusing most of their effort on overcoming the marketing problem that was actually critical, putting the right kind of witch doctor faces front and center on their webpage to eliminate pointless difficulties, and so on. Instead they committed the textbook error of concentrating on building a good product. They treated "actually being better than doctors" as their core business problem. I should've written down in advance, "Your core business problem is obviously signaling/marketing and I predict this can only work if you make your product look like elderly white males", but I was reluctant to possibly interfere with their enthusiasm, or hindering their efforts to get funding. Lesson learned.)

For almost every normal product, your central real problem is causing people to trade with you instead of other potential trade partners. For almost every trade-partnering problem, your central task is causing the user to actually believe and alieve that you can deliver what you promise. There are startups that are exceptions to this rule, where the product is hard to develop but then the usefulness is really actually genuinely immediately obvious - again, Google Search comes to mind - but you should be very careful about what you suppose to be 'obvious' in this sense.

To this day, I expect, the readership of 'Harry Potter and the Methods of Rationality' is composed not of those people who would enjoy it most if they read it, but those people who experienced the most hope of seeing something interesting when they saw the title. If it had been legal to charge money for HPMOR, and I'd tried to charge users in advance of their reading page one, I'd have been *exceptionally* unlikely to get any uptake on that product no matter what testimonials the few readers offered. If I'd wanted to charge for HPMOR, I'd have needed to make at least the first 37 chapters free, and tried to ensure that the links being propagated to the story were to the free 37 chapters. Because I would have known, if the story hadn't been free, and if I'd been trying to market it, that my number one business problem would have been creating credible hope of a good story when the product is Harry Potter fanfiction.

(In fact, even clicking through to a webpage to see what you find is a kind of cost. It's just not a monetary cost. It's a cost that people are qualitatively more likely to risk because they don't feel *pain* when they risk time, as opposed to the 'ow' of spending money.)

The number one thing that can defeat the credibility problem is when your decisionmakers' joy is visible - when whatever benefit you deliver can be attested to by credible users. Consider AirBNB. I've heard it said that AirBNB was considered a bad idea because VCs said, "Who'd want to have someone else sleeping over in their living room?" Answer: anyone who saw their friends making money. People *like* money. They *imitate* other people who appear to be making money, despite other barriers. They imitated their friends who made money renting AirBNB rooms or who saved money on a hotel with AirBNB. It's actually a much more credible sort of signal than "Hey, I really enjoyed this Harry Potter fanfiction, I bet you enjoy it too" because people expect to share their friends' taste in money much more than they expect to share their friends' taste in fanfiction.

One of the key goggles I check for any startup is the degree to which I expect its putative successful use to inspire imitation and push through any credibility barrier that existed - whether the testimonial, if any, will feel like "My friend made money, I like money" or "My friend seems happy, I expect to become happy for similar reasons."

When people talk about 'virality' as though it's magic, this is usually what's inside - the degree to which success is visible, the degree to which seeing other people succeed creates hope of getting something nice yourself, and whether that hope overcomes whatever initial costs are in the way. You can also add incentives to create a sort of artificial virality, but it works better when the core factors are also present.
*
### Reason III: Your raw hedonics are bad.

The number one reason cryonics remains unused is, of course, that most people who hear about it don't expect it to work.
A further strangeness, irrespective of what you believe about cryonics, that it also has a very low purchase rate among people who *do* say they expect it to work and who have enough income to pay for it. 'Cryocrastinators', who feel like they ought to sign up someday but haven't, are far more common than people who're actually signed up.

This is because cryonics hits a trifecta of problems that give it a terrible hedonic profile even to believers:

3a) Hyperbolic discounting: Your product generates a hedon per day of value, but the purchaser is a hyperbolic discounter and would feel twenty dolors of pain at the moment of spending the money. Theoretically the product 'pays' for itself in 20 days, but hyperbolic discounting kills it.

The benefits of cryonics are in the future. Even the comforting thought of being signed up for cryonics is in the multi-week future, relative to the pain of filling out forms *right now*. There's a big upfront doloric cost of getting 24 signatures on all the required paperwork, and that's after you purchase life insurance. Nothing good happens to you after you complete any of the first steps involved. The major sign of encouragement comes at the very end when they send you a little necklace. (It'd be smarter to send the necklace at the very start, and tell people not to wear it until they're signed up.)

3b) Ugh field: Your product addresses a problem that most people find unpleasant to think about, so they flinch away from the entire subject at early stages of encountering your product and never get to the point of making a buying decision.
Cryonics is about death. Even in the very first stages of thinking about the problem, it's about weirdness and death, which is why most people never make it anywhere near the step of possibly trying to actually sign up for cryonics.

3c) Embarrassment: Your product works great, but is about an embarassing topic that most people won't talk about with your friends.

Especially the famous / prestigious people signed up for cryonics are reluctant to talk about it, because it would risk their existing prestige or become a news story if confirmed.

If I was turning my attention toward scaling cryonics, my number three priority would be to collect five Nobel laureates to go on a stage simultaneously, each one protected in their prestige by the company of four other Nobel laureates, and have them announce that the time to start cryonically suspending people was now, backed by diagrams of what happens at the cellular level during a cryopreservation.

My number two priority would be to get Alcor to raise prices and use the money to create personalized guides who'd shepherd their clients through every step of the process, including getting insurance, help them fill out forms as much as possible, etcetera. I would get the Cryonics Institute to link directly to a life insurance company they deemed compatible and have those company's forms already filled out as much as possible, include an online quote or estimator for prices, etcetera.

My number one priority would be to create a personal 'Signed Up For Cryonics' bar that showed the current stage you were at and what percentage complete you were, ideally one that was visible to your cryonics-friendly friends. Something you could post to Facebook. Maybe an app that would auto-post a message saying you were cryocrastinating if the progress bar went too long without making any progress. Basically, my number one priority would be to fix the part where *nothing visibly good or encouraging* happens to you on each incremental step as you sign papers, contact a life insurance agent, and so on.

I'm not sure I have simple or formulaic advice about how to fix hedonic problems. Trying to increase rewards on early steps, checking whether you've created enough hope to inspire the energy that carries through later steps, trying to associate positive affect with your product in various ways... these are either things that marketing and PR professionals know how to do, or problems complicated enough that I can't think of any helpful generalities off the top of my head.

But before you can solve a problem, you have to be aware of it at all. Studying 'gamification' or behavioral economics is important, not for solution formulas (please don't think you can gamify everything), but because it will at least teach you to be *aware* of your product's hedonic profile.

Sometimes you can eliminate those deadly, tiny 'ows' once you've noticed them. But don't expect your users to be able to report them, unless they're exceptionally self-aware and cognitive-psychology-literate.

From a micro-VC perspective, one of the key goggles I'll be wearing, besides my econolenses to discern actual incentives, will be the hedonic goggles that read out whether there's any reason why users would feel a tiny fleeting 'ow' in the moment of first thinking about your product, in the moment of first attempting to use it, in the moment that they imagine telling their friends about it, etcetera.