The Airbnb Episode: Classic Narrative Fallacy?March 22, 2011 5:43 am
Fred Wilson’s post on not funding Airbnb, and then PG’s response with some email communication around that time – put these things together, and you get a great lesson for any VC: summarized very well by Fred:
We made the classic mistake that all investors make. We focused too much on what they were doing at the time and not enough on what they could do, would do, and did do. I am proud that our portfolio is full of companies where we saw the vision before other investors did and backed a great team. But we don’t always get it right. We missed Airbnb even though we loved the team. Big mistake. The cereal box will remain in our conference room as a warning not to make that mistake again.
If there ever could be a textbook example of Narrative Fallacy, this would be it. Let us look at the definition of Narrative Fallacy:
“Our need to fit a story or pattern to a series of connected or disconnected facts”
Remember what triggered this post: this question: “Tell us about something you saw that was intensely interesting but was not something you’d invest in. And why.”
Looking back at events to gather evidence for this is simple, as PG has proved. It is easier to fit a story as well (if the founders are great fund them) – hindsight is 20-20; the tricky thing is this: what is the heuristic to identify such greatness?