I read through one of Paul Graham’s essays this morning titled, “How to become an Expert in a Changing World”. It covers how VC’s try to guess which startups to fund and how to re-evaluate your beliefs.
Startup investors have extraordinary incentives for correcting obsolete beliefs. If they can realize before other investors that some apparently unpromising startup isn’t, they can make a huge amount of money. But the incentives are more than just financial. Investors’ opinions are explicitly tested: startups come to them and they have to say yes or no, and then, fairly quickly, they learn whether they guessed right. The investors who say no to a Google (and there were several) will remember it for the rest of their lives.