Continuing on the theme of forecasting, I listened to a podcast interview with Phil Tetlock and Tyler Cowen that brought up the topic of spotting talent. Before I go on, I learned that Tetlock studied at UBC and is a fellow Canadian. A fun fact.

When asked by Cowen whether VCs like Peter Thiel and Michael Moritz are super forecasters who can spot talent, Tetlock replied how it was hard to denote whether their results were a function of an existing network or skills in the judgment of talent. 

The premise being, are they truly skilled in identifying talent by handpicking out geniuses, or is it more akin to a monkey throwing darts at a stacked dartboard of winners? Most people think the former but could it be the latter?

Let's start with the kind of people who become entrepreneurs. Specifically, the kind of people who become entrepreneurs of venture-backed businesses. They aren’t anything like the average person. They seem to have a certain personality trait that pushes them for independence away from social constructs. They seem to have the hutzpah to create something out of nothing, go through long periods of failure, recruit hundreds of people to believe in them, manage and lead them, all the while competing in a world that is designed to crush them. One only needs to spend time speaking with a dozen of these entrepreneurs to get some humility around how hard it is and that you most likely aren’t suited to succeed in such an arena. At least, that’s how I felt. 

If I grabbed 1,000 people, maybe 100 of them might have the “qualities" to be an entrepreneur. I think I’m being generous but this is to account for those with nature and some with nurture. Then there might be 10 that come from an environment that would allow the individual to push towards a certain entrepreneurial path. Jerry Colonna once wrote about how many entrepreneurs came from childhood backgrounds where they were forced to grow up faster/earlier (i.e. early divorce between parents, single-family households, immigration while both parents are working, etc….). That could be one such environment but there are financial, societal, and political considerations as well. 

So of the 10, maybe 50% realize they need to move to be in Silicon Valley so they do. This might be a self-selected group where they chose to go to the Bay Area to get closer to people like a Thiel or Moritz. They might have been told to go to the Valley by people who think like the VCs as well. Once there, they meet more people like them until a network forms. It becomes a virtuous cycle of attracting more like-minded people.

In such a population, pattern recognition will also become apparent that some of these self-selected people are even more impressive than the rest. So, of the 5 that went to the Bay Area, maybe 2 are unlike the other 3. One only needs to multiply this out and it might not really matter so much which one of a dozen of these people a VC picks. As long as the person is equipped with the vast amount of capital, the culture of pushing limits in Silicon Valley, the support of like-minded mentors the entrepreneurs never got in their home town, and the communal helping network of more like-minded chosen ones….they are set up to succeed. 

It’s quite like the idea that Matt Ridley mentioned in his podcast interview with Shane Parrish where the innovations we have might’ve been invented by someone else eventually (i.e. The Wright brothers gave us the plane but it doesn’t mean someone else wouldn’t have given the environment). Yes, Zuckerburg gave us Facebook but I’m sure we would’ve had other social media platforms if he didn’t. It might look different and it might not be from the U.S. but we’d all have something else. 

I do think that the entrepreneurs who’ve built the global companies that make my life so much better are all special. The VCs who invested in them were probably helpful on their journey as well. But I’m inclined to think that the success of selecting talent is greatly aided by a self-selected population that exponentially elevates the base rate of success. I don’t know if they’d be able to spot such talent that can deliver such success without their reputation in some no-name town. The base rates of success would be drastically different in that scenario. 

I think the credit goes to this self-fulfilling ecosystem that gave birth in a part of the U.S. that was very much disregarded after the gold boom and thought of as a movie/film state. It started with a group that created a unique culture that attracted like-minded people and further perpetuated a wonderful ecosystem of making, breaking, and doing it over again. It’s about creating an environment that elevates the base rates for success, not so much an obsession over picking one individual out of many other outstanding individuals. Life is filled with too many uncertainties for such selection to be a skill-based and deterministic part of the process.