The Fallacy of “Smart People”

Yesterday’s primary Twitterati discussion centered around Henry Blodget’s thought provoking piece DEAR SILICON VALLEY, Here’s Your Wakeup Call. In it, he bemoans the lack of responsible, diligent analysis amongst some of today’s leading VCs, and their unbridled, unchecked optimism.

Some were quick to malign Blodget for his representation of all Silicon Valley through the lens of a single (or a couple of investors). But I actually tend to agree with Blodget’s unspoken, yet underlying point: that as the tech world has had a strong ten year run on the backs of a white hot NASDAQ, the new generation of tech VCs have achieved something of a cult, unbounded status (at least amongst my peers).

What do I mean by this? On a couple of recent occasions, take Jet.com’s recent $140M raise pre-product as an example, I’ve responded to the question of “what do you think of that?” with one of my go-to responses: “It feels off to me, but there are a lot of smart people around the table, so I must be missing something.”

But this is a fallacy. Smart people do dumb things. Especially when driven by ego, fear, exhaustion or pressure. All realities of the current venture climate. I don’t think outsiders recognize how competitive the current state of the venture world is. No one, absolutely no one, not even demi-gods like Marc Andreessen are exempt from the strain.

As an aside, if you looked up my bio on paper, I’d probably make the (reasonably) “smart person” category. I went to NYU undergrad, and fortuitously managed to pull down an MBA from The University of Chicago. But even within the context of good choices, I’ve made extremely poor micro-decisions. Two examples:

1. Good Choice: Getting nearly six figures into the middle of the pot way back in 2007 holding two pair versus a naked flash draw.

Bad Micro-Decision: Not asking to run it twice to hedge variance.

Result: Bye bye college tuition. (Bad side of variance)

2. Good Choice: Asking a girl at the bar, now wife, on a date.

Bad Micro-Decision: Playing with fire for years, not fully committing, leaving optionality open.

Result: She waited – now happily married. (Good side of variance)

I suspect that the overwhelming majority of the tech investors, entrepreneurs, and evangelists that I, my peers, the press, etc, look up to are actually quite brilliant.

But it doesn’t prevent them from making poor micro-decisions, even within the context (or guise) of good choices.

I will continue to spend time working to understand the rationale behind any given investment or choice when “smart people” are involved. Yet, confusingly, within flawed reasoning there may exist many pieces of correct and insightful logic. That’s always the mystery.

So thanks to Henry Blodget for reminding me to more diligent, even when otherwise smart people are involved.

About the author

Ezra Galston
Ezra Galston

Consumer focused hustling @Chicago Ventures, Young Entrepreneur @Foundation Capital, Class 18 @Kauffman Fellow, and Chicago Booth MBA. Former professional poker player, with 4 years experience doing marketing/biz dev in the online gaming industry. Launched a "poker hedge fund" in 2011, a record label in College, and produced a festival screened short film in 2006.

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