Startup Physics

I have used the word “physics” to describe a few things here at AVC over the years. I am tempted to write a “textbook” on this topic as I have observed many “formulas” over the years that seem to repeat themselves again and again.

A few examples are this post on the relationship between monthly actives, daily actives, and concurrent users, or this one on the elasticity of paid vs free services. I also wrote one about the numeric relationship between creators, curators, and consumers on a platform but I’m having trouble finding it and linking to it right now.

Yesterday I suggested another to William Mougayar via Kik when he observed to me that valuation mania has emerged in the blockchain for financial institution space.

I told him that when you are looking at financial manias, the amplitude of the mania is inversely correlated to its duration.

I like to think of these manias as waveforms. When they build slowly they last longer. When they develop overnight, they dissipate quickly as well.

This rule also works pretty well for consumer internet services.

#VC & Technology

Comments (Archived):

  1. David Semeria

    The post where you talked about “skip the water” during a college technical challenge remains one my favorites.Sometimes analogies between physics and business fit hand and glove….

    1. Girish Mehta

      Agreed.BTW, Sir Issac Newton went bankrupt investing in the South Sea Bubble. This prompted him to say – “I can calculate the movement of Stars, but not the Madness of Men”.

      1. Twain Twain

        Thanks for sharing, great quote.See my comments above re. limitations of Physics in measuring human behaviors and ‘Interstellar’ quotes.

      2. jason wright

        this is good stuff. what goes around comes around. tulips, south sea, bitcoin, they’re all a reflection of the human condition.

      3. David Semeria

        I think the key label is “Newton’s friends get rich” — that’s FOMO three hundred years ago….

      4. LE

        Never heard of Dr. Doom, Marc Faber before today. Thought this was the CNBC guy actually. Just took a look at his credentials. They are stunning of course. However my question is if he is so good and confident about his predictions what money has it made him personally by betting for or against his beliefs? Rather then selling a newsletter or information product? He gives proof of things he predicted on his website that came true, what we don’t have (like with Jim Cramer recommendations) is a complete picture of everything that he said and how that turned out.

        1. Girish Mehta

          The detail on Newton’s loss in the South Sea Bubble is historical..Faber has been bearish on equity markets for many years now…as such, he has been wrong for many years.

          1. LE

            Let me start by saying it’s a good lesson whether it’s true or not.However the fact that it is “historical” I don’t take as absolute. People can’t even get the facts straight and agree or report about things that happened 10 years ago let alone in the 1700’s. (I am talking specifically about Newton, not the bubble).I question everything as to the source as a general rule.An example that everyone can relate to is that “8 glasses of water a day” “myth” that was later found to be something that was just repeated so many times it was always assumed to be true. [1]Many people believe that the source of this myth was a 1945 Food and Nutrition Board recommendation that said people need about 2.5 liters of water a day. But they ignored the sentence that followed closely behind. It read, “Most of this quantity is contained in prepared foods.”[1]

    2. fredwilson

      That’s a great one

  2. jason wright

    the Universe is old, and the tortoise is still not quick.

  3. Scott Barnett


  4. LIAD

    Quickly come. Quickly go.valuation mania for blockchain. price mania for bitcoin

    1. jason wright

      isn’t it more to do with China’s monetary policy and regulations?

    2. William Mougayar

      But it started earlier. (Unrelated to bitcoin’s price, but now maybe justified by it.)

      1. jason wright

        a false signal?

        1. William Mougayar

          i don’t like how quickly the BTC price is rising.

          1. jason wright

            me too William. it seems artificial (manipulated).i wonder when we’ll see the first bitcoin riot in China?

          2. William Mougayar

            Roller coaster, yup.

          3. jason wright

            did you see that sudden price fall?

    3. fredwilson

      Yeah. It’s crazy

    4. Matt A. Myers

      HN comments on this:”The China factor behind this “surge” is because this… started doing business in China. It’s growing very huge.”-…”Yes, the MMM Global ponzi scheme now requires participants to fund their account in bitcoins. This is likely what nudged the price of Bitcoin upward. Even the CEO of BTCC (China’s 3rd largest Bitcoin exchange) admits it:……However, at this point the Bitcoin price surge alone almost certainly ignited a Bitcoin speculative bubble that is self-sustaining and would continue even if MMM was shut down today. I mean look at a hockey stick graph like this, it’s enough to trick people into thinking now is a good time to buy “because it’s going up”:……This speculative bubble is taking place mostly in China right now, as all Chinese exchanges trade at a premium over American exchanges. In fact Huobi just hit 3188 CNY (503 USD):… when most American exchange are at 460 USD —a 9% arbitrage opportunity!”-

    5. jason wright

      i would like to see a daily chart set against the timing of the Sun rising and the Sun setting across the coast of China.

  5. Tom Labus

    There’s a visible part of the mania and also a period when it’s not visible to the public They can grow pretty big, deadly and out of control before people even know there’s a problem. 08 perked a long time

    1. pointsnfigures

      Exactly, If you tried to short that one starting when the bubble first started to really manifest itself, you went broke…..unless you had a lot of capital.

      1. Girish Mehta

        In financial markets, being Early and Right and Short is indistinct from being Wrong.

        1. pointsnfigures

          It can be. But sometimes markets just hang around and don’t do anything-then they move all at once. Being early and right only costs you the opportunity cost of placing the capital somewhere else that has momentum while you wait for it to come to your corner of the financial map.

          1. Girish Mehta

            True, was referring to shorting in reference to your earlier comment. If you were right about the bubble in start of 1999 (and there were many who were right), you got slaughtered if you shorted and did not have the wherewithal to last till April 2000.Being “Early and Right and Long” is about the Opportunity Cost.Buffett has a good definition of Cost of Capital in terms of Opportunity cost -“I have listened to so many nonsensical Cost of Capital discusssions. Our Cost of Capital is what can be produced by our 2nd Best Idea, and Our Best Idea has to beat it” – Buffett.

          2. pointsnfigures

            That’s an awesome way to look at it. Was having this discussion with seed stage investors. Is it wise for a seed investor to put money in a company with a valuation of $50M or more? Might be better off taking the money you would have invested in the high valued company and putting it to work in seed.Want to know how irrational the market was in 1999? I was short Nasdaq futures when the USS Cole was bombed. The market initially rallied huge on the news of a terror attack.

          3. Girish Mehta

            I was talking about that period at lunch with somebody recently and thought to myself – there’s probably no way for somebody who was not around then to comprehend how crazy those times were.Just like nobody who was there will forget it.

          4. James Ferguson @kWIQly

            Which is why as Fred says…History rhymes.The rythym dictated by the new cycle which is why it rhymes with ever increasing frequency as attention spans shorten.What is the discount rate on past experience?

          5. Rob Larson

            Great quote!

  6. Aaron Klein

    This could have been a post on Marco Rubio’s effort “not to peak too early.” 😉

  7. William Mougayar

    This Startup Physics Law extends Carlota Perez’s thinking on tech cycles. I think it lives inside of it.

  8. Anne Libby

    One of the many good things about getting to be “a certain age” is the ability to see meaningful patterns. It’s going to be a good day to learn something here. (If we stay on topic!)

  9. pointsnfigures

    In the trading business we called that “hot money”. If you could predict where the hot money was going to flow, then you could get ahead of it. You could sell into the wave. It would flow from forex, to interest rates, to equities and back. It would flow from commodity to commodity. You’d see ebbs and flows in volume. (of course, in early stage startups, you can’t sell into waves!)A lot of money is being plowed into niche businesses that are posing as platform businesses. Really hard to start and sustain a true platform business.

    1. WA

      Great food for thought indeed! Perhaps this is exactly where the hot money acts as a particle. I’m thinking in the sense of an electron – where it will be predicted to be, where we know it was, and resigning that while its in motion any moment can dictate a change in course.

    2. fredwilson

      Yup. Just like that

    3. Joe Cardillo

      “A lot of money is being plowed into niche businesses that are posing as platform businesses.”Very well said. I was looking at “greeting card startups” on angelist the other day and had that exact thought. @jessbachman:disqus pointed out a while back that one of the major accelerators had a class this year that included a handmade, boutique card company. Pretty much illustrates the point.

      1. PhilipSugar

        I agree completely with pointsandfigures and you give a great example. The greeting card business has been struggling for years and the major players have some serious channels built.

        1. Joe Cardillo

          Too true, and it’s sort of that “hey let’s throw the word disruptive on this thing” attitude that shows up. Disruptive isn’t a light word in its core meaning, but people misuse it all the time.

    4. PhilipSugar

      Here’s the other thing. Where is that hot money going? I happen to be at home today (wife and kids are sick). She loves to keep the TV on in the background and I am working in the kitchen. The amount of advertising for niche startup companies on Travel Channel is stunning, it is almost 75%

      1. LE

        The amount of advertising for niche startup companies on Travel Channel is stunning, it is almost 75%I wonder if they are paying rack rate for those ads or it’s some kind of run of network to fill unsold space. You can always tell when there is low quality programming and unfilled space since you see the same cheap ads (not internet companies but one in particular is “Homeowner Protection Services” for bailing out mortgages which I always see on MSNBC, CNBC and likewise.)My ex wife’s business was a coupon book given out to college students on campus. One of her competitors (who was later bought out by Gannet) used to give away ads to fill unsold space. By give away I mean free, no charge at all.

        1. PhilipSugar

          It might be somebody buys it in bulk and resells it really cheap to internet companies.

          1. LE

            Ironic, given startups typical thinking that any middleman is “unnecessary and provides no value” and therefore ripe for disruption.

          2. PhilipSugar

            Totally disagree. Look at all of the “unicorn” startups Groupon, Etsy, Uber, Airbnb, etc, etc,Almost all are middlemen. Network effects are good, but my belief is eventually that is a really hard business.I remember seeing a pitch in the 1990s where a startup said if we can just get 1% of the transactions from steel we will be a billion dollar company.Nope, Just like when I rent a beach house, find a plumber (never done that through Angie’s list or whatever), or the Maid company that went belly up.Thanks for the intro, I will pay you your 20% premium ONCE and now I will cut you out, no different than temp services.

          3. LE

            You are right. I guess I stated that incorrectly. What I meant to say is “any legacy middleman is not needed”. Particularly when people are involved “girl at the supply house”.Now of course anything that they come up with that is a middleman is disruption.I know I have made comments in the past on AVC defending middlemen when perhaps other commenters or even Fred have said negative things (about traditional) middlemen. No way to search past comments or posts so no way to turn that up.Maybe as one example look at how many seem to feel that car dealers are the scourge of the earth and provide no value. Period. Part of the reason is people are scared of car dealers as if they pick pockets. (To me it’s a game and I enjoy it..) But it’s more than that. They feel that there is no value in the car dealer system they would rather by direct from the manufacturer.I am biased and like the existing system and don’t want fixed pricing (like mini cooper has). Why? Because when someone else pays more the dealer can and does sell to me for less. So I have an advantage that would disappear with fixed pricing.Another example is travel agents. By what you are saying travel agents have been replace by Expedia, Orbitz and using AA website directly. So the traditional middleman has been cut out.Now for you who travels a great deal this is good. You know the lay of the land. You are able to easily deal direct and save time and money. With me and with many others who don’t travel so much I liked having an agent wrap everything up with a bow for me. Takes to much time to read reviews and figure out the best hotel or even the best flight. I like the service of a human for that. You don’t need it I get that.Just today I bought some eyeball high hat lights from the local electrical supply house where I deal directly with the son in law of the owner. The price isn’t the issue although I think it’s good enough for the volume that I buy. What I like is having a person that can save me the time of figuring out exactly the right things I need to know to buy the correct led’s and can’s and trims. To me he is a valuable middleman. I can skip him and buy direct if I want of course but to me he saves me time.

          4. PhilipSugar

            There are two pieces adding value and extracting value.There are tons of situations where you are adding value.Restaurants where you make my food and serve it to me are a great example.Same for enabling a transaction I could not do without you ever again.Extracting value is just where you take a cut for something over and over where you do not add value.That is where you get cut out.

      2. David Semeria

        It would be great to hear Fred’s thoughts on startups ploughing so much of their shareholder’s cash into advertising. Google, Facebook and Twitter never needed to do this….

      3. ShanaC

        that is very 90s, and is very not good

    5. Terry J Leach

      Can you give some example of the niche businesses? I’m sure you correct.

      1. pointsnfigures

        I think if you look at the plethora of businesses delivering food in all shapes and forms there are niche businesses-not necessarily platforms that create network effects and ecosystems around them. Platform businesses are singularly unique, have network effects and allow other businesses (not necessarily startups but cash flow businesses) to plug in and grab producer/consumer surplus out of the ecosystem.

    6. ShanaC

      How do you know if it is hot or real money?

      1. pointsnfigures

        Answer, initially you don’t. You see it in either order flow, or you feel it in your gut. If you are looking for some sort of statistics, Variance, and Momentum. The run up in Bitcoin is probably a good example. Huge run up. Probably a chance to short it in the short run. Looks like hot money to me. If I was long, I’d be selling into the wave.

  10. Jordan Thaeler

    “venture” = growth equity. That’s about the only equation founders should be aware of. Could change in the next 3 years, but investors are totally bending you over a barrel.

  11. awaldstein

    From an operators point of view.It’s what you do at the plateau that matters.Physics is the law of nature.Business is the law of the market impacted by luck and operational excellence.

  12. JimHirshfield

    physic [fiz-ik] noun1. a medicine that purges; cathartic; laxative.”Startup Physics”. Just sayin’

    1. fredwilson


    2. karen_e

      the startup sermon

  13. Twain Twain

    Blockchain better hope the financial mania isn’t a wave pulse like a Black Hole …There is indeed a lot of Physics equations in financial engineering. For example, Monte-Carlo simulations on derivatives to work out the peaks and troughs of potential value amplitude. Oil derivatives and contracts being a use case — no wonder Ethereum headed in that direction because the sector lends itself to and is primed for the technology.Physics is useful (to an extent) for quantifying behavior but flawed in other ways — mostly because no one’s mathematically solved the Einstein-Schrödinger paradox of superposition between subject (subjectivity) and object (objectivity) without fundamentally challenging the precepts of Probability, Logic and Mechanics…yet…Moreover, as a tool for qualification of phenomena (including the hypermania, hubris, ego, chemical drives of economic/financial transactions), QP is… incomplete and incoherent.There are all these unknowns in Black Holes and blackboxes of financial trading and valuation … Unknowns (outliers, black swans, emotions, motivations) that activate and affect the mania === causation. These are the elusive factors which probability correlations can’t get to wrt the core of data, its meaning and its power potentials.FUN hard problems to solve for Blockchain, consumer Internet, data analytics, economic modeling…and Machine Intelligence, LOL.

    1. Stephen Voris

      There is a certain analogy between particles and people when it comes to quantum mechanics: both behave differently when not observed.(Though, separately, the definition of “observed” in physics has always bugged me – of course a particle’s going to behave differently when all the tools you have for “observation” require physical contact – albeit using, say, electrons – with the particle in question. What’s so counterintuitive about that?)

      1. Twain Twain

        In classical Newtonian physics, Descartian logic and Bayesian probability there’s a fundamental assumption that particles have no consciousness, no self-awareness, no free will and no subjectivity so … they just move randomly rather than CHOOSING where they want to go.It’s assumed they follow the rules and can be modeled by a common language (mathematics) and that particle events are discrete and deterministic. Hence Newton’s law of one particle determining and affecting the path of another particle through collision.This has affected how we’ve mathematically modeled humans as particles and “mere matter” for hundreds of years, combining it with randomness (stochasticity).Now, there are two new developments in how we rethink particles:(1.) Einstein’s Quantum Relativity Theory.(2.) The theory that particles already embody consciousness and subjectivity. This is research currently being undertaken at MIT and by Sir Roger Penrose and Dr. Stuart Hameroff as well as at Harvard Medical School.In any case, it will all affect Information and Computing Theory, the economics of valuation and how we design systems for the future.@InfoStack:disqus

        1. Stephen Voris

          Is it the presence of an assumption that they aren’t conscious, or the absence of an assumption that they are? Well, on reflection it is (or has been) the former, but the question’s still worth asking. Likely it was a corollary to the related assumption that people get one indivisible “soul” apiece – a touch hard to reconcile with the idea of a consciousness composed of myriad smaller ones!Look at it another way, though, and ‘randomness’ can be understood as ‘the absence of known motives’. On this view it’s obvious that particles behave ‘randomly’ – we can’t (usually) tell one proton from another, so of course we don’t know of any motives any particular one might have! Finding out those motives, though, is quite a different matter. As if psychohistory economics weren’t enough of an inexact science!Or, in other words, randomness does have its place, whether dealing with people or particles. When comprehending ~10^9 brains with 1 brain, or ~10^80 particles with ~10^20 particles, some compression – and hence, some inaccuracy – is inevitable.

          1. Twain Twain

            Randomness and the tool by which we parameterize it and do pattern recognition with (probability) has its place.As does Relativity but probability can’t parameterize that, per Einstein’s words.The reason is because if Einstein is right and God doesn’t play dice, he didn’t design the Universe by probability.Probability is actually a man-made invention from Pascal and de Fermat in 1654 to model the behavior of dice. It may have been generalized over to model the behavior of humans but that doesn’t make it the right tool —Especially since dice can’t think, have language, have emotions etc whilst we can and do.That’s why and how Probability has its limitations in Machine Intelligence when dealing with language, emotions and simulation modeling the way the human mind thinks.Some of the hardest problems in Computing and Tech Innovation.As hard as building the first airplane and doing the transatlantic flight, NASA safely landing on the Moon and being able to colonize Mars.LOL.

          2. Stephen Voris

            Alternative take:For all we know, dice do think. They just don’t do anything with those thoughts.Anyway. Probability certainly has its share of pitfalls when it comes to departures from untrained intuition – the Monty Hall problem is a pretty good example of this – but I’d argue that the larger problem is linguistic: mathematics, generally, relies on precise definitions for its concepts, while emotions, in order to have concise (read: understandable) labels at all, are closer to rules-of-thumb. (“Fuzzy” math/logic does exist, but hasn’t really caught on)Of course, the above could simply be my own bias towards understanding the universe in terms of fractals/rhymes/themes-and-variations, so, usual doses of salt apply.

          3. Twain Twain

            Here’s how Facebook, Buzzfeed and Twitter are all trying to do emotions whilst still using the legacy framework of probability in their algorithms.The techcos’ want to get to “The Emotional / Empathetic Internet.”However, here’s the thing: none of them have equations / formulas / protocols for the Quantum Physics version of Data, including emotions, that would get us to ‘The Emotional / Empathetic Internet’. And neither have Google, Baidu, Amazon or Apple either — in fact not even Stanford, Harvard, W3C have such equations / formulas / protocols.Ergo… we’re still in the Classical Mechanics deployment phase of the Information Revolution.It’s like I said before in @fredwilson:disqus post:*…”At the moment, what we have is crude oil and what a lot of the techcos are generating re Data is tarmac. Yes, it lays the roads of the Information Superhighway.However, don’t expect it (the data oil) to enable us to fly airplanes across the oceans or space shuttles to Mars anytime soon.”That would require someone(s) to write equations / formulas / protocols that are the Quantum Physics version of Data — just as Nakamoto invented the Blockchain+Bitcoin protocol (standards).It’s worth noting Bitcoin+Blockchain wasn’t invented by some behemoth employing thousands of highly qualified people. It took the brain of 1 Nakamoto.This is why no assumptions should be made that the insiders (the Goliaths) in the classical Mechanics version of the Data superhighway know more than and can innovate better than the outsiders (the Davids and Nakamotos).*…Paul Graham: “If you think of technology as something that’s spreading like a sort of fractal stain, every point on the edge represents an interesting problem. Steam engine not so much maybe you never know.One guaranteed way to turn your mind into the type to start up ideas for them unconsciously. Is to get yourself to the leading edge of some technology. To, as Paul Buchheit put it, “Live in the future.” And when you get there, ideas that seem uncannily prescient to other people will seem obvious to you. You may not realize they’re start up ideas, but you will know they are something that ought to exist.”To Nakamoto, it was obvious Bitcoin+Blockchain should exist so he wrote the equations and then applied them in practice. That’s classic First Principles invention.And financiers love arbitraging at the edges with their physics equations.LOL. So many things about the paradoxes, ingenuity and idiosyncrasies of people lead to invention and disrupting old ways and systems that are no longer “fit for purpose”.

          4. Stephen Voris

            Well, the brain of one Nakamoto, plus a good chunk of cryptographic common knowledge on hashes and computation in general. The thousands of highly qualified people did, in fact, also have a role.Arguably they still have a role – the amount of information in academia (if we’re measuring by, say, number of papers published per unit time) is staggering compared to, say, a century ago: there’s more than Bitcoins to be mined out there.(as for living in the future, that’s perhaps one of the trickier bits for me – picking a single future and sticking with it :P)

          5. Twain Twain

            Steve Jobs: “I’m convinced that about half of what separates the successful entrepreneurs from the non-successful ones is pure perseverance…. Unless you have a lot of passion about this, you’re not going to survive. You’re going to give it up. So you’ve got to have an idea, or a problem or a wrong that you want to right that you’re passionate about; otherwise, you’re not going to have the perseverance to stick it through.”Edison: “Genius is 1% inspiration and 99% perspiration.”They’re both right.The future is built with focus and execution; blood, sweat & tears.

  14. WA

    So in this theory, if the majority of manias are waveforms could those that endure may be more closely analogized as partIcles? It’s the old argument back to Newton and Huyghens. Of course as old Albert E postulated – there is the duality of being either/or as the need or conditions, rather, dictate.

  15. Joe Lazarus

    Here’s a link to your post on the 100/10/1 rule of thumb for content consumers, engagers & creators:

    1. fredwilson


  16. Girish Mehta

    Over a period of just four years. A Unicorn simply ain’t what it used to be (…but never was).

    1. Matt A. Myers

      Wow. That’s an amazing chart.I’d really like to see it based on how much money has ben pumped into this companies and some sort of scale relating to time coverage.As an example, Stripe sticks out, mostly because it likely realistically is naturally in that club – based on old metrics anyhow.And the opposite of course, if you pump $200mm into a company at a $1B valuation, it now is technically worth $1B, even though of course there’s a high probability it’s not..

      1. sigmaalgebra

        Apparently the unicorns are not from real equity investing but are from some special and severe term sheets that make the investments really loans that, to satisfy some rules, just look on the surface like equity investments. A big reason is the low interest rates that are having funds that would have bought bonds make unicorn investments to get higher interest rates. Applying the usual equity valuation ratio to a unicorn investment is a joke.

    2. Wyatt Brown

      It seems worth noting that several of the companies in the later time bracket were in operation for +5 years before they “achieved” $1B+ valuations (Houzz-7, Eventbright-6, Buzzfeed-9, Hootsuite-7). Several of the companies in the earlier time bracket rose to $1B+ valuations almost overnight, being <2 years old (Pinterest-2, Dropbox-2, AirBnB-1, Square-1, Evernote-2) . In the later time bracket, there seem to be many overnight $1B+ valuations that many people have never heard of, but not so much in the early bracket.What might this indicate?

      1. Adam Sher

        One, it indicates availability of capital. In 2011, investor capital flow was significantly less than it is today, Demand for capital > supply of capital –> valuations were lower (pricing power!) and less # of companies even received capital. Keeping the aforementioned in mind, it’s not surprising, given the economic climate in 2011, that there would be relatively few $1b+ valuations than today.Two, it indicates that the US market and economy is in a much better place than 4 years ago.Three, there maybe something amiss in the assumptions required to justify the above investments, which resulted in plethora of $1b+ valuations.What will precipitate the culling of newly minted $1b+ companies? I am stepping out of my element to make the following guess, but I will prognosticate anyway because it’s fun. There is too much capital chasing startups (moving up the yield/risk curve). The easiest way to justify making investments in such an environment will be to have the most aggressive growth and return assumptions. Everything will have to go right in order to hit base case returns. There will be a lot of pressure from investors on startups to hit performance metrics (let alone cash flow), and that will result in some spectacular financial shenanigans (i.e. Fraud). How will USV and peers find investments in this market? Reputation –> proprietary deal flow. The rest will bid up.

        1. Girish Mehta

          Not comparable. More and more of the late stage investments are not taking on the risk of equity investments with their liquidation preferences. Comparable to debt. When you talk of valuation for equity investments, you are implicitly talking about the risk taken by the investor at that valuation. When that risk is mostly taken away, the valuation means much less.

          1. Adam Sher

            What is not comparable?A debt-like position still relies on growth assumptions in order to justify the investment. Debt position /= low-risk. When the capital is as available as it is today, it seems low risk. When it’s not, the last in will be impaired, just not as much as those later in the liquidation preference.

    3. Rob Larson

      Interesting how frequently they started popping up as soon as people started talking about (& measuring) the # of unicorns.There’s a principle in physics that says you can’t measure a subatomic particle without altering the particle, i.e. the act of measurement changes the nature of the thing you were trying to measure.Often it proves to be a good analogy for phenomena on the macro level. Such as the one you illustrate above. (another example would be KPIs and other measurements of performance, though in this case that’s the very intent behind the measurement and choosing the KPIs)

      1. Stephen Voris

        It’s a relatively recent principle in physics, at that; though I suspect it’s more “all the tools we have to measure stuff (subatomic or not) with involves physically interacting with said stuff; this becomes non-negligible at subatomic scales.” In other words, it may not just be subatomic particles even in physics, it’s just most visible there.

        1. Rob Larson

          You are right. Though it’s a fundamental property of matter which will never be overcome by new tools / better technology.This is because the only way to get information about anything is for, at a minimum, a particle to interact with that thing and then interact with you. (Photons for seeing things, gravitons for feeling their gravitational pull, etc.) This is also why information cannot travel faster than the speed of light.With large objects, the impact of interacting with photons (light) is a rounding error, whereas at the subatomic level it causes massive changes.This will always limit our ability to observe. One can imagine exotic beings made of something other than 3-dimensional matter (something not from our universe? God?) which might have other ways of observing without modifying what is observed. But there’s nothing intelligent I can say about such speculation.

      2. jason wright

        what’s the environment like inside the box? the only way to find out is to open the lid. opening the lid changes the environment inside the box. some things are not observable.some things are not knowable. some people are very content with that, and some people are troubled.

        1. Rob Larson

          Well said

    4. ShanaC

      some of the adds make sense in light of the depressed dollar and time, others, why (instacart, I’m looking at you here)

  17. Twain Twain

    As we try to quantify and qualify those KPIs in consumer Internet and blockchain…some quotes from ‘Interstellar’ speak to the missing metrics that no Physics nor Mathematics formula has been created to measure…It would require us to go back to the birth of Rationalism and Empiricism and to invent measurement tools anew:Cooper: You’re a scientist, Brand.Brand: So listen to me when I say that love isn’t something that we invented. It’s… observable, powerful. It has to mean something. Love is the one thing we’re capable of perceiving that transcends dimensions of time and space.Cooper: Love has meaning, yes. Social utility, social bonding, child rearing…Brand: We love people who have died. Where’s the social utility in that?’Interstellar’ is a great great movie for all sorts of reasons. As art. As science. As social commentary. As a pointer to missing information and tools still to be invented for us to understand the Universe and us…*

    1. Twain Twain

      Ah and that’s why the Information Revolution is far from done and why Financial Capital shouldn’t hang up its hat and leave it all to Production Capital.Someone(s) somewhere is going to take apart those KPIs in consumer Internet, blockchain and Machine Intelligence and invent a whole new form of Information based on solving those as yet-unsolved paradoxes in scientific formulas relating to human behavior and thinking.And the inventions will be simple and beautiful, abiding by Einstein’s rule: “If you can’t explain something simply enough, you don’t understand it well enough” and Da Vinci “Simplicity is the ultimate sophistication.”The great leaps of Intelligence in Humankind have always happened after the invention of Maths / Physics / Biochemical / Tech tools.Financial and Production Capital will need to be there to discover and fuel those inventors and their inventions.

      1. Michael Elling

        I agree. We’re 1% of the way there after 31 years of modern, digital communications competition. But have and will there be dead-ends? Are the unicorns and disconnected apps world similar in ways to the over-hyped dial-up, 1.5-way store and forward web filled with so much promise in 2000? Offsetting these negatives is that fact that 2-4bn people will join the connected world over the next 10 years. But their purchasing power and hence value contribution through network effect is much lower than the existing 2bn. And the model of monetizing our privacy is probably not sustainable. We need new settlement models to develop 4K VoD, 2-way HD collaboration, mobile-first and IoT rapidly, cost-effectively and ubiquitously. These settlement models will provide the necessary price signals and (dis)incentives both north-south and east-west to clear supply and demand ex ante in the informational stack.

        1. Twain Twain

          I know the apps explosion got people all excited.For me, its First Principles invention which is a lot more interesting. The blockchain is a First Principles invention as was TCP/IP. However, they’re still rooted in 1950s work which is rooted in mathematics from C17th.Meanwhile, there are other scientific discoveries and inventions which lend to much more intelligent technology than apps (even if some of them are useful — like measuring our health metrics and keeping us socially connected with our family, friends and colleagues).There’s First Principles invention to be done in IoT and that’s the exciting space, imo.

          1. Michael Elling

            But this is not a technology issue per se. It is clearing of supply and demand forces in modern digital “informational” networks. TCP/IP is an insecure 3-4 layer protocol stack based on “trusted” agents. As soon as “email” and “the web” made it easy to navigate the IP address directory a lot of malicious agents and actors arose. But worse there is no inherent price signals built in to incentivize actors to work in a concerted fashion. Just look at the length of time IPv6 is taking to scale; even though just about everyone knows its virtues.Blockchain may well be a technology that can facilitate the implementation of settlements between actors, but more needs to be understood about the inter-network settlement structures for the entire process to be more egalitarian and universal. Today’s bill and keep model (yes the IP stack folks have convinced the PSTN/OSI folks to embrace this fallacious thinking) has resulted in the byzantine, crowded out, siloed model that is impeding rapid (and profitable) growth.The latter is an undercurrent that is cropping up almost daily on this blog.

          2. Twain Twain

            I hear you. It’s not just a tech innovation issue. Or an economics innovation issue. Or a business model / physics / design etc innovation issue.My view is that the innovation has to happen on a multi-disciplinary, multi-integration basis.Moreover, it’s not pricing signals and the arbitrage between supply+demand modeling which need fixing.It’s the fundamental measurement of VALUE SIGNALS which price doesn’t necessarily factor in. What’s the value of running water relative to running bits in a Blockchain?The settlement structures are still within the control of elites (governments and banks have been transplanted by VCs and developers in the pre+post Blockchain era).Recognizing this is important because then we can start solving for these issues, so the systems do become as egalitarian and universal as our hopes are.

          3. Michael Elling

            All value within and across networks flows to the core and top. This value typically grows geometrically. The costs are principally at the edge and bottom; and they grow linearly. That’s consistent with those who control the logic, or information sets, or address directories and those who put in the pipes or endpoints. Those who have succeeded in the “commons” and crowded out all the other players would like to keep the status quo.The 2 key regulatory/policy issues are interconnection and the nature and level of settlements at the boundary points (horizontally and vertically).The government actually recognized this long ago with universal service funding. But what’s needed in its place is a market-driven system of settlements that achieves network effect across actors. This requires the larger actors to “subsidize” the smaller actors with a terminating settlement that is relatively larger than the reverse direction. But in the end the larger actors will derive a larger absolute benefit due to the difference in geometric value vs linear costs.And this model insures that the smaller actors, who can typically be more generative and flexible, are on even footing with the larger actors and can also induce change (be they at the core or edge, top or bottom). Bill and keep (settlement free or net neutrality) interconnection results in the exact opposite of what people think or intended. But then looking at the last 30-50 years of digital communications evolution we’ve arrived at the present more often than not as a result of the law of unintended consequences.

  18. Tom Labus

    Bitcoin opened at $450. something goin’ on

    1. jason wright

      and rising ($484)

    2. Matt A. Myers

      Looks like a real Ponzi scheme by definition is requiring funds from another speculative environment. How many levels can you go..HackerNews comments on this:”The China factor behind this “surge” is because this… started doing business in China. It’s growing very huge.” –…”Yes, the MMM Global ponzi scheme now requires participants to fund their account in bitcoins. This is likely what nudged the price of Bitcoin upward. Even the CEO of BTCC (China’s 3rd largest Bitcoin exchange) admits it:……However, at this point the Bitcoin price surge alone almost certainly ignited a Bitcoin speculative bubble that is self-sustaining and would continue even if MMM was shut down today. I mean look at a hockey stick graph like this, it’s enough to trick people into thinking now is a good time to buy “because it’s going up”:……This speculative bubble is taking place mostly in China right now, as all Chinese exchanges trade at a premium over American exchanges. In fact Huobi just hit 3188 CNY (503 USD):… when most American exchange are at 460 USD —a 9% arbitrage opportunity!” –

      1. jason wright

        MMM is registered in Nassau

        1. Matt A. Myers

          Does that have significance ?

          1. jason wright

            a veil

      2. Tom Labus


  19. jason wright

    i like the analogy to the life cycle of a star(t up).

  20. Matt A. Myers

    Perhaps not the perfect parallel – however I’ve certainly got the building slowly part – hopefully that means I’ll last longer. 😉

    1. Drew Meyers

      Slow and sure wins the race

  21. sigmaalgebra

    With a lot of simple assumptions (a derivation with stochastic processes would be longer!):(number of concurrent users) = (number of active users) x (length of time in minutes a user is active) / ( 24 x 60 )

  22. jason wright

    i wonder if there’s a formula that could describe the dynamic development of an avc comments thread?

  23. falicon

    if only you still had a killer search feature to help sift through your amazing archive… 😉

    1. LE

      Better yet I wish somebody would come up with a way that I could download all of my disqus comments.. That is something that I would pay for.

      1. falicon

        I *think* they have an API you can plug into…if not, pretty sure you could screen-scrape your profile from their site (… ) if you *really* wanted to…

        1. LE

          By screen scrape you mean use curl or wget? Or do you mean literally manually scroll, click, do a screen grab and then ocr from the pdf?

          1. falicon

            Many different ways you could do it…just depends on the tools you know/want to use…but the things you mention are certainly options (not options *I* would pick, but options none-the-less). 🙂

  24. jfccohen

    LOVE this idea and have been looking at some of your writing in this capacity (e.g. 10% of community is active rule). It would be helpful for planning purposes for entrepreneurs to know general rule of thumbs so they can build better companies faster.

  25. Joe

    Yes, you should write a book!

  26. Lew Hollerbach

    Fred,At the risk of being a pedant (and also as someone with a degree in Physics), what you’re describing is not really “physics”. Physics deals primarily with the study of matter and its location or motion through space-time, along with related notions around energies and forces. The word itself, from the Greek, means “the essential nature of things”.You, on the other hand, are mentioning formulas, relationships, correlations, patterns, and more math-related ideas. What’s absent are underlying theories that seek to explain or – at worst – model the phenomena being observed.As we all know, correlation does not imply causality, but what we’re after is in fact is a large-scale explanatory system, which would seek to describe the causal forces and interactions at play, with reasons.So, for example, as others have commented, what role do stochastic process play here? How does Chaos Theory seek to describe some of the phenomena mentioned? I don’t agree that elements of Quantum Theory apply to macroscopic phenomena; it’s not the appropriate domain for it. Classical mechanics is probably a better tool.But even there, solving the equations for many-body interactions (say, in astrophysics or celestial mechanics) is still exceptionally difficult. And, trying to explain human behavior, with all its attendant messiness, using principles of Physics, seems like a futile pursuit.Sure, it’s tempting to start thinking of things like waves and particles and fields to describe financial manias. But if you dig deeper, I suspect the analogies will fall apart rather quickly.So I’d suggest some other term, instead of Physics, to label startup behavior. Else, we’ll end up ascribing too much explanatory power to something that is only superficially capable of describing the behaviors we see. Not sure what that label could be, but finding one might help us all – those in startups, or those analyzing the markets – to speak about them in a unified and logical way.

    1. Twain Twain

      Have you read this interview with Vlakto Vedral, a Quantum Physicist at Oxford?Guardian: What information is important at the quantum level, and how does it help us understand the origins of the universe?Vedral: At first sight, all types of information look very different from one another. For example, contrast thermodynamics – how chaotic a system is – with the information in your genome. You’d say: what on earth is the relationship between these two types of information? One looks much more orderly, the living system, while the other is disorder. But it’s actually one and the same information… you actually need very little to define the concept of information in the first place. When you strip out all the unnecessary baggage, at the core is the concept of probability. You need randomness, some uncertainty that something will happen, to let you describe what you want to describe. Once you have a probability that something might happen, then you can define information. And it’s the same information in physics, in thermodynamics, in economics.*…I happen to agree with you. It’s unhelpful for Physics to label startup behavior and human behavior (such as economics) as if atoms and humans are like-for-like.The reason is simple: the information is NOT the same at all between physics, thermodynamics and economics.In physics, we’re dealing with matter that behaves objectively and is assumed to have no subjectivity.In thermodynamics, we’re dealing with chemical phase changes that elicit energies (including external and latent) as excited electrons transition between energy shell levels.In economics, the objects (people) are excited and driven by their subjectivity in everything we think, choose and do.They’re different phenomena and so, even though it’s expedient / convenient, we need to be aware of and guard against over-ascribing utility to Physics as a tool of measurement and modeling from its domain over to the domain of human behavior, including startups.Physics and maths formulas are useful but cannot describe everything — certainly not “the madness of men” per the Newton quote @girishmehta:disqus shared above.

    2. Sebastian Wain

      Sorry, your comment reminds me of the following Babbage and Tennyson episode.

    3. Rob Larson

      I also have a degree in Physics, but I have the opposite viewpoint–I love posts like these.I define physics as “learning why things happen (often but not always using math), in an effort to better understand them and hopefully predict them”…but then, I’m also someone who, after doing an internship on Wall st, went back to school and gave my physics dept a presentation on “the physics of finance” (talking about how Fischer Black used the heat equation to model financial securities, resulting in the Black-Scholes option pricing equation)Which is to say that my approach to defining physics is fairly liberal. i.e. “everything is physics” – if we use sufficient rigor in our approach to understand it.

  27. Eddie Wharton

    I like the wave metaphor. A great use of mathematics is metaphors. It really captures a lot of abstract concepts so well.

  28. Richard

    It’s all about the base.

  29. Pete Griffiths

    Phenomena that build slowly and surely are like the tides, they are forceful but not news.I was heavily involved in the early days of the transition of UNIX into the mainstream. Whilst we knew that we were involved in something huge one had to recognize that it was unlikely that we were going to see headlines of the form: “UNIX still hugely important today” or “Structural Factors underlying need for Portable Operating Systems still in place.”Don’t expect to see “Structural significance of Paradigm Shift to possible Distributed Trust Systems remains unshaken.”

  30. creative group

    your timely mention of physics correlated with the interview William Mougayar conducted with Dave Cohen CEO of TechStars while visiting Canada. And theKIK reference provided a chuckle. Reminded me of the teenagers using thatapp. The position in KIK must be substantial.A great interview by the way.

  31. ShanaC

    You know, you could apply that to end sort of pop culture trends. I am thinking Pogs when I was in elementary school. You had to have them for a few months. It was huge.Then woosh, gone.

  32. Steve Ridder

    I’d add that when major financial institutions spend precious capital and treasure on emerging tech, even if slow, it will be lasting.

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