(2021-09-12) Torenberg Reputation Markets

Erik Torenberg on Reputation Markets (Reputation Management) Like any market, reputation markets have their own economies, complete with incentives to earn & spend various forms of capital.

It’s interesting to think about the exchange rate between financial & social capital

Reputations, like stocks, have P/E ratios.

CEOs who are good at building hype (e.g. Elon Musk) effectively have high P/E ratios that afford them cheap cost of capital, lower CAC, and better recruiting pipelines

reputations, like stocks, have bubbles: Consider a “reputation ponzi scheme”: the idea of building up a reputation based on affiliations with other impressive people with nothing tangible to back it up.

Other social capital bubbles: If there are just more people willing to vouch for more people, then you end up with too many bad ideas getting funded. And you also end up with people optimizing for getting recommended versus optimizing for building something good. You see both of these in venture capital a lot.

Other market failures exist too: Nepotism is a credit market for reputation rather than cash.

So: reputation markets are inefficient, which means we need to find ways to incentivize social capital investing.

What could an AngelList for social capital investing look like? P2P credentialing could be one approach.