Startups have the same phenomenom: for every product that people are not buying, there's a substitute that they're buying instead. Either that or consumers are stuffing their money under the mattress, but we know (from the savings rate data) that this isn't happening.
In some ways, there ought to be more variation with startups, because consumers will tend to pile onto the market leader because they're seen as reliable, which starves other firms in the industry and shifts resources onto a few big winners. The information cascades among consumer businesses can be much bigger than the information cascades among financial firms.
That accounts from some ways startups can be negatively correlated, but for the purposes of billionaire founders making the Forbes 400, I still say they are all hugely correlated to market conditions that enable crucial funding rounds, M&A events, and IPO events.
Also, if I think startup X sucks, it's not that obvious how I can bet against them and get rich on their dismal failure. But if I think hedge fund Y is doing stupid things, I can take the other side of their trades, and one of us will wind up rich.
"Also, if I think startup X sucks, it's not that obvious how I can bet against them and get rich on their dismal failure."
Compete with them. If you think startup X sucks, then enter the same market, gunning for the same customers, but serve them better.
It's harder to do this than for a financier to short a stock, but that's because everything in finance is higher leverage than in business. The goal of an entrepreneur is to do things better than established businesses; the goal of a financier is to predict which firms will do things better, and then divert capital to them. The actual effort involved in finance is simply a decision, but that decision needs a lot of information to be correct more often than it's wrong. (None of which changes the relative likelihood of wealth concentrating at the top of one of these fields.)
I don't follow. Say a startup comes along and I think the entire idea, space, and sector is doomed to failure. The whole market is a no-go. I can't get rich off the ones I decide will be failures, and it's possible for an entire sector to fail together in a correlated way. Say, Gmail crushes all web-based email startups, or iPhone crushes all startups based on the available 2007-era mobile platforms.
At least in financial derivatives trading, there is a somewhat zero-sum aspect to who is winning and losing money. Every dismal derivatives trade should have some winners on the other side.
In some ways, there ought to be more variation with startups, because consumers will tend to pile onto the market leader because they're seen as reliable, which starves other firms in the industry and shifts resources onto a few big winners. The information cascades among consumer businesses can be much bigger than the information cascades among financial firms.