This is what I was thinking. It might be better for people trying to raise money from other angels who aren't a YC company because the new YC batch now has their boats floated for quite a bit more time.
Less sardonically: if YC is so ridiculously superior to other investment models that investing money at these terms is profitable knowing nothing of the actual company invested in, then the system is broken. This is the market's corrective measure, attempting to come up with a better approximation of the true value of early stage startups. Might it discomfit people who made a lot of money when it was broken? shrug
That might be true, but I don't think this particular news provides much evidence either way. The total amount being invested across all 40 companies is less than many companies' A rounds.
Much like I look at "200,000 visitors! Whoa!" and think it is a big number, and you guys might think "Hmm, perhaps there was something interesting going on that second.", I think we collectively share a borked perception of what constitutes a big amount of capital.
$150k is a meaningful amount for an early-stage startup. Multiplied by 40, that is $6 million. $6 million is, seat of the pants calculation, two orders of magnitude lower than 2% of United States VC funding in a typical year. VC funding is three orders of magnitude lower than the amount of outstanding bonds in the US. That is one asset class: there are others.
Or, for another visualization: if this investment is one pixel, then the US bond market is a grizzled old neckbeard sporting six monitors at 1024x768. The remainder from that calculation might fit an iPhone, but I don't know the resolution on those off the top of my head.
Long story short: there is always a ridiculous amount of money in the capital markets.
I wasn't thinking so much about the amount of capital as to the fact that someone is willing to risk it on someone else's judgment. Money managers aren't known for trusting other people with their money; if they were, they'd be their clients. That someone is willing to do this indicates to me that he considers this "play money", a little loss leader he can dangle to get in on much bigger deals later. It's not really the amount of money going into these deals as to amount of money that it suggests is behind them.
What are the terms of the deal, specifically? How much to startups have to pay back if they take the $150K, and when do they pay it? What about valuation of the startups (ie. $150k for 10% implies $1.5m valuation)? Or is this more like a loan ($150k, pay back over X years, or upon Y liquidity event)?
Its convertible debt, meaning that whenever the startup raises the A series funding, at how much ever valuation, SV angel gets 150k worth percentage stock in the startup.
e.g. If the A series funding was taken at $1.5 Million valuation, the SV share in the company would be 10%. No valuation ceiling, no discount. Lower the A series valuation, better off SV angel are.
It means your plan IS to give some of your company away for money. Instead of holding 100%, getting ramen-profitable, working your butt off to make it.
Actually, even that isn't true. If a company were to take this money, and then never raise another round, they would simply have to pay the debt back, I'm guessing at a fairly modest interest rate.
good idea. a sort of pre-YC. could be worth it now that every YC alumni is basically guaranteed a $160k+ investment. (forgot offhand how much YC itself gives)
150k is not going to get a company very far, and certainly not far enough to reinvent the startup model completely. Building a team is still a critical part of building a YC (or any other) company, as is honing a product and bringing it to market (which is primarily what they help you do). Saying that those things aren't part of the YC model just because you get some extra free money on great terms is disingenuous.
Also, more and more experienced entrepreneurs are going to YC, because of the effects of the network and because the money really isn't that expensive. People always bring up that it isn't a great deal for experienced entrepreneurs, but you can ask my friend Steve, who just sold Reddit, went back to YC, and just raised a fat series A for hipmunk whether it was worth it.
Hm. 150K is going to get a company, lets see, 10 times as far as $15K? Probably not, but its certainly going to get it something, and fundraising is going to be an order less critical for the duration.
The YC model is something like this: Founders are recruited, then weeks are spent building a prototype whilst attending dinners/lectures about the next step: fundraising.
YC is out of the picture once teambuilding, product honing begins. Its explicitely NOT part of the YC experience. As I understand it.
To expand on my 1st remark: the shoestring bootstrap model is just one; others solicit Angels to fund development in a more structured manner. The reasons to bootstrap are usually, you are not known and cannot convince Angels to cough up. If for instance you have a success behind you, it may be possible to dispense with the grinding poverty phase.
Not really, I think most of here would assume YC would in the next few years produce a solid return. Here your basically aligning youself to YC's performance instead of trying to pick which ones you think will turn out the best. Although sounds like they are still doing that additionally.
absolutely not. YC is getting their percentage at valuations of around 200-300k.
This investment will convert at valuations closer to 5M these days. So in fact they're effectively paying 10x what YC is paying for about the same stake in a company post the financing.
Congrats to YC and time will tell if it works, exciting either way.
Great for entrepreneurs, but eventually it will be the relatively unsophisticated angels who will get burned by these valuations.
I have no problem with that, really. In 2001 it was different - everyone was playing with public money through IPOs. Now only a few quite established companies can afford to go public.
Don't be mistaken, though - this will turn into a bubble, whether you wax romantic about "entrepreneurs just do it!" or not. It always happens - it will happen again, life will go on, but it will happen.
So this investment isn't at a valuation and the valuation is only decided at a future round at which point this converts into an amount of equity based off that valuation?
I've read about convertible notes before just a little confusing at first.
Right. $150,000 paid in advance. Whenever the company raises its first significant money (usually >=$1M) that $150,000 buys equity at the same rate the new investors are paying.
2. At the end of YC, my rich friend Joe decides to invest a million dollars in my company at a valuation of five hundred trillion dollars. Yuri thus gets an insanely small slice of my company.
3. Two days later, my company buys Joe's shares back for a million dolars.
4. Now my company goes off to seek actual funding at a sane valuation. Yuri gets annoyed.
it's not worth ruining your reputation over screwing a single investor especially in a deal this small. it's a small community and even if you found a way to trick the investor in this situation, it reflects very poorly on you. i'm sure there are ways to game it, but why even bother?
yc is a small network; if one founder screws someone else, everyone knows about it. vice versa.
You're leaving out the part about getting accepted into YC and then being willing to blackball your reputation and ability to ever raise money to do anything, again.
Who would do that for $150k? To me, this is the equivalent of leaving $20 on the table to see if you can trust your friends.
If that happens, Yuri would be insanely profitable.
Five hundred trillion dollars are coming into the company. Then all that shares are bought back.
So now Yuri has substantial share of these five hundred trillion dollars. Even if Yuri's share would be just 1% -- 5 trillion dollars would allow Yuri never work again.
You probably will not be able to pull off part 3. There are duties the company has towards its shareholders. Thus, it will often cause legal problems for the company to buy out one person's stock without offering to buy everyone's stock for the same price.
That's why when companies buy back stock they tend to use tender offers that are extended towards all shareholders.
This is not legal advice. The legal issues here are more complex than this post calls for.
In the event of a funding event (or change of control), this $150k turns into $150k worth of stock at the valuation established AT THAT TIME.
Example #1: Company A takes the offer and sells for $1m in 6 months. The debt converts to $150k in stock, netting the investor $150k.
Example #2: Company B takes the the offer and raises $1m at a pre-money valuation of $3m (selling 25% of the company and establishing a post-money valuation of $4m). The $150k turns into $150k in stock at the new valuation, so 3.75% of the company.
Normally, there are various ways (discounts, caps, etc) to reward the early investor for the additional risk they are taking for investing so early.
Basically what this means is YC companies can (if they want) eschew funding at demo day, hold out for great terms, or just get busy creating value and raise money when they have more leverage. This is huge.
After reading this explanation, it's hard not to acknowledge this as a disruptive gamechanger. I mean, this completely changes the game for YC and every one of their successful applicants.
Investing in a company based on its acceptance into YC? Hm. Also, I think this breaks the model a bit, I thought the point of the initial small(er) investment was to drive creation of a product or business model that could then expand naturally or take further investment once they've proven the products value/viability etc. I guess for some it would be a bonus, but for some it might be a curse?
Although "Paul Graham seemed very pleased" implies it doesn't, so I figure I'm wrong. Maybe it is for the better, especially when it's optional...
Yes that's the best way of putting it. YC is seen as a vetting agent that has so much experience in evaluating start-ups now that their ability to separate the wheat from the chaff makes a deal like this feasible.
How long before a major VC steps in to offer a third round for those that get to some pre-set goal to every YC funded company that took the second round too?
Super news this, that's going to have one nasty little side effect, YC will see an order of magnitude increase in the number of applications they will receive in the next round.
Predictably there will be a lot of bitching by other angels, imo they should create a fund and offer to match.
Is more applications necessarily a bad thing though? Sure they are likely to miss more winners and the application/ interview process is going to be even more time consuming but you would have to think it would translate to a highly quality group.
And that's why this move is a smart one : Yuri has effectively outsourced all the valuation work for the investments onto really smart people that he doesn't have to pay anything for.
While that doesn't seem particularly fair to the rest of the VC community, it's exactly analogous to investing in an S&P ETF (which just invests in a whole bunch of stocks at the current market prices).
This is awesome. It's great to see big money split up into lots of small investments. I've always wondered what would happen if Microsoft took 1 billion dollars and make 10K $100K angel investments. Something amazing would surely come out of so many trials. Traditionally, that 1 billion (if invested in startups) would be doled out in 100 or so $10MM-ish chunks, mostly to later stage companies.
When was the last time you looked at a yc company and didn't say "Damn that's a great idea." and then follow it up with "wow that's pretty good execution too".
It's a little scary how good the yc companies seem to be lately.
I'm not keeping a tally but I often find myself scratching my head and wondering what PG et al saw in some startups.
My guess is that it's usually a bet on the people, not the idea. If you mentor a founder that eventually starts the next Google, they are going to remember that.
I know people are excited right now, but this is a terrible analogy. Rock bands don't need labels to succeed anymore, and the vast majority of record labels are deeply corrupt. They are consolidating to avoid bankruptcy, and throwing their CapEx funding into litigators and lobbyists so that they have someone to blame when in reality it was their greed and ignorance that brought their downfall.
Does that sound like what's happening at Y-Combinator?
On the surface, YCombinator IS giving a shitty deal. 6% for a few thousand dollars? That's highway robbery.
Except, of course, you're getting a lot more than money for your 6%. The difference is that YCombinator's promise are much less empty than that of a record labels.
(I know, I deflected. Milner's terms are not shitty. It's YCombinator's that are, but only on the surface).
>On the surface, YCombinator IS giving a shitty deal. 6% for a few thousand dollars? That's highway robbery.
I think for most startups that haven't executed much, that's an incredible deal. Your idea that your two buddies just threw together, and maybe a prototype, is worth $250,000. Really?
(I know that some more mature companies have come to Ycombinator, companies likely worth more, but there are ycombinator companies that came fresh; so my assumption would be that the more mature companies would get a somewhat better deal than the brand-new companies. If that isn't the case, then it's possible that those more mature companies are getting the poor deal you are suggesting. But certainly for a fresh company, the ycombinator valuation, I think, is quite generous.)
Maybe it's just because I'm in a more traditional market, where people value you based on revenue, or maybe it's because I'm not that good, but it's taken me years of work to reach that kind of a valuation.
(on the upside, the valuations are somewhat, ah, less volatile in my industry. Assuming that my costs/revenues don't change sharply, the valuation of my company isn't going to change sharply. )
When I first got into Y Combinator, our company with two founders straight out of college with no prior software engineering or startup experience and a prototype calendar demo was valued at 300k.
We were ecstatic. That was the best deal I've ever been offered in my life.
Every YC batch should have at least 1-2 big wins. They're betting that it's more important not to miss out on those than to save a little money trying to pick the winners. A great strategy if you can afford it.
Actually, if we assume that Heroku's post-money valuation in their first round of financing was $10m (reasonable since they raised $3m) and that they took a 30% dillution hit each time, this would have returned $2.88m to someone that got in on these terms, or not even enough to cover the investments for that batch.
So either the homeruns have to be further out of the park than Heroku or (as is likely) the median return needs to keep things in balance a bit more.
I wonder if there's a clause that requires the ability to participate in later rounds. That would make more sense. Otherwise it's not clear that they'd be able to. Heroku raised $3m a month after demo day; I'm not sure what it would have taken for an angel to be able to get into that round.
All convertible notes convert into shares with the same rights as the shares sold in the equity round in which they convert. These invariably include pro-rata rights.
I believe a lot of pro rata rights have minimums (i.e. you have to have at least 500,000 shares) to have that right. most series a term sheets that I've seen have set the minimums above any threshold that an angel would meet
I know the actual numbers for Heroku, and in that YC batch investors pursuing Ron and Yuri's strategy would have been net ahead on Heroku alone. And that batch also included 280 North, which has already been acquired for a significant amount, and several other startups which are likely to generate returns at some point.
This sounds like a campus placement scene. If you get in a top college, you wont be even interviewed properly or see how you have changed in last few years/months. We will just hire you with fat paychecks.
As shown by history - this does not work in the long run and makes things worse than better.
Dont get me wrong - YC is great, pg and rest of the team do an amazing job of selecting startups. But such blanket offers will mean lesser money available to non-YC companies. So if you are competing with a YC company, you have so much ground to cover.
More money for startups is good, but quality of the startups should be judged almost every 3 months. That is very healthy for entire startup community on the whole.
Right. We will just invest in all YC companies. Why bother reading up business plans, checking out markets, exploring new things. YC thinks some one is good, we will put our money. If 10% of YC companies give huge exits fine. As investors - our job is to just provide money. Why bother with research?
And as an entrepreneur, do you really want to take money from some one who might not have enough knowledge about you and your business? Who is relying on a second hand judgement about you and your business, even if that judgement directly comes from pg?
"And as an entrepreneur, do you really want to take money from some one who might not have enough knowledge about you and your business?"
Um, yes. Taking money with these terms is a no-brainer. It doesn't preclude you from taking on more active money or taking on advisors. Anyone who puts together an angel syndicate almost always has investors who say, "I'm really busy, so I can't help out much, but here's my money". Most angels think about your business for a few hours a month, at best.
Most things I learnt about my own business had been through quality meetings with quality investors who can ask really good questions. At least from first set of investors, thats what I look for the most rather than money.
Having said so I do see your point as well and we can just agree to disagree.
Just because you want smart money doesn't mean you should refuse free money. If an angel were looking at a team that didn't take this money, they'd have to wonder if they were competent enough to run a business.
I'd say free money is more corrosive - yes in the hands of some (some is relative) it will be useful. In the hands of others will let them walk down a bad path longer.
For analogy, I'd use the resource curse. Countries which should theoretically be paradises are not, because their natural resources prop up bad economics and bad governance.
As always, its an opinion. I guess a data driven answer would depend on the contra event of what these companies would have done if they weren't offered the money.
I'd say free money is more corrosive - yes in the hands of some (some is relative) it will be useful. In the hands of others will let them walk down a bad path longer.
For analogy, I'd use the resource curse. Countries which should theoretically be paradises are not, because their natural resources prop up bad economics and bad governance.
As always, its an opinion. I guess a data driven answer would depend on the contra event of what these companies would have done if they weren't offered the money.
I dont have first hand experience of US placements. But this is what happened in India when IT services started booming.
If you go to a top college, they dont interview much. You get a very fat paycheck. If you go to tier II college you are interviewed a bit more and given a bit thinner paycheck.
Over a period of time this became a positive feedback cycle and is the core reason for very low quality yet expensive workforce.
What I feel in my gut is - such blanket investments normally take up valuations to such levels over a period of time that it becomes unsustainable. Whether it is with job markets or investments or real estate.
I thought this too, but someone pointed out to me that, unlike new hires at companies, customers don't care whether you're YC or not, or who you took investment from. The market is still as harsh as ever, and you'd better produce if you're going to make it.
The only place I can see this as being a problem is with acuhires, where an acquiring company can potentially care whether it's a YC company or not.
Consider, also, that most entrepreneurs in tech are foreigners (or children of), Vivek Wadwha had an interesting article on that. But those that stand out: Larry+Sergei.
If "The Russian" comes to the U.S. to make an investment is because the U.S. has done a really really good job in terms of policy to make it easy and convenient for foreign investors to bring money to the U.S. now they (gov) need to do the same for talent/entrepreneurs.
A while back as I was meandering through my history readings, I noticed that most of the philosophers, sages, and artists of ancient Athens weren't from Athens. I didn't actually follow that up with a study to confirm it, but I can't help but wonder if there is some deep truth hidden here.
No deep truth, if you're ambitious and determined enough go leave your home and everything and everybody you know, you're not going to arrive in a foreign land and sit on your ass - the drive will keep pushing you to achieve great things... otherwise you could just have stayed at home and eaten your mom's potatoes for the rest of your life, right?!
Digging up Vivek Wadwha's article, he found that 25% of U.S. tech entrepreneurs were immigrants, which is certainly higher than their share of the population (about 10% of U.S. residents are foreign-born), but not really "most". The numbers were higher for the Bay Area, though, at about 50%; but then the number of total immigrants in the Bay Area is also higher (33% of Californians are foreign-born).
That's a pretty strong statement, but even if we take it as an axiom, I think that it isn't migration that concentrates it -- people migrate from everywhere to everywhere all the time.
I think it has more to do with having gone through some hardship, and (selection bias) having done so successfully, makes people better at taking risks.
There's a statistic that says that a huge number (ten percent or so) of immigrants immigrate again to a 3rd country.
Someone who never immigrated would think "all that trouble, again?". Someone who [successfully] has thinks "Well, that wasn't so hard, we can try that again".
I think you missed the point- he meant that the fact that you were able to immigrate probably means that you're not the average person. He's right- immigration is much easier if you're rich, smart or both.
Also, I'm offended by your last sentence. You've obviously not immigrated to america recently. I have, and it wasn't easy, nor was it cheap.
As a matter of fact, I did. It's not easy, it's far from cheap, but having gone through all of that, another move -- at least to an English speaking country -- is comparatively trivial to what I've thought about it before.
And if you take offence at random remarks by strangers on the internet, you should have a long talk with yourself.
I meant that it appears to be random (or even anti-intuitively correlated) if you look at one factor only: I believe you need both genetics and environment.
The anti-intuitive thing is what others have said: migrants are bolder (entrepeneurish) or they have some requested talent.
As an ex-immigrant (returned to India now to start something), I believe this is true. US immigration policy weeds out the chaff. The immigrant populations from countries like India tend to also be homogeneously upper class/caste.
When YC takes developers and mentors them towards a first version in an aggressive timeframe with limited resources, it's encouraging innovation. When someone comes in and gives a bunch of company they know nothing about $150k each, it's called having more money than sense.
But they aren't investing in companies they know nothing about. They're investing in companies that have made it through the YC sieve. If nothing else, they know that about them.
These are investors with a large number of connections in the silicon valley world. My assumption is that they have some extremely well-informed spreadsheets about past YC company performance.
I do have huge respect to YC personnel and companies, but not sure performance so far is at a level that makes it a sure investment. Even so, YC's model is small fiscal investments and large time/mentoring investment. I doubt that the opposite would work as well.
There seems to be a correlation between high performing funds and how fast they move to get into the good deals, this is a very efficient way for SV Angels to move faster than anyone else. They already moved fast before, now it's a tremendous head start.
If it's a bubble, it's a cheap bubble $6M is nothing for most funds.
Unless there are additional terms at play here (e.g. liquidation preference), this means that unless YC companies raise a series A before exiting, Yuri and SV Angels won't get more than a 1x return (plus interest).
It's hard to believe the math works out here, but obviously a lot of thought and number crunching has gone into this decision. Great news for YC though!
I think that depends on how the note is written. I've never seen a note without a cap but usually it converts at the cap on acceleration. No idea how a conversion at acceleration would work if there is no pre determined valuation but it could be possible.
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[ 3.0 ms ] story [ 251 ms ] threadGuess it's time to get cracking on those YC applications, folks...
But is this fair to other angels/investors?
What it does do is turn YC into a market index. Interesting.
SEC Accredited Investor Status.
Less sardonically: if YC is so ridiculously superior to other investment models that investing money at these terms is profitable knowing nothing of the actual company invested in, then the system is broken. This is the market's corrective measure, attempting to come up with a better approximation of the true value of early stage startups. Might it discomfit people who made a lot of money when it was broken? shrug
$150k is a meaningful amount for an early-stage startup. Multiplied by 40, that is $6 million. $6 million is, seat of the pants calculation, two orders of magnitude lower than 2% of United States VC funding in a typical year. VC funding is three orders of magnitude lower than the amount of outstanding bonds in the US. That is one asset class: there are others.
Or, for another visualization: if this investment is one pixel, then the US bond market is a grizzled old neckbeard sporting six monitors at 1024x768. The remainder from that calculation might fit an iPhone, but I don't know the resolution on those off the top of my head.
Long story short: there is always a ridiculous amount of money in the capital markets.
If you compare to that, it doesn't look reckless at all.
s/investor/entrepreneur/
I suspect all 40 companies will take the money on those terms. You would be crazy not to.
e.g. If the A series funding was taken at $1.5 Million valuation, the SV share in the company would be 10%. No valuation ceiling, no discount. Lower the A series valuation, better off SV angel are.
YC may be the best deal for a crew of wet-behind-the-ears startup virgins, I'll grant that.
150k is not going to get a company very far, and certainly not far enough to reinvent the startup model completely. Building a team is still a critical part of building a YC (or any other) company, as is honing a product and bringing it to market (which is primarily what they help you do). Saying that those things aren't part of the YC model just because you get some extra free money on great terms is disingenuous.
Also, more and more experienced entrepreneurs are going to YC, because of the effects of the network and because the money really isn't that expensive. People always bring up that it isn't a great deal for experienced entrepreneurs, but you can ask my friend Steve, who just sold Reddit, went back to YC, and just raised a fat series A for hipmunk whether it was worth it.
The YC model is something like this: Founders are recruited, then weeks are spent building a prototype whilst attending dinners/lectures about the next step: fundraising.
YC is out of the picture once teambuilding, product honing begins. Its explicitely NOT part of the YC experience. As I understand it.
To expand on my 1st remark: the shoestring bootstrap model is just one; others solicit Angels to fund development in a more structured manner. The reasons to bootstrap are usually, you are not known and cannot convince Angels to cough up. If for instance you have a success behind you, it may be possible to dispense with the grinding poverty phase.
This investment will convert at valuations closer to 5M these days. So in fact they're effectively paying 10x what YC is paying for about the same stake in a company post the financing.
Congrats to YC and time will tell if it works, exciting either way.
The denominator is the investment valuation, which is significantly different for YC and DST.
I have no problem with that, really. In 2001 it was different - everyone was playing with public money through IPOs. Now only a few quite established companies can afford to go public.
Don't be mistaken, though - this will turn into a bubble, whether you wax romantic about "entrepreneurs just do it!" or not. It always happens - it will happen again, life will go on, but it will happen.
http://news.ycombinator.com/item?id=2154902
I've read about convertible notes before just a little confusing at first.
For instance:
1. I get $150K in convertible debt from Yuri.
2. At the end of YC, my rich friend Joe decides to invest a million dollars in my company at a valuation of five hundred trillion dollars. Yuri thus gets an insanely small slice of my company.
3. Two days later, my company buys Joe's shares back for a million dolars.
4. Now my company goes off to seek actual funding at a sane valuation. Yuri gets annoyed.
yc is a small network; if one founder screws someone else, everyone knows about it. vice versa.
Who would do that for $150k? To me, this is the equivalent of leaving $20 on the table to see if you can trust your friends.
IRS couldn't care who ripped off whom as long as they get their pound of flesh.
That's why when companies buy back stock they tend to use tender offers that are extended towards all shareholders.
This is not legal advice. The legal issues here are more complex than this post calls for.
Example #1: Company A takes the offer and sells for $1m in 6 months. The debt converts to $150k in stock, netting the investor $150k.
Example #2: Company B takes the the offer and raises $1m at a pre-money valuation of $3m (selling 25% of the company and establishing a post-money valuation of $4m). The $150k turns into $150k in stock at the new valuation, so 3.75% of the company.
Normally, there are various ways (discounts, caps, etc) to reward the early investor for the additional risk they are taking for investing so early.
Basically what this means is YC companies can (if they want) eschew funding at demo day, hold out for great terms, or just get busy creating value and raise money when they have more leverage. This is huge.
Although "Paul Graham seemed very pleased" implies it doesn't, so I figure I'm wrong. Maybe it is for the better, especially when it's optional...
(Also the Ycomb environment and all that too)
How long before a major VC steps in to offer a third round for those that get to some pre-set goal to every YC funded company that took the second round too?
Predictably there will be a lot of bitching by other angels, imo they should create a fund and offer to match.
YC might become a one stop shop.
YC now has more partners and a larger network of alumni so that should help a bit with scaling this.
While that doesn't seem particularly fair to the rest of the VC community, it's exactly analogous to investing in an S&P ETF (which just invests in a whole bunch of stocks at the current market prices).
It's a little scary how good the yc companies seem to be lately.
My guess is that it's usually a bet on the people, not the idea. If you mentor a founder that eventually starts the next Google, they are going to remember that.
And YC don't limit themselves to just web startups, or even just to software companies, according to the FAQ. [1]
[1]: http://ycombinator.com/faq.html
Does that sound like what's happening at Y-Combinator?
Except, of course, you're getting a lot more than money for your 6%. The difference is that YCombinator's promise are much less empty than that of a record labels.
(I know, I deflected. Milner's terms are not shitty. It's YCombinator's that are, but only on the surface).
I think for most startups that haven't executed much, that's an incredible deal. Your idea that your two buddies just threw together, and maybe a prototype, is worth $250,000. Really?
(I know that some more mature companies have come to Ycombinator, companies likely worth more, but there are ycombinator companies that came fresh; so my assumption would be that the more mature companies would get a somewhat better deal than the brand-new companies. If that isn't the case, then it's possible that those more mature companies are getting the poor deal you are suggesting. But certainly for a fresh company, the ycombinator valuation, I think, is quite generous.)
Maybe it's just because I'm in a more traditional market, where people value you based on revenue, or maybe it's because I'm not that good, but it's taken me years of work to reach that kind of a valuation.
(on the upside, the valuations are somewhat, ah, less volatile in my industry. Assuming that my costs/revenues don't change sharply, the valuation of my company isn't going to change sharply. )
We were ecstatic. That was the best deal I've ever been offered in my life.
Can you quantify a big win?
So either the homeruns have to be further out of the park than Heroku or (as is likely) the median return needs to keep things in balance a bit more.
I don't believe that's been borne out yet.
As shown by history - this does not work in the long run and makes things worse than better.
Dont get me wrong - YC is great, pg and rest of the team do an amazing job of selecting startups. But such blanket offers will mean lesser money available to non-YC companies. So if you are competing with a YC company, you have so much ground to cover.
More money for startups is good, but quality of the startups should be judged almost every 3 months. That is very healthy for entire startup community on the whole.
They could have bought a boat instead, investing is not a zero sum game, they don't have to spend the money.
And as an entrepreneur, do you really want to take money from some one who might not have enough knowledge about you and your business? Who is relying on a second hand judgement about you and your business, even if that judgement directly comes from pg?
Um, yes. Taking money with these terms is a no-brainer. It doesn't preclude you from taking on more active money or taking on advisors. Anyone who puts together an angel syndicate almost always has investors who say, "I'm really busy, so I can't help out much, but here's my money". Most angels think about your business for a few hours a month, at best.
Having said so I do see your point as well and we can just agree to disagree.
For analogy, I'd use the resource curse. Countries which should theoretically be paradises are not, because their natural resources prop up bad economics and bad governance.
As always, its an opinion. I guess a data driven answer would depend on the contra event of what these companies would have done if they weren't offered the money.
For analogy, I'd use the resource curse. Countries which should theoretically be paradises are not, because their natural resources prop up bad economics and bad governance.
As always, its an opinion. I guess a data driven answer would depend on the contra event of what these companies would have done if they weren't offered the money.
I actually think precisely the opposite will happen.
If you go to a top college, they dont interview much. You get a very fat paycheck. If you go to tier II college you are interviewed a bit more and given a bit thinner paycheck.
Over a period of time this became a positive feedback cycle and is the core reason for very low quality yet expensive workforce.
What I feel in my gut is - such blanket investments normally take up valuations to such levels over a period of time that it becomes unsustainable. Whether it is with job markets or investments or real estate.
The only place I can see this as being a problem is with acuhires, where an acquiring company can potentially care whether it's a YC company or not.
Any evidence for this statement? Because I think the system works just fine.
If "The Russian" comes to the U.S. to make an investment is because the U.S. has done a really really good job in terms of policy to make it easy and convenient for foreign investors to bring money to the U.S. now they (gov) need to do the same for talent/entrepreneurs.
Can be parental, culture, education, standard of living, etc.
That's a pretty strong statement, but even if we take it as an axiom, I think that it isn't migration that concentrates it -- people migrate from everywhere to everywhere all the time.
I think it has more to do with having gone through some hardship, and (selection bias) having done so successfully, makes people better at taking risks.
There's a statistic that says that a huge number (ten percent or so) of immigrants immigrate again to a 3rd country.
Someone who never immigrated would think "all that trouble, again?". Someone who [successfully] has thinks "Well, that wasn't so hard, we can try that again".
Also, I'm offended by your last sentence. You've obviously not immigrated to america recently. I have, and it wasn't easy, nor was it cheap.
And if you take offence at random remarks by strangers on the internet, you should have a long talk with yourself.
The anti-intuitive thing is what others have said: migrants are bolder (entrepeneurish) or they have some requested talent.
These are investors with a large number of connections in the silicon valley world. My assumption is that they have some extremely well-informed spreadsheets about past YC company performance.
If it's a bubble, it's a cheap bubble $6M is nothing for most funds.
It's hard to believe the math works out here, but obviously a lot of thought and number crunching has gone into this decision. Great news for YC though!