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Honest question: have the specific funding goals of YC changed to accommodate more pedestrian "lifestyle" businesses? A number of these companies look like the

by venning 10y ago

Honest question: have the specific funding goals of YC changed to accommodate more pedestrian "lifestyle" businesses? A number of these companies look like they could make viable businesses turning out respectable multi-million-dollar-a-year profits without ever being a target for a billion-dollar acquisition. (My understanding is that YC specifically targets opportunities that have hundred-million- to billion-dollar potential, so perhaps my underlying assumption is wrong here.) Does this mean YC is hedging their bets, or are they amenable to funding "low" potential companies now? That would seem to jive with their recent public statements about wanting to expand, since not all viable businesses see huge exits.

lacker 10y ago
YC's goals haven't changed. The conventional wisdom on what startups make sense to fund is changing though - the whole "software is eating the world" logic suggests that many traditionally non-software businesses are ripe for disruption as well. Think Dollar Shave Club.
- venning 10y ago
  That's not quite my question. I'm not referring to the divide between "pure software" businesses and, well, everything else. I'm referring to the divide between $10MM/year gross profit and $1B exit. Dollar Shave Club had a $1B exit. Is YC willing to fund the former?
- mtviewdave 10y ago
  It's not just that they're "non-software" business. They're not really even technology businesses, in the traditional Silicon Valley (HP, Intel, Apple, Atari, Synopsys, Netscape, Google, Facebook, Snapchat) sense. Both DSC and Casper are innovative companies, but (as far as I can tell) they don't innovate in technology, they instead use technology to leverage innovation in other areas. Casper could have been founded 30 years ago. But would NEA and Norwest have invested in 1986 in a version of Casper that used late-night TV ads and a 1-800 number? My guess is probably not. So what does it mean that they do now? Does this mean that the current fashion in VC is shifting away from technology innovation? If so, does this mean that pure technology ventures may soon find it hard to find funding?
erichurkman 10y ago
Do note that a small subset of "pedestrian"/"lifestyle" businesses are ripe for acquisitions by large conglomerates. Example? Dollar Shave Club [0] who rapidly built a massive brand despite acting as an upseller/reseller. [0] http://www.bloomberg.com/news/articles/2016-07-20/why-unilever-really-bought-dollar-shave-club http://www.bloomberg.com/news/articles/2016-07-20/why-unilev...
aytekin 10y ago
Instead of going after a big market directly, they seem to taking on smaller markets intentionally. But, this does not mean that's their end goal. Tesla also started with high end cars even though the master plan was much ambitious.
morgante 10y ago
It might be helpful if you pointed to specific companies which you see as more "lifestyle" businesses. As others have pointed out, YC (and VCs in general) have definitely expanded outside of pure software companies and a number of them have done well (see Dollar Shave Club). I think it remains very hard to classify companies as lacking in huge potential from the start—originally, I was very skeptical that DSC would ever be worth a billion. I suspect that it's still a requirement for YC founders to be interested in aggressive growth. It's still for startups after all—I don't think anyone would get in if they admitted their sole goal was to reach <$1m/yr in profit.
- venning 10y ago
  Not that my opinion matters for anything, but I don't want to call out specific companies as having "low" potential. Now is probably uncertain and stressful for each of them, and I wouldn't want to undermine anyone's confidence as some anonymous armchair investor on their big day. (I know one should not be affected by that, but we're all human.) To your point, I wonder if there is some sort of calculus within YC: Company A has 1% potential of a $10B exit, Company B has 50% potential of $100MM/year ... what do we do? Cold logic says we invest in Company A over Company B (not that this is zero-sum), but they can only make so many investments and the real numbers are much smaller than one-percent. Whereas, a series of conservative investments keeps them solvent long-term, while the bigger exits slow boil.
  - morgante 10y ago
    Fair enough, but I think by definition if a company's founders are targeting high/huge potential then it's not a lifestyle business. > To your point, I wonder if there is some sort of calculus within YC: Company A has 1% potential of a $10B exit, Company B has 50% potential of $100MM/year ... what do we do? These days, I think the answer is increasingly: both. YC is in the enviable position of fantastic deal flow and also being able to scale up their operation (classes have been getting much bigger). Of course, they definitely still are going to miss out on some great companies. But I suspect those cases are increasingly ones of YC not recognizing the potential, not cases of passing on companies with only $100MM/year potential.
paul 10y ago
Not at all. All of these companies have the potential to be worth billions of dollars or else we would not have funded them. Of course it's not always easy for people reading a short summary on a blog to see that potential, as you can easily verify by reading the comments on early articles about uber or Twitter.
- venning 10y ago
  Thank you for your response, Mr. Buchheit. I really appreciate it. This is the answer I was looking for, one that explains your driving intentions. I'm nothing like a venture capitalist or investor, so I appreciate that I may not have any kind of good read on these companies' potentials. All the best to each of them and to you.
  - askafriend 10y ago
    Just to be clear, that's Paul Buchheit (a YC partner), not Paul Graham (YC co-founder).
    - venning 10y ago
      I know. I've edited my comment to reflect that. FYI, DanG already detached a similar comment: https://news.ycombinator.com/item?id=12341452 https://news.ycombinator.com/item?id=12341452
  - deleted 10y ago
    [deleted]
  - a_small_island 10y ago
    Not a snark, but why do you address him as Mr. Buchheit and not Paul?
    - dang 10y ago
      I assume he's just trying to disambiguate, because for some reason the thread got hung up on which Paul is which. Let's discuss more important things now?
mbesto 10y ago
When the narrative of "the next big thing will look initially like a toy"[0] is the investment thesis, then you're probably going to get a lot of companies that look like toys. [0] - https://gigaom.com/2014/08/07/making-fun-of-silicon-valley-is-easy-but-the-next-big-thing-always-looks-like-a-toy/ https://gigaom.com/2014/08/07/making-fun-of-silicon-valley-i...
fishtoaster 10y ago
I suspect that they all have a vision for being a billion dollar company, although that may not be the "phase 1" we're seeing here. For example, Burrow just sells a single couch right now. It's apparently a really nice couch with a great buying experience, but it's just a couch. Probably not a billion-dollar business. If I had to guess, though, they pitched a much large vision to YC. They probably talked about a whole suite of barely-luxury furniture. They want to take over the market for 20-30 somethings who have outgrown Ikea but don't want to go through the relatively crappy experience of normal furniture buying. That could be a billion-dollar business.
- tyre 10y ago
  While they may have a larger vision than couches, the market in the US for couches is larger than that for mattresses (i.e. Casper.) The market potential is there to build a billion dollar business selling couches, as crazy as that sounds. You're right on about the market they are going after: those who have graduated from Ikea but don't want to pay West Elm $2k for a couch.
- somberi 10y ago
  Sleepy's (a dominant retailer in the US for mattresses) recently got acquired for 3.8 Billion. http://www.wsj.com/articles/steinhoff-to-buy-mattress-firm-for-2-4-billion-1470599217 http://www.wsj.com/articles/steinhoff-to-buy-mattress-firm-f...
noodles23 10y ago
What you see in a 2 line press article is literally the simplest way to describe what their business is doing right now. The point of demo day is to get people interested in your idea for follow-ups. Read: http://paulgraham.com/investors.html http://paulgraham.com/investors.html There's a question on the app that asks (I'm paraphrasing) "what do you know about your market that others don't?". Answer: What appears to be a lifestyle sized market to the casual onlooker is actually big business
20yrs_no_equity 10y ago
> businesses turning out respectable multi-million-dollar-a-year profits without ever being a target for a billion-dollar acquisition. Very hard at the seed stage to tell the difference between a business that will turn out to be a $3M a year business and one that will be a $80M a year business growing at %30 a year. That latter might easily sell for over $1B. ( After all $80M in profit is only a 13X multiple to reach $1B, and growing at %30/year means that's a cheap.) I hate the term "lifestyle business", it comes from redefining "startup" to be a very specific narrowly defined form of startup of the kind that is popular in silicon valley in the past decade.

by venning 10y ago

lacker 10y ago

YC's goals haven't changed. The conventional wisdom on what startups make sense to fund is changing though - the whole "software is eating the world" logic suggests that many traditionally non-software businesses are ripe for disruption as well. Think Dollar Shave Club.

venning 10y ago
That's not quite my question. I'm not referring to the divide between "pure software" businesses and, well, everything else. I'm referring to the divide between $10MM/year gross profit and $1B exit. Dollar Shave Club had a $1B exit. Is YC willing to fund the former?
mtviewdave 10y ago
It's not just that they're "non-software" business. They're not really even technology businesses, in the traditional Silicon Valley (HP, Intel, Apple, Atari, Synopsys, Netscape, Google, Facebook, Snapchat) sense. Both DSC and Casper are innovative companies, but (as far as I can tell) they don't innovate in technology, they instead use technology to leverage innovation in other areas. Casper could have been founded 30 years ago. But would NEA and Norwest have invested in 1986 in a version of Casper that used late-night TV ads and a 1-800 number? My guess is probably not. So what does it mean that they do now? Does this mean that the current fashion in VC is shifting away from technology innovation? If so, does this mean that pure technology ventures may soon find it hard to find funding?

erichurkman 10y ago

Do note that a small subset of "pedestrian"/"lifestyle" businesses are ripe for acquisitions by large conglomerates. Example? Dollar Shave Club [0] who rapidly built a massive brand despite acting as an upseller/reseller. [0] http://www.bloomberg.com/news/articles/2016-07-20/why-unilever-really-bought-dollar-shave-club http://www.bloomberg.com/news/articles/2016-07-20/why-unilev...

aytekin 10y ago

Instead of going after a big market directly, they seem to taking on smaller markets intentionally. But, this does not mean that's their end goal. Tesla also started with high end cars even though the master plan was much ambitious.

morgante 10y ago

It might be helpful if you pointed to specific companies which you see as more "lifestyle" businesses. As others have pointed out, YC (and VCs in general) have definitely expanded outside of pure software companies and a number of them have done well (see Dollar Shave Club). I think it remains very hard to classify companies as lacking in huge potential from the start—originally, I was very skeptical that DSC would ever be worth a billion. I suspect that it's still a requirement for YC founders to be interested in aggressive growth. It's still for startups after all—I don't think anyone would get in if they admitted their sole goal was to reach <$1m/yr in profit.

venning 10y ago
Not that my opinion matters for anything, but I don't want to call out specific companies as having "low" potential. Now is probably uncertain and stressful for each of them, and I wouldn't want to undermine anyone's confidence as some anonymous armchair investor on their big day. (I know one should not be affected by that, but we're all human.) To your point, I wonder if there is some sort of calculus within YC: Company A has 1% potential of a $10B exit, Company B has 50% potential of $100MM/year ... what do we do? Cold logic says we invest in Company A over Company B (not that this is zero-sum), but they can only make so many investments and the real numbers are much smaller than one-percent. Whereas, a series of conservative investments keeps them solvent long-term, while the bigger exits slow boil.
- morgante 10y ago
  Fair enough, but I think by definition if a company's founders are targeting high/huge potential then it's not a lifestyle business. > To your point, I wonder if there is some sort of calculus within YC: Company A has 1% potential of a $10B exit, Company B has 50% potential of $100MM/year ... what do we do? These days, I think the answer is increasingly: both. YC is in the enviable position of fantastic deal flow and also being able to scale up their operation (classes have been getting much bigger). Of course, they definitely still are going to miss out on some great companies. But I suspect those cases are increasingly ones of YC not recognizing the potential, not cases of passing on companies with only $100MM/year potential.

paul 10y ago

Not at all. All of these companies have the potential to be worth billions of dollars or else we would not have funded them. Of course it's not always easy for people reading a short summary on a blog to see that potential, as you can easily verify by reading the comments on early articles about uber or Twitter.

venning 10y ago
Thank you for your response, Mr. Buchheit. I really appreciate it. This is the answer I was looking for, one that explains your driving intentions. I'm nothing like a venture capitalist or investor, so I appreciate that I may not have any kind of good read on these companies' potentials. All the best to each of them and to you.
- askafriend 10y ago
  Just to be clear, that's Paul Buchheit (a YC partner), not Paul Graham (YC co-founder).
  - venning 10y ago
    I know. I've edited my comment to reflect that. FYI, DanG already detached a similar comment: https://news.ycombinator.com/item?id=12341452 https://news.ycombinator.com/item?id=12341452
- deleted 10y ago
  [deleted]
- a_small_island 10y ago
  Not a snark, but why do you address him as Mr. Buchheit and not Paul?
  - dang 10y ago
    I assume he's just trying to disambiguate, because for some reason the thread got hung up on which Paul is which. Let's discuss more important things now?

mbesto 10y ago

When the narrative of "the next big thing will look initially like a toy"[0] is the investment thesis, then you're probably going to get a lot of companies that look like toys. [0] - https://gigaom.com/2014/08/07/making-fun-of-silicon-valley-is-easy-but-the-next-big-thing-always-looks-like-a-toy/ https://gigaom.com/2014/08/07/making-fun-of-silicon-valley-i...

fishtoaster 10y ago

I suspect that they all have a vision for being a billion dollar company, although that may not be the "phase 1" we're seeing here. For example, Burrow just sells a single couch right now. It's apparently a really nice couch with a great buying experience, but it's just a couch. Probably not a billion-dollar business. If I had to guess, though, they pitched a much large vision to YC. They probably talked about a whole suite of barely-luxury furniture. They want to take over the market for 20-30 somethings who have outgrown Ikea but don't want to go through the relatively crappy experience of normal furniture buying. That could be a billion-dollar business.

tyre 10y ago
While they may have a larger vision than couches, the market in the US for couches is larger than that for mattresses (i.e. Casper.) The market potential is there to build a billion dollar business selling couches, as crazy as that sounds. You're right on about the market they are going after: those who have graduated from Ikea but don't want to pay West Elm $2k for a couch.
somberi 10y ago
Sleepy's (a dominant retailer in the US for mattresses) recently got acquired for 3.8 Billion. http://www.wsj.com/articles/steinhoff-to-buy-mattress-firm-for-2-4-billion-1470599217 http://www.wsj.com/articles/steinhoff-to-buy-mattress-firm-f...

noodles23 10y ago

What you see in a 2 line press article is literally the simplest way to describe what their business is doing right now. The point of demo day is to get people interested in your idea for follow-ups. Read: http://paulgraham.com/investors.html http://paulgraham.com/investors.html There's a question on the app that asks (I'm paraphrasing) "what do you know about your market that others don't?". Answer: What appears to be a lifestyle sized market to the casual onlooker is actually big business

20yrs_no_equity 10y ago

> businesses turning out respectable multi-million-dollar-a-year profits without ever being a target for a billion-dollar acquisition. Very hard at the seed stage to tell the difference between a business that will turn out to be a $3M a year business and one that will be a $80M a year business growing at %30 a year. That latter might easily sell for over $1B. ( After all $80M in profit is only a 13X multiple to reach $1B, and growing at %30/year means that's a cheap.) I hate the term "lifestyle business", it comes from redefining "startup" to be a very specific narrowly defined form of startup of the kind that is popular in silicon valley in the past decade.