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It could take 20 years to get numbers for YC specifically, because in startups the returns are dominated by the big hits, which (a) take longest and (b) are rar
by pg 17y ago
It could take 20 years to get numbers for YC specifically,
because in startups the returns are dominated by the big hits,
which (a) take longest and (b) are rare.
However, you could do a crude back of the envelope calculation now, based on average exits for series A funded companies. I believe the average (again, dominated by the big wins) is on the order of $100m. If you assume founders have 10% at exit, that's $10m. Currently 20-25% of YC funded cos raise series A. So if you ignore startups that don't raise series A (which could be an increasingly large mistake), you get a lower bound of $2m to $2.5m per founder.
Interesting. I'd never done that calculation.
The bogusness of it, of course, is evident from the fact that your expected value is so dependent on the performance of the other startups we accept. If 100% of the startups we funded went on to raise series A, the expected value would jump to $10m. And of course we have no idea how well YC funded startups will do compared to series A funded startups in general.
- cperciva 17y agobased on average exits for series A funded companies Is that counting all the series A funded companies which never exit? $100M sounds about right to me as an average exit size, but only after excluding non-exits.
- pg 17y agoYes, but it's only for companies that get series A rounds from good (= top 50) VC funds. There is a huge mass of lame VC funds below that whose returns are negative. But since we don't intro YC startups to bad VCs, it seemed reasonable to use norms from the good ones.
- netcan 17y agoThat is a lot higher then I would have expected. Does this mean that top VC funds are making insane returns (>50%)?
- pg 17y agoFrom what I'm told, a good VC fund will roughly triple over the life of the fund (~ 10 years).
- cperciva 17y agoSo is YC doing better or worse than a good VC fund?
- pg 17y agoWe're projected to generate a better return on money invested, but we invest much less money, so we're not likely to end up as rich as partners at a successful VC fund.
- deleted 17y ago[deleted]
- cperciva 17y agoYeah, it was return-on-investment that I was wondering about, not total return. Good to know that after all the work you put into running YC, you're earning slightly more than minimum wage. :-)
- deleted 17y ago[deleted]
- seanc 17y agoThere is also a worry about the diminishing utility of money. If the really big exits are dominating the figures, then that will make the odds of your startup "solving the money problem" seem larger than they really are. But for a back-of-envelope calculation this could be a pedantic quibble.
- netcan 17y agoPresent value for $2.5m received in 5 years using a 5% rate (decent, currently) is about $2m. Present value for $2.5m received in 5 years using a 15% rate (say you are accounting for high risk) is about $1.2m. Solved?
- netcan 17y agoWould it have any meaning to deal with (a) and to some extent, (b) by considering the stock founders at their last investment after a certain number of years (say, 5 or 10)? Side question: You seem more aware of YC contribution to startup performance. Does this mean you see YC more as competing with other investors and less with graduate programs (I think I recall you mentioning that on some old thread).