6 ms·

I'm hoping we'll eventually see some experimentation with the model, now that they have more money to work with. I've always believed there's room for a YC-lik

by staunch 16y ago

I'm hoping we'll eventually see some experimentation with the model, now that they have more money to work with. I've always believed there's room for a YC-like company to do slightly bigger investments. Instead of $17k for 2 founders, it would be $80k for 2 founders. That way they could attract people with higher cost of living/high paying jobs (who would hopefully tend to be more successful due to more experience/connections/stability)

spoiledtechie 16y ago
Its a big reason why I can't do it. I have bills that must be paid. Student loans and they are larger than most everyone I come across.
- bkrausz 16y ago
  What are your monthly payments? I imagine anything under $500/month is doable (I have $250/month and just quit my job: by the time I run out of money I'll know whether or not my business will work out, and that's really all you need). EDIT: as a corollary, I'm thrilled I didn't pay off my student loans earlier. They average about 4.5% - that's the cheapest loan you can get anywhere. Treat it like a business loan and use whatever you save to live off of when you're working on your startup :).
- webwright 16y ago
  How much income would you need? Even with a smallish Series A, you're generally expected to have a pretty crappy salary. It's kind of sad that startups are a game for people who have a long personal runway (combination of savings and cheap lifestyle, usually), but that's the reality. No investor is going to be excited to see their money put to work by paying down student loan bills, though at a certain level you can often swing a 50-70k salary. As I understand it, get big revenue or a big Series B round, and you can generally lobby successfully for a non-insulting salary.
  - aditya 16y ago
    Investors will question your judgement if you pay yourself more than 50-70k? That's surprising.
    - abstractbill 16y ago
      I think these numbers are a little on the low end these days, if you've raised at least a respectable series A.
      - webwright 16y ago
        Yaw, I did say "smallish" series A. If you're raising 4-6m, then founder salary really ceases to be a big needle mover in terms of runway. Certainly angel investors will often push hard on founder. If you have less than a million in the bank, I think the question needs to be framed as "How much do I need to survive" and NOT "What did I make at my last job". If the founders aren't trying to dig deep here, then I'd wonder about their motivations (unless revenue was taking off). Lack of runway kills startups.
    - jon_dahl 16y ago
      I don't think this is entirely correct. Good investors understand that different founders have different situations. If you're 19 years old and your personal expenses are negligible, and you pay yourself $90K, investors will wonder if you're committed to your startup. But if you're leaving a $150K job and have a family, and you pay yourself $90K, your investors won't mind. Or else they shouldn't be investing in you in the first place.
    - webwright 16y ago
      It totally depends on how much you raise, who your investors are, who YOU are, etc. But your salary needs are a reflection of your commitment. i.e. if 3 founders raise $500k, $50k salaries give them a ~15k/month burn rate fully loaded, approximately. $100k salaries give them a $30k/month burn rate fully loaded. The difference is the ability to hire two solid ppl. Which do you choose? Is your lifestyle more important than 2 hires? Alternatively, if you don't need to hire any more, how much runway do you shave by making $100k across 3 founders? Investors also want interests to be aligned. Low pay early on means that you're motivated every day for growth (because revenue or a larger investment round means a raise). They'd certainly rather see their money invested in growth than in founder lifestyles. Of course, every situation/investor/founder is different... But yeah, expect to take a big pay cut.
- abstractbill 16y ago
  Are (presumably American?) student loans deferrable? I recall with my UK loans it was possible to defer repayment if some conditions were met (low income I think was one of them).
  - pmjordan 16y ago
    I suspect American student loans aren't (more or less) de-facto interest free. Interest on UK student loans supposedly only tracks inflation, although that doesn't seem to be quite true in practice. Nevertheless, interest is low enough that you can actually benefit from arbitrage if instead of paying back the loan you invest in high-interest savings. (except there's no such thing as a high-interest savings account right now) We did this for my girlfriend's student loan for a while, but we're just going to pay as much of it back as possible before interest goes up to >4% in September. No arbitrage possible at that rate, not in this economic climate. The other aspect is that UK student loans are probably much smaller for the majority of people.
pg 16y ago
Actually given an incremental dollar to invest I'd always prefer to expand sideways rather than depthwise. It's much more interesting to fund a whole new startup than to give more money to an existing one. Plus the startups themselves don't need that as much; there are already lots of investors ready to give the next $100k to startups we seed.
- samd 16y ago
  Does this mean that we're going to start seeing a wider variety of startups funded by YC? Most of them seem to be consumer facing, but there is a lot of room for innovation in behind-the-scenes software.
  - wheels 16y ago
    I think most of the ones that are the best known seem to be consumer facing, but then things like Clustrix, which has raised more money than Loopt, Scribd or Dropbox are a reminder that there's other stuff happening that's just less visible.
  - pg 16y ago
    This won't change the types of startup we fund. But the types of startups we fund aren't as constrained as they seem. If it seems like we fund mostly consumer web apps, that's because (a) consumer web apps are more visible; Reddit has a lot more users than Clustrix, and (b) that is the kind of startup that younger, more technically inclined founders tend to start.
- staunch 16y ago
  The idea would be to get all the awesome 100k/yr+ hackers with mortgages/families to try their hand at a startup. Their current options are 1) Risk their marriage/mortgage/savings by quitting their day job. 2) Build up traction on the side of their day job. Most people won't do #1 and #2 makes failure much more likely. If some of these people are significantly more likely to succeed (my theory) it would make sense to invest more on one of these.
  - 16y ago
webwright 16y ago
Supply/demand. Why would YC (or ANY early stage investor) ever want their money to go to your higher cost of living when they have a line out the door of great opportunities founded by people who have a cheaper lifestyle and/or a pile of personal savings? The answer, of course, is "they'd do it if it was an unusually good startup with TONS of traction." Of course, if you're in that boat fundraising isn't a problem, is it?
- staunch 16y ago
  It would make sense to invest 4x more if the startup was significantly more likely to succeed. I think that could be true in many cases.
  - rjett 16y ago
    But would these people requiring 4x more investment be willing to give up 4x more equity?
  - jacquesm 16y ago
    But it would never be 4x more likely to succeed, or at least not in any way that you can prove in advance, and statistics are against you anyway. Batting averages do not vary considerably based on the size of the investment, and having 'graybeards' on board is no guarantee for success, at best it is neutral. The only real case I could make for investing in a company with older people with a lot of responsibilities (distractions!) is that they have a lot more to lose.
    - staunch 16y ago
      Since when can anyone prove anything like this in advance? Everyone invests based on a hypothesis. Mine is that there's an untapped resource available. If you're the only investor that attracts these people you get the pick of the litter, so even if it wouldn't work if everyone did it, it might still work for one or two investors.
      - jacquesm 16y ago
dariusmonsef 16y ago
If you believe enough in what you're building that you're willing to ruin your credit... than you have the proper motivation. If you are getting paid well enough to stay financially fat & happy, what risk are you taking? What will keep your head & heart in it after you've hit your first road bump... or wrecked around the first blind curve? In my experience... everyone can get their expenses lean. Just depends on what you're willing to give up. For those with families that's a bit harder.
char 16y ago
If the goal of funding $80k is to attract more experienced founders, it seems to me that by default, those founders would be better suited for different investors anyway. YC is largely about helping founders learn how to start a business, and connecting them with more experienced people (and with each other). I'm also having trouble understanding what 2 people would do with that much money in only 6 months. I would argue that the 'stability' factor would make them less likely to work as hard as the other companies who are highly motivated to pay their bills in that time period.
crystalis 16y ago
There's another benefit to doing $17k/2 - you get to build up your YC alumni at over four times the rate of $80k/2.
- pg 16y ago
  Yes, that's true. I forgot to mention that, but it is now a very deliberate strategy. When we started YC we didn't even realize we'd produce an alumni network, but it is becoming more and more important.
  - mortuus 16y ago
    Could the YC model compete with undergraduate education?
    - pg 16y ago
      It would be most accurate to say it competes with MBA programs. I could say with a straight face now that if you want to learn about the startup end of the business spectrum, you'd be better off doing YC than going to B school. But I wouldn't say that about college, because so much of what you learn in college is social.
      - jmintz 16y ago
        Some of us have dropped out of top MBA programs (Dave and I were at UChicago) to participate in YC. And I haven't regretted my decision for a second. Most of my entrepreneurship focused MBA friends would trade in a heartbeat (and some have applied to YC). Although they are definitely selective the top 10 MBA programs take in ~5000 students a year while YC will only take ~200-250/yr at 35 companies per session.
  - random42 16y ago
    Can you please elaborate how YC Alumni network helps?
qeorge 16y ago
Looking at it from a money perspective is backwards. The idea is to pay your living expenses so that you can focus, not give you any kind of salary (at least that's my understanding). The rate seems like a good commitment filter as is.

by staunch 16y ago

spoiledtechie 16y ago

Its a big reason why I can't do it. I have bills that must be paid. Student loans and they are larger than most everyone I come across.

bkrausz 16y ago
What are your monthly payments? I imagine anything under $500/month is doable (I have $250/month and just quit my job: by the time I run out of money I'll know whether or not my business will work out, and that's really all you need). EDIT: as a corollary, I'm thrilled I didn't pay off my student loans earlier. They average about 4.5% - that's the cheapest loan you can get anywhere. Treat it like a business loan and use whatever you save to live off of when you're working on your startup :).
webwright 16y ago
How much income would you need? Even with a smallish Series A, you're generally expected to have a pretty crappy salary. It's kind of sad that startups are a game for people who have a long personal runway (combination of savings and cheap lifestyle, usually), but that's the reality. No investor is going to be excited to see their money put to work by paying down student loan bills, though at a certain level you can often swing a 50-70k salary. As I understand it, get big revenue or a big Series B round, and you can generally lobby successfully for a non-insulting salary.
- aditya 16y ago
  Investors will question your judgement if you pay yourself more than 50-70k? That's surprising.
  - abstractbill 16y ago
    I think these numbers are a little on the low end these days, if you've raised at least a respectable series A.
    - webwright 16y ago
      Yaw, I did say "smallish" series A. If you're raising 4-6m, then founder salary really ceases to be a big needle mover in terms of runway. Certainly angel investors will often push hard on founder. If you have less than a million in the bank, I think the question needs to be framed as "How much do I need to survive" and NOT "What did I make at my last job". If the founders aren't trying to dig deep here, then I'd wonder about their motivations (unless revenue was taking off). Lack of runway kills startups.
  - jon_dahl 16y ago
    I don't think this is entirely correct. Good investors understand that different founders have different situations. If you're 19 years old and your personal expenses are negligible, and you pay yourself $90K, investors will wonder if you're committed to your startup. But if you're leaving a $150K job and have a family, and you pay yourself $90K, your investors won't mind. Or else they shouldn't be investing in you in the first place.
  - webwright 16y ago
    It totally depends on how much you raise, who your investors are, who YOU are, etc. But your salary needs are a reflection of your commitment. i.e. if 3 founders raise $500k, $50k salaries give them a ~15k/month burn rate fully loaded, approximately. $100k salaries give them a $30k/month burn rate fully loaded. The difference is the ability to hire two solid ppl. Which do you choose? Is your lifestyle more important than 2 hires? Alternatively, if you don't need to hire any more, how much runway do you shave by making $100k across 3 founders? Investors also want interests to be aligned. Low pay early on means that you're motivated every day for growth (because revenue or a larger investment round means a raise). They'd certainly rather see their money invested in growth than in founder lifestyles. Of course, every situation/investor/founder is different... But yeah, expect to take a big pay cut.
abstractbill 16y ago
Are (presumably American?) student loans deferrable? I recall with my UK loans it was possible to defer repayment if some conditions were met (low income I think was one of them).
- pmjordan 16y ago
  I suspect American student loans aren't (more or less) de-facto interest free. Interest on UK student loans supposedly only tracks inflation, although that doesn't seem to be quite true in practice. Nevertheless, interest is low enough that you can actually benefit from arbitrage if instead of paying back the loan you invest in high-interest savings. (except there's no such thing as a high-interest savings account right now) We did this for my girlfriend's student loan for a while, but we're just going to pay as much of it back as possible before interest goes up to >4% in September. No arbitrage possible at that rate, not in this economic climate. The other aspect is that UK student loans are probably much smaller for the majority of people.

pg 16y ago

Actually given an incremental dollar to invest I'd always prefer to expand sideways rather than depthwise. It's much more interesting to fund a whole new startup than to give more money to an existing one. Plus the startups themselves don't need that as much; there are already lots of investors ready to give the next $100k to startups we seed.

samd 16y ago
Does this mean that we're going to start seeing a wider variety of startups funded by YC? Most of them seem to be consumer facing, but there is a lot of room for innovation in behind-the-scenes software.
- wheels 16y ago
  I think most of the ones that are the best known seem to be consumer facing, but then things like Clustrix, which has raised more money than Loopt, Scribd or Dropbox are a reminder that there's other stuff happening that's just less visible.
- pg 16y ago
  This won't change the types of startup we fund. But the types of startups we fund aren't as constrained as they seem. If it seems like we fund mostly consumer web apps, that's because (a) consumer web apps are more visible; Reddit has a lot more users than Clustrix, and (b) that is the kind of startup that younger, more technically inclined founders tend to start.
staunch 16y ago
The idea would be to get all the awesome 100k/yr+ hackers with mortgages/families to try their hand at a startup. Their current options are 1) Risk their marriage/mortgage/savings by quitting their day job. 2) Build up traction on the side of their day job. Most people won't do #1 and #2 makes failure much more likely. If some of these people are significantly more likely to succeed (my theory) it would make sense to invest more on one of these.
- 16y ago

webwright 16y ago

Supply/demand. Why would YC (or ANY early stage investor) ever want their money to go to your higher cost of living when they have a line out the door of great opportunities founded by people who have a cheaper lifestyle and/or a pile of personal savings? The answer, of course, is "they'd do it if it was an unusually good startup with TONS of traction." Of course, if you're in that boat fundraising isn't a problem, is it?

staunch 16y ago
It would make sense to invest 4x more if the startup was significantly more likely to succeed. I think that could be true in many cases.
- rjett 16y ago
  But would these people requiring 4x more investment be willing to give up 4x more equity?
- jacquesm 16y ago
  But it would never be 4x more likely to succeed, or at least not in any way that you can prove in advance, and statistics are against you anyway. Batting averages do not vary considerably based on the size of the investment, and having 'graybeards' on board is no guarantee for success, at best it is neutral. The only real case I could make for investing in a company with older people with a lot of responsibilities (distractions!) is that they have a lot more to lose.
  - staunch 16y ago
    Since when can anyone prove anything like this in advance? Everyone invests based on a hypothesis. Mine is that there's an untapped resource available. If you're the only investor that attracts these people you get the pick of the litter, so even if it wouldn't work if everyone did it, it might still work for one or two investors.
    - jacquesm 16y ago

dariusmonsef 16y ago

If you believe enough in what you're building that you're willing to ruin your credit... than you have the proper motivation. If you are getting paid well enough to stay financially fat & happy, what risk are you taking? What will keep your head & heart in it after you've hit your first road bump... or wrecked around the first blind curve? In my experience... everyone can get their expenses lean. Just depends on what you're willing to give up. For those with families that's a bit harder.

char 16y ago

If the goal of funding $80k is to attract more experienced founders, it seems to me that by default, those founders would be better suited for different investors anyway. YC is largely about helping founders learn how to start a business, and connecting them with more experienced people (and with each other). I'm also having trouble understanding what 2 people would do with that much money in only 6 months. I would argue that the 'stability' factor would make them less likely to work as hard as the other companies who are highly motivated to pay their bills in that time period.

crystalis 16y ago

There's another benefit to doing $17k/2 - you get to build up your YC alumni at over four times the rate of $80k/2.

pg 16y ago
Yes, that's true. I forgot to mention that, but it is now a very deliberate strategy. When we started YC we didn't even realize we'd produce an alumni network, but it is becoming more and more important.
- mortuus 16y ago
  Could the YC model compete with undergraduate education?
  - pg 16y ago
    It would be most accurate to say it competes with MBA programs. I could say with a straight face now that if you want to learn about the startup end of the business spectrum, you'd be better off doing YC than going to B school. But I wouldn't say that about college, because so much of what you learn in college is social.
    - jmintz 16y ago
      Some of us have dropped out of top MBA programs (Dave and I were at UChicago) to participate in YC. And I haven't regretted my decision for a second. Most of my entrepreneurship focused MBA friends would trade in a heartbeat (and some have applied to YC). Although they are definitely selective the top 10 MBA programs take in ~5000 students a year while YC will only take ~200-250/yr at 35 companies per session.
- random42 16y ago
  Can you please elaborate how YC Alumni network helps?

qeorge 16y ago

Looking at it from a money perspective is backwards. The idea is to pay your living expenses so that you can focus, not give you any kind of salary (at least that's my understanding). The rate seems like a good commitment filter as is.