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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

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
      If there is no proof up front then best case it will be equal, worst case it will be (much) worse. Contrary to popular belief investors are conservative, they will gamble on the companies involved but they are less likely to gamble on changing the formula. There are a number of questions that need answering before you can get someone to take a bigger risk. 20 start-ups at 20K = 400K invested, 20 shots at a payout of a million or more. 5 start-ups at 80K = 400K invested, 5 shots at a payout of a million or more. The chances of any one of those 5 being successful are not nearly 4 times as high as any one of the 20, and you'd have to cross that hurdle for it to make sense for a VC to drop their working model in favour of your unproven one. In my opinion, when it comes to seed capital, the amount is the lesser factor in determining success, so I would figure that the chances of success are exactly equal for each of the five as they are for each of the twenty. So it is the other method that has a 4x higher chance of success!
      - staunch 16y ago
        Why not just do $1k x 400 investments, if the number doesn't matter? Obviously it does matter. The current YC investment size was an estimate based on their own experience raising angel money for Viaweb. It's not some magical number arrived at through hard analysis. It's essentially a guess. There's no way to know if it's the right number or not. YC can't know who isn't applying. I suspect they're losing out on a large number of the most promising candidates.
        ericd 16y ago
        My impression is that they arrived at that based on what it would take young people to live frugally in the area until they built their product and got funding. They have a very large pool of applicants to choose from even with the small amounts the invest. I think if they decided that they needed to increase the size of the talent pool to get enough quality groups, they would look into ways (such as increasing the investment amount). As it is, they don't seem to need to, so why would they?
        jacquesm 16y ago
benmathes 16y ago
To quote both Warren Buffet and Naval Ravikant (startupboy.com): "It's the people, stupid". It could very well be worth it to invest 4x in a company started by proven startup veterans than to invest in some plucky college grads.
- ecuzzillo 16y ago
  Proven startup veterans tend to be rich enough not to need seed funding.

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
    If there is no proof up front then best case it will be equal, worst case it will be (much) worse. Contrary to popular belief investors are conservative, they will gamble on the companies involved but they are less likely to gamble on changing the formula. There are a number of questions that need answering before you can get someone to take a bigger risk. 20 start-ups at 20K = 400K invested, 20 shots at a payout of a million or more. 5 start-ups at 80K = 400K invested, 5 shots at a payout of a million or more. The chances of any one of those 5 being successful are not nearly 4 times as high as any one of the 20, and you'd have to cross that hurdle for it to make sense for a VC to drop their working model in favour of your unproven one. In my opinion, when it comes to seed capital, the amount is the lesser factor in determining success, so I would figure that the chances of success are exactly equal for each of the five as they are for each of the twenty. So it is the other method that has a 4x higher chance of success!
    - staunch 16y ago
      Why not just do $1k x 400 investments, if the number doesn't matter? Obviously it does matter. The current YC investment size was an estimate based on their own experience raising angel money for Viaweb. It's not some magical number arrived at through hard analysis. It's essentially a guess. There's no way to know if it's the right number or not. YC can't know who isn't applying. I suspect they're losing out on a large number of the most promising candidates.
      - ericd 16y ago
        My impression is that they arrived at that based on what it would take young people to live frugally in the area until they built their product and got funding. They have a very large pool of applicants to choose from even with the small amounts the invest. I think if they decided that they needed to increase the size of the talent pool to get enough quality groups, they would look into ways (such as increasing the investment amount). As it is, they don't seem to need to, so why would they?
      - jacquesm 16y ago

benmathes 16y ago

To quote both Warren Buffet and Naval Ravikant (startupboy.com): "It's the people, stupid". It could very well be worth it to invest 4x in a company started by proven startup veterans than to invest in some plucky college grads.

ecuzzillo 16y ago
Proven startup veterans tend to be rich enough not to need seed funding.