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Ask HN: Apply to YC or work first (financial constraints)

A cofounder and I have deep expertise in an ML subfield based on years of research and talking to potential customers, working in industry, and open source activity. Due being in academia (postdocs) and trying/failing some earlier ideas where we did not understand the market, we have not worked on this idea full time yet. We have a clear idea of the software B2B prototype and who would use it but we have not built it (although we will until YC starts). We have substantial credibility in this domain, and strongly believe the market is close to an inflection point that most people do not understand yet (which we can clearly articulate in the application). We are considering to apply for YC2020, but it has been our (perhaps) wrong impression that software startups might be further along when they get into YC nowadays. The main issue is that if we don't secure any sort of funding in the next 3-6 months, we will have to take full time jobs for financial reasons. We are wondering if we should even apply at this stage, or if it may hurt us later re-applying with the same idea (as progress working full time might be limited). Any YC/founder takes on what to do here?

z3t4 7y ago
Don't quit your job until you have found market fit. You can not know that until you have a MVP. So first get a job. Then try to get funding. Then hire people. Preferably You should not risk your own time or money.
caseymarquis 7y ago
I'm not affiliated with YC, but I do make B2B software. Could you potentially give partial ownership or indefinite free use of the service to the first customer and have them put you on payroll? Getting VC investment in B2B will likely be challenging. Most B2B ideas don't scale to billion dollar companies. The market isn't the world so much as some niche that caps out around XX million dollars. That's hugely successful under most circumstances, but can be perceived as a failure for a VC firm. I work in a space where VCs are investing 10 to 30 million in new companies, but have inside information from existing older firms that pretty much ensures any company in the space will have a max valuation around 100 million; if all the stars align. As such, these new companies are destined to fail simply because the money they received to build their product isn't proportional to market capacity for the product. That said, I also have no idea what the idea or market is, so I could be way off base.
- hn_yc_throwaway 7y ago
  Many thanks for weighing in! So if I understand you correctly, you are arguing that most B2Bs are destined to fail because the VC investments usually do not work out for the size of the market (investments too large vs potential market). One thing we observed at AI B2B companies is that they seem to be perpetually 'behind' in terms of revenue growth. That is, B2B cycles seem to be so long that a company has gone through several investment rounds (often A-B) while it's still closing its first deals. So even though the eventual market may be large, it just takes painfully long to get there. In the meantime, commoditisation of features kicks in, and most ML B2Bs fail there. Seems like there are two possible moves here: - Slowly work on this to move ahead on that painfully long curve, apply to YC or similar when already close to seeing revenue from first case studies/licenses. In our (limited) experience, it takes easily 2 years to go through a trial case study in new B2B tech. - Try to find funding/YC/other accelerator straight away based on strong credentials/credibility in this domain and a very large potential win. In your experience, what do B2B-winners do?
  - caseymarquis 7y ago
    Just to answer the last question, successful B2B firms provide provable ROI. The company I'm with currently has a couple thousand customers, and every single sale is about proving our product will provide a return that exceeds the time and money invested in it. That said, you usually need a 'lighthouse'. This is a term commonly used for a reasonably sized firm which had taken the leap with your product and can be shown or referenced to future potential customers. This is why partnering with a customer can be a good path. It provides immediate feedback on your product, and also gives you a showcase for future prospects. In your situation, I would probably be looking for a customer that stood to greatly profit from the use of your product and try to pitch it to them as an R&D investment. To be honest, this won't be that much harder than your first B2B sale would normally be, as either way there's no proof of ROI. If you're dead set on VC, then you need to figure out how much of your product it would actually be possible to sell. If that number is in the billions (which means you must be generating more than that for your customers), then think about everything which gives your group a first move advantage and allows you to become a near monopoly. If that all adds up, then VC money may be right for you. If not, VC money could drag down an otherwise good idea.

z3t4 7y ago

Don't quit your job until you have found market fit. You can not know that until you have a MVP. So first get a job. Then try to get funding. Then hire people. Preferably You should not risk your own time or money.

caseymarquis 7y ago

I'm not affiliated with YC, but I do make B2B software. Could you potentially give partial ownership or indefinite free use of the service to the first customer and have them put you on payroll? Getting VC investment in B2B will likely be challenging. Most B2B ideas don't scale to billion dollar companies. The market isn't the world so much as some niche that caps out around XX million dollars. That's hugely successful under most circumstances, but can be perceived as a failure for a VC firm. I work in a space where VCs are investing 10 to 30 million in new companies, but have inside information from existing older firms that pretty much ensures any company in the space will have a max valuation around 100 million; if all the stars align. As such, these new companies are destined to fail simply because the money they received to build their product isn't proportional to market capacity for the product. That said, I also have no idea what the idea or market is, so I could be way off base.

hn_yc_throwaway 7y ago
Many thanks for weighing in! So if I understand you correctly, you are arguing that most B2Bs are destined to fail because the VC investments usually do not work out for the size of the market (investments too large vs potential market). One thing we observed at AI B2B companies is that they seem to be perpetually 'behind' in terms of revenue growth. That is, B2B cycles seem to be so long that a company has gone through several investment rounds (often A-B) while it's still closing its first deals. So even though the eventual market may be large, it just takes painfully long to get there. In the meantime, commoditisation of features kicks in, and most ML B2Bs fail there. Seems like there are two possible moves here: - Slowly work on this to move ahead on that painfully long curve, apply to YC or similar when already close to seeing revenue from first case studies/licenses. In our (limited) experience, it takes easily 2 years to go through a trial case study in new B2B tech. - Try to find funding/YC/other accelerator straight away based on strong credentials/credibility in this domain and a very large potential win. In your experience, what do B2B-winners do?
- caseymarquis 7y ago
  Just to answer the last question, successful B2B firms provide provable ROI. The company I'm with currently has a couple thousand customers, and every single sale is about proving our product will provide a return that exceeds the time and money invested in it. That said, you usually need a 'lighthouse'. This is a term commonly used for a reasonably sized firm which had taken the leap with your product and can be shown or referenced to future potential customers. This is why partnering with a customer can be a good path. It provides immediate feedback on your product, and also gives you a showcase for future prospects. In your situation, I would probably be looking for a customer that stood to greatly profit from the use of your product and try to pitch it to them as an R&D investment. To be honest, this won't be that much harder than your first B2B sale would normally be, as either way there's no proof of ROI. If you're dead set on VC, then you need to figure out how much of your product it would actually be possible to sell. If that number is in the billions (which means you must be generating more than that for your customers), then think about everything which gives your group a first move advantage and allows you to become a near monopoly. If that all adds up, then VC money may be right for you. If not, VC money could drag down an otherwise good idea.