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"That[Yuri's uncapped convert notes] drives up the check amounts, removes the incentives for the angels (uncapped converts…really?) and doesn’t really allow any

"That[Yuri's uncapped convert notes] drives up the check amounts, removes the incentives for the angels (uncapped converts…really?) and doesn’t really allow any one angel to take the mutual fund model, which means they would be investing with no due diligence. " Yikes...I never thought about it that way. Basically Yuri is encouraging the speed at which the angel/super-angel bubble is hyper-inflating. I wonder if most incubators/angels have responded/will respond with refusal to go along with Yuri, or up the ante with larger amount of angel investment?

damoncali 16y ago
Anyone can offer that deal that Milner did. There is nothing stopping other angels other than that fact that nobody else seems to think it's a good idea. There's a fundamental disregard for risk in Milner's approach. They are paying the same price as later investors, but taking more risk. They are basically building in a down round just to get in the deal. Since when is a seed round worth more than a Series A? I get that they're trying to get into every deal that's been prescreened, but the valuations are totally upside down by design. I may be missing something, but I the only way I can see this working out is if you're going to deploy lots more money on top of these notes, which are basically an expensive marketing scheme. That's a pretty big gamble. Perhaps $6 million is play money to these guys. In any case, I'd be more worried as an early stage VC than as an angel. I can't put my finger on why I think that's a bad idea, but there problems just seem to follow people who are this free with their money. It smells of hubris, but it's not like these guys are pikers.
- BrandonWatson 16y ago
  That's the beauty of his approach, in my opinion. He deploys the money in one shot, to many companies (portfolio theory says this reduces risk), and does so with little diligence. He may be pricing many angels out of this type of deal because they won't have this same appetite for risk as Yuri does. What he finds acceptable for risk is not what most angels would, thus he can price out the risk premium with the uncapped convert.
  - chailatte 16y ago
    The other question is whether or not pg would ever put a cap on the amount of startups accepted into a batch. I am pretty sure that the next pool of applicant will be way larger, thus siphoning off talents from the other incubators/angels should pg chooses to accept all the good ones. This will then definitely trigger a defense mechanism by the others to then increase the amount of money funded, probably to more than 200k.
  - damoncali 16y ago
    That's just it - why is he more tolerant for risk than everyone else? Risk is not a personal thing - it just is. It's not like he gets his money cheaper than anyone else. Either he's wrong and everyone else is right, in which case he's burning money, or he's right and everyone else is wrong, and he's burning less money. Either way, I don't get it. These guys are very well connected. Is it so hard to participate in Y Combinator Series A round that they need to spend this much money just for the opportunity?
    - Zaak 16y ago
      Everyone has a different level of risk aversion. Some people want to play it very safe, and others are willing to take large risks if the possible rewards appear worth it.
  - bretpiatt 16y ago
    The difference in appetite for risk isn't a real difference -- you just have to have the proper perspective. Angels only get to buy in during seed or A rounds. Yuri can double, triple, and quadruple down on the winning companies by following on in A, B, C, D, ... rounds. If the companies don't allow him into later rounds at equal terms with the others on the round up to as much money as he wants to put in the round (up to the full amount the company is trying to raise) then I expect you'll see this experiment end. He's paying for access, for screened deal flow. Angels are there for a different reason. So is Yuri's money better than another angels? It is better than PG's? No. No way. Yuri's money is just money. If the only thing stopping you from starting a successful company is access to capital you aren't getting creative enough. Taking money from an angel, from PG, gives you access -- to people with domain knowledge -- to people that will help you succeed with more than just piles of money.
- pmjordan 16y ago
  In a way, he's outsourcing his due diligence, dealflow, etc. to YC by paying a premium for equity. By the sounds of it, he's not located in the Bay Area, so this may well be an absolute bargain for him. YC benefits indirectly by increasing the odds of success of their portfolio companies. Not having to worry about funding for a while alone must be worth quite a lot in this respect.
- 3pt14159 16y ago
  Might be the marketing budget. "Don't worry founders, we get it we arn't idiots, look, we are so cool 90% of YC companies are funded by us."

damoncali 16y ago

Anyone can offer that deal that Milner did. There is nothing stopping other angels other than that fact that nobody else seems to think it's a good idea. There's a fundamental disregard for risk in Milner's approach. They are paying the same price as later investors, but taking more risk. They are basically building in a down round just to get in the deal. Since when is a seed round worth more than a Series A? I get that they're trying to get into every deal that's been prescreened, but the valuations are totally upside down by design. I may be missing something, but I the only way I can see this working out is if you're going to deploy lots more money on top of these notes, which are basically an expensive marketing scheme. That's a pretty big gamble. Perhaps $6 million is play money to these guys. In any case, I'd be more worried as an early stage VC than as an angel. I can't put my finger on why I think that's a bad idea, but there problems just seem to follow people who are this free with their money. It smells of hubris, but it's not like these guys are pikers.

BrandonWatson 16y ago
That's the beauty of his approach, in my opinion. He deploys the money in one shot, to many companies (portfolio theory says this reduces risk), and does so with little diligence. He may be pricing many angels out of this type of deal because they won't have this same appetite for risk as Yuri does. What he finds acceptable for risk is not what most angels would, thus he can price out the risk premium with the uncapped convert.
- chailatte 16y ago
  The other question is whether or not pg would ever put a cap on the amount of startups accepted into a batch. I am pretty sure that the next pool of applicant will be way larger, thus siphoning off talents from the other incubators/angels should pg chooses to accept all the good ones. This will then definitely trigger a defense mechanism by the others to then increase the amount of money funded, probably to more than 200k.
- damoncali 16y ago
  That's just it - why is he more tolerant for risk than everyone else? Risk is not a personal thing - it just is. It's not like he gets his money cheaper than anyone else. Either he's wrong and everyone else is right, in which case he's burning money, or he's right and everyone else is wrong, and he's burning less money. Either way, I don't get it. These guys are very well connected. Is it so hard to participate in Y Combinator Series A round that they need to spend this much money just for the opportunity?
  - Zaak 16y ago
    Everyone has a different level of risk aversion. Some people want to play it very safe, and others are willing to take large risks if the possible rewards appear worth it.
- bretpiatt 16y ago
  The difference in appetite for risk isn't a real difference -- you just have to have the proper perspective. Angels only get to buy in during seed or A rounds. Yuri can double, triple, and quadruple down on the winning companies by following on in A, B, C, D, ... rounds. If the companies don't allow him into later rounds at equal terms with the others on the round up to as much money as he wants to put in the round (up to the full amount the company is trying to raise) then I expect you'll see this experiment end. He's paying for access, for screened deal flow. Angels are there for a different reason. So is Yuri's money better than another angels? It is better than PG's? No. No way. Yuri's money is just money. If the only thing stopping you from starting a successful company is access to capital you aren't getting creative enough. Taking money from an angel, from PG, gives you access -- to people with domain knowledge -- to people that will help you succeed with more than just piles of money.
pmjordan 16y ago
In a way, he's outsourcing his due diligence, dealflow, etc. to YC by paying a premium for equity. By the sounds of it, he's not located in the Bay Area, so this may well be an absolute bargain for him. YC benefits indirectly by increasing the odds of success of their portfolio companies. Not having to worry about funding for a while alone must be worth quite a lot in this respect.
3pt14159 16y ago
Might be the marketing budget. "Don't worry founders, we get it we arn't idiots, look, we are so cool 90% of YC companies are funded by us."