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Unlike most other years startups should be very wary of going down the YC/VC path. There is so much money around courtesy of rolling funds, micro-VCs etc that

Unlike most other years startups should be very wary of going down the YC/VC path. There is so much money around courtesy of rolling funds, micro-VCs etc that it's almost certain that you will raise a decent sized seed round. But that money seems to be concentrated in the early stages so the competition for a Series A is significantly higher. Which means unless you hit product market fit, have incredible unit economics and lots of traction within the first 18 months you are going to die. Or you will just keep raising Seed+, Seed++ etc until you have no equity left. And unfortunately there just isn't enough accurate data on what the conversion rate is going from Seed to Series A so it's hard for startups to make educated risk decisions. More and more I think the smart path is to try to bootstrap your way for the first few years and then go for the Series A at which point you will have all of the leverage since you can simply say no since you are profitable.

tmpz22 6y ago
> Which means unless you hit product market fit, have incredible unit economics and lots of traction within the first 18 months you are going to die. Dieing after 18 months is a winning scenario for many founders, especially those who already came from privileged career positions such as former positions at Google. They get to raise their ~500k-2m and pay themselves pretty solid salaries while building industry connections. Then they either return to their old job, take a long vacation with their FANNG + founder savings, or jump into their next startup.
- Judgmentality 6y ago
  In my experience, very few founders of startups that are only at the seed stage give themselves significant salaries - in fact many don't pay themselves anything. I don't have any statistics, I can only speak anecdotally.
- brianwawok 6y ago
  Do you have any sources? Seed round founder salary is almost never market rate. At least in anyone I know who has done this.
e1g 6y ago
To support the statement that Series A is much harder: only ~30% of YC companies get to Series A (Michael Seibel gave that figure in one interview). So even with YC backing, 2/3rds of funded seed-level startups either quit, die, merge, or get hired rather than take-off.
- an_opabinia 6y ago
  Or merely that YC still manages to take some risks.
- deleted 6y ago
  [deleted]
- bignoggins 6y ago
  That is astonishingly high to me. Most YC companies raise a seed so a 1/3 chance to raise an A is insanely good
gip 6y ago
As somebody new to the world of startups, I'm wondering why taking a small seed round and then work hard to bootstrap within a few years (with the help of the extra seed cash) isn't a viable option?
- ampdepolymerase 6y ago
  Not all VCs are made equal and not all startups can take advantage of fundraising. Network is just as important and it could mean the difference between a 50 million dollars company (bootstrapped) versus a 500 million dollars company (multiple rounds of fundraising with brand name VCs). All these are contingent on the fact that your product has the ability to scale. If it is a rather niche area, then no amount of funding will make a difference.
- brianwawok 6y ago
  Most seed givers such as YC won’t let you. If your goal is seed -> bootstrap, you will be auto rejected. VCs want you to hit it big or burn out within 5-10 years. Remember they are using investors money, and investors want their money back. If your plan is to bootstrap (which I think is wise and the path I took with my current startup) , look into angels and Friends and family Rounds. Most family rounds are totally OK with a longer horizon. That said, not all people have the friends and family to do such a raise, in which case what do you do?
  - snowmaker 6y ago
    Actually, at YC we tell every company we fund that ideally they would treat every dollar they raise from investors as the last, and get profitable from the money they raised already. Not every company can do that (i.e., Boom, which is building supersonic airplanes) but if you can, you should.
    - gip 6y ago
      At equal execution, I suspect there is often (but not always) a direct relationship between investment and speed of execution / time to profitability (since with more investment it will be easier to attract great talent and iterate faster). Assuming what I'm saying above is correct, that means that YC is advising founders to take the slow road to profitability? (Nothing wrong with that!)
lpolovets 6y ago
I strongly agree with your sentiment that going the YC and/or VC route requires careful consideration. However, I have a slightly different take on Series A competitiveness. The # of Series A's hasn't grown as quickly as the number of seed rounds, but strong companies still have good chances of getting Series A funding. One way to think about this is that years ago maybe there were 5k seed rounds/year and 1500 Series A's. And today maybe it's 20k seed rounds and 2000 Series A's. But those 1500-2000 Series A's are still mostly distributed among the 5k top seed companies, not the 15k additional ones that wouldn't have been funded years ago. So if you have a company that you think could've been funded 5 years ago then you probably have similar odds of a Series A as you did 5 years ago. I don't have data to back this up, but this has been my anecdotal experience. FWIW, the seed fund I'm at has had a consistent 65-70% seed-to-Series-A graduation rate for our entire 8-year lifetime, even though the number of seed rounds during that period has grown dramatically.
robomartin 6y ago
The 7% YC takes for their $125K investment doesn't seem quite right for anything other than two or a few guys with laptops. In other words, if you are going to make a bet that is far more likely to result in a loss, on people without serious overhead and no skin in the game, sure, yeah, 7% is fair and might even be low. Note that my perspective in saying this is hardware. I've done hybrid (hardware + software) companies my entire adult life. It's all I know. And, so far, 100% of everything I've done has been self funded. I've had some success and lots of "experiences". Such is life. While today hardware can be far less capital intensive than a decade or two ago, there is no escaping the fact that it is much, much harder than pure software businesses. I spend more money on tooling and specialized engineering design software than the best computers a pure software startup would typically buy. Heck, I have a drawer full of specialized crimpers and tools that is probably worth as much as a nice BMW. It's the old bits vs. atoms game. Iterations and pivots cost real money and a minimum viable product can cost tens to hundreds of thousands of dollars. And mistakes can clean out your bank account and take months to iterate or pivot out of. This paragraph in the YC deal page (https://www.ycombinator.com/deal/ https://www.ycombinator.com/deal/) definitely does not ring true for anything but what I would call the most trivial of hardware startups: "We think that $125k is currently the right amount for founders to be able to run their company and pay expenses for around 5-6 months, and sometimes even longer." Yeah. No. I have been working on a self-funded startup since approximately March. It has taken somewhere in the range of $250K to $350K and a lot of man-hours to get to the point where we are about to start showing the MVP to prospective customers. With some products you only get so far with Powerpoints and hand-waving. And so, while I think I would be quite interested in participating in the YC program, I can't see my way to handing over 7% for $125K. The next phase of this startup could consume that in a month. Hardware startups run on blood in the form of cash. If you can't pump it through the veins you starve and die. Maybe YC needs to have two kinds of deals: One for guys-with-laptops companies and another for non-trivial hardware startups. What I mean by "non trivial hardware startups" is anything you can't do with a good looking video and an interesting story on Kickstarter. I am doing yet another startup that is being done in an entirely different way. In this case we've been talking to a prospective customer for over a year. He finally got funding for his project and it looks like we are going to get the contract we were looking for to launch the business. Once again, the work and investment it took to get to the point where this customer is willing to issue a (possibly) million dollar+ purchase order for this transaction is well above a $125K seed investment. Anyhow, I do understand that this perspective is likely well outside what a typical YC company might be like. Let's face it, hardware startups don't unicorn at a rate even remotely close to software startups. I think I can say most never do. They can be amazing and super-interesting companies but moving molecules is much harder and slower to scale than moving bits.

tmpz22 6y ago

> Which means unless you hit product market fit, have incredible unit economics and lots of traction within the first 18 months you are going to die. Dieing after 18 months is a winning scenario for many founders, especially those who already came from privileged career positions such as former positions at Google. They get to raise their ~500k-2m and pay themselves pretty solid salaries while building industry connections. Then they either return to their old job, take a long vacation with their FANNG + founder savings, or jump into their next startup.

Judgmentality 6y ago
In my experience, very few founders of startups that are only at the seed stage give themselves significant salaries - in fact many don't pay themselves anything. I don't have any statistics, I can only speak anecdotally.
brianwawok 6y ago
Do you have any sources? Seed round founder salary is almost never market rate. At least in anyone I know who has done this.

e1g 6y ago

To support the statement that Series A is much harder: only ~30% of YC companies get to Series A (Michael Seibel gave that figure in one interview). So even with YC backing, 2/3rds of funded seed-level startups either quit, die, merge, or get hired rather than take-off.

an_opabinia 6y ago
Or merely that YC still manages to take some risks.
deleted 6y ago
[deleted]
bignoggins 6y ago
That is astonishingly high to me. Most YC companies raise a seed so a 1/3 chance to raise an A is insanely good

gip 6y ago

As somebody new to the world of startups, I'm wondering why taking a small seed round and then work hard to bootstrap within a few years (with the help of the extra seed cash) isn't a viable option?

ampdepolymerase 6y ago
Not all VCs are made equal and not all startups can take advantage of fundraising. Network is just as important and it could mean the difference between a 50 million dollars company (bootstrapped) versus a 500 million dollars company (multiple rounds of fundraising with brand name VCs). All these are contingent on the fact that your product has the ability to scale. If it is a rather niche area, then no amount of funding will make a difference.
brianwawok 6y ago
Most seed givers such as YC won’t let you. If your goal is seed -> bootstrap, you will be auto rejected. VCs want you to hit it big or burn out within 5-10 years. Remember they are using investors money, and investors want their money back. If your plan is to bootstrap (which I think is wise and the path I took with my current startup) , look into angels and Friends and family Rounds. Most family rounds are totally OK with a longer horizon. That said, not all people have the friends and family to do such a raise, in which case what do you do?
- snowmaker 6y ago
  Actually, at YC we tell every company we fund that ideally they would treat every dollar they raise from investors as the last, and get profitable from the money they raised already. Not every company can do that (i.e., Boom, which is building supersonic airplanes) but if you can, you should.
  - gip 6y ago
    At equal execution, I suspect there is often (but not always) a direct relationship between investment and speed of execution / time to profitability (since with more investment it will be easier to attract great talent and iterate faster). Assuming what I'm saying above is correct, that means that YC is advising founders to take the slow road to profitability? (Nothing wrong with that!)

lpolovets 6y ago

I strongly agree with your sentiment that going the YC and/or VC route requires careful consideration. However, I have a slightly different take on Series A competitiveness. The # of Series A's hasn't grown as quickly as the number of seed rounds, but strong companies still have good chances of getting Series A funding. One way to think about this is that years ago maybe there were 5k seed rounds/year and 1500 Series A's. And today maybe it's 20k seed rounds and 2000 Series A's. But those 1500-2000 Series A's are still mostly distributed among the 5k top seed companies, not the 15k additional ones that wouldn't have been funded years ago. So if you have a company that you think could've been funded 5 years ago then you probably have similar odds of a Series A as you did 5 years ago. I don't have data to back this up, but this has been my anecdotal experience. FWIW, the seed fund I'm at has had a consistent 65-70% seed-to-Series-A graduation rate for our entire 8-year lifetime, even though the number of seed rounds during that period has grown dramatically.

robomartin 6y ago

The 7% YC takes for their $125K investment doesn't seem quite right for anything other than two or a few guys with laptops. In other words, if you are going to make a bet that is far more likely to result in a loss, on people without serious overhead and no skin in the game, sure, yeah, 7% is fair and might even be low. Note that my perspective in saying this is hardware. I've done hybrid (hardware + software) companies my entire adult life. It's all I know. And, so far, 100% of everything I've done has been self funded. I've had some success and lots of "experiences". Such is life. While today hardware can be far less capital intensive than a decade or two ago, there is no escaping the fact that it is much, much harder than pure software businesses. I spend more money on tooling and specialized engineering design software than the best computers a pure software startup would typically buy. Heck, I have a drawer full of specialized crimpers and tools that is probably worth as much as a nice BMW. It's the old bits vs. atoms game. Iterations and pivots cost real money and a minimum viable product can cost tens to hundreds of thousands of dollars. And mistakes can clean out your bank account and take months to iterate or pivot out of. This paragraph in the YC deal page (https://www.ycombinator.com/deal/ https://www.ycombinator.com/deal/) definitely does not ring true for anything but what I would call the most trivial of hardware startups: "We think that $125k is currently the right amount for founders to be able to run their company and pay expenses for around 5-6 months, and sometimes even longer." Yeah. No. I have been working on a self-funded startup since approximately March. It has taken somewhere in the range of $250K to $350K and a lot of man-hours to get to the point where we are about to start showing the MVP to prospective customers. With some products you only get so far with Powerpoints and hand-waving. And so, while I think I would be quite interested in participating in the YC program, I can't see my way to handing over 7% for $125K. The next phase of this startup could consume that in a month. Hardware startups run on blood in the form of cash. If you can't pump it through the veins you starve and die. Maybe YC needs to have two kinds of deals: One for guys-with-laptops companies and another for non-trivial hardware startups. What I mean by "non trivial hardware startups" is anything you can't do with a good looking video and an interesting story on Kickstarter. I am doing yet another startup that is being done in an entirely different way. In this case we've been talking to a prospective customer for over a year. He finally got funding for his project and it looks like we are going to get the contract we were looking for to launch the business. Once again, the work and investment it took to get to the point where this customer is willing to issue a (possibly) million dollar+ purchase order for this transaction is well above a $125K seed investment. Anyhow, I do understand that this perspective is likely well outside what a typical YC company might be like. Let's face it, hardware startups don't unicorn at a rate even remotely close to software startups. I think I can say most never do. They can be amazing and super-interesting companies but moving molecules is much harder and slower to scale than moving bits.