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Y Combinator narrows current cohort size by 40%, citing downturn and funding
- dqpb 4y agoDoesn’t Y Combinator get 7% of every business for only $125,000? How are they not flush with cash?
- tfehring 4y ago$125k * 400 companies/batch * 2 batches/year = ~$100 million/year deployed just during the batches. On top of that, they often participate in later funding rounds to maintain their 7% stake. Also, it takes a long time for those investments to generate cash. Many of the most valuable YC-funded companies are still private, and even for the public ones I doubt YC unloads its whole stake as soon as it can post-IPO.
- lumost 4y agoIsn’t there also a large risk to YC in the event their private unicorns see substantial valuation revisions?
- political12345 4y agoyea...
- tfehring 4y agoThere's definitely risk in the sense that YC invests in relatively risky companies, and anything that negatively impacts the long-term value of those businesses ultimately impacts YC. From, like, an accounting perspective, I have no idea when YC marks gains or losses to market or whether that timing coincides with other market participants or the companies themselves. Either way, in the context of the top-level commenter's question, it's worth emphasizing that a change in valuation isn't a cash flow. YC doesn't get an influx of cash to invest when the value of its portfolio companies goes up, and it doesn't have to give up cash that it could otherwise invest when those companies' valuations go down.
- hmryehbut 4y agoJIT economics are not just for toilet paper
- solarmist 4y agoIt’s $500k now.
- yunohn 4y agoNo, it’s still 125k for 7%, with an option for an additional 375k on an uncapped safe. Source: https://www.ycombinator.com/deal/ https://www.ycombinator.com/deal/
- supernova87a 4y agoWhat is a "safe"? I have never heard that term in this usage before.
- yunohn 4y agoSimple Agreement for Future Equity: https://www.ycombinator.com/documents https://www.ycombinator.com/documents
- dstick 4y agoTrue but from a practical standpoint they risk a full $500.000 upfront: “Both investments happen at the same time; they are not contingent on any milestones.” So from a founder perspective, that’s very friendly.
- yunohn 4y agoThat is true, but the comment I was replying to was implying that you get 500k at 7%, which is wrong.
- ec109685 4y agoIf you ever finance again you have to take the note, right?
- yunohn 4y agoThat’s actually a good question, the language isn’t clear on whether the 325k note is mandatory or not.
- crypto_brah 4y ago
- birdyrooster 4y agoIt's okay, there are other VC to fill the void.
- bdcravens 4y agoAnd many other VCs are similarly pulling back https://news.crunchbase.com/venture/a16z-slowing-investment-andreessen-startups/ https://news.crunchbase.com/venture/a16z-slowing-investment-... https://techcrunch.com/2022/04/13/vc-distributions-are-down-90-in-q1-says-industry-ventures-an-lp-in-450-funds/ https://techcrunch.com/2022/04/13/vc-distributions-are-down-...
- bpodgursky 4y agoFrom what I've heard from people in recent batches, this is probably a good thing for those that make it in. Pretty little personalized attention when there are 400 startups in a batch...
- ShivShankaran 4y agoIt's actually a bad thing. Just like cryto all the YC companies sell to each other. As per their 2022 stats, more than 50% of sales for all YC startups are other YC companies. So this is just a game of hot potato until they get a fat valuation, raise a zillion dollar series and then list it on the stock market for the retail traders to hold their bags. Less YC startups= less customers for other YC startups.
- bpodgursky 4y agoYou don't have to be here, if you think it's all nonsense.
- anxrn 4y agoDespite the connection, HN != YCombinator
- bpodgursky 4y agoThis thread is literally about Y Combinator.
- halfmatthalfcat 4y agoSo we're not allowed to criticize YC on HN?
- GenerocUsername 4y agoBad this quarter. Good over next 5
- 4y ago
- mike_d 4y agoWill YC also increase the money in by 9% since companies can do less with the same investment?
- chipgap98 4y agoThey just increased the size of the checks they give in the last year IIRC.
- paulgb 4y agoThe check size stayed the same, but now they offer a second check for a MFN uncapped SAFE. Regarding inflation, though, I’d posit that being a seed stage startup is cheaper than ever in spite of inflation, unless you’re super dependent on labor that the founders can’t provide. There is so much competition between service providers that a lot of things are free or heavily discounted in the seed stage, from banking to cloud services to legal. Plus a lot more automation and standardization around back-office stuff than there used to be (e.g. Stripe Atlas, Clerky)
- thiscatis 4y agoHopefully this will give more stable gains for them and less https://www.stablegains.com/ https://www.stablegains.com/
- balaselvam 4y agoThe emphasis on "downturn" concerns me. Aren't reputed firms like YC supposed to look at a 10+ year horizon? If this is true, it indicates that earlier investments were based on the market than the fundamentals of the founding team, market, and product.
- bdcravens 4y ago> earlier investments were based on the market than the fundamentals of the founding team, market, and product False dichotomy
- melony 4y ago40% is a massive cut. If the heavy weighing of the market doesn't constitute a dichotomy, then nothing does.
- tptacek 4y agoIt's a massive cut after a sequence of massive, program-redefining increases in batch sizes. The current size is, as their representative says, still a lot bigger than batches were until recently.
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- bdcravens 4y agoThere are a massive amount of applications; they still base acceptance on quality. Otherwise, when market conditions were good, they were letting in a number of terrible companies.
- fsckboy 4y agothe 10 year horizon of a first mover who grows every one of the 10 years looks a lot better than the 10 year horizon of a first mover who is expected to do nothing the first couple years. And you can only invest money your investors give you, and they give you money out of their own funds that are depleted by the downturn, so while you may be right that this is the perfect time to make a 10 year investment, you can't take blood from a stone.
- faangiq 4y agoDo people still do YC? Been a while since they had a home run.
- epa 4y agoAirbnb was funded in a recession
- q-big 4y agoSure, but investors don't always act perfectly rationally, but also on soft criteria such as sentiment.
- nus07 4y agoWhat downturn ? SPY is going up and up :)
- nly 4y agoThe stock market is not the economy
- somenameforme 4y agoSarcasm loses its fun if one is obligated to add /s tags to everything.
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- MattGaiser 4y agoAny sense on whether there has been a decline in startup interest among potential founders? Startup founding seems a lot more risky if you cannot trivially go out and find a dev job if it fails. I know a lot of people who ended their startups when the pandemic hit and ducked into government jobs to wait it out.
- DoreenMichele 4y agoY Combinator’s Summer 2022 cohort — currently in action — boasts nearly 250 companies, down 40% from the previous cohort, which landed at 414 companies...the batch is still large “relative to the last five years of batches.” Next up, we shall hand wring about Bezos having fewer billions or some nonsense.
- mupuff1234 4y agoI wonder which sector (fintech, web3, etc) saw the biggest cut.
- political12345 4y agothese are not sectors but specific subindustries. to an investor there is no difference as they are almost perfecty correlated, as shown by this news piece
- physicsguy 4y agoInvestors just want a faster return in a high interest rate environment. If they can put money into super low risk things like bonds and get 3, 4, 5%+ then startups have to be beating that
- robertlagrant 4y agoIf you think this is a bad sign, just wait til we're in a recession.
- blagie 4y agoIt's signs like these that cause a recession. A lot of recession (and growth) is about belief in the economy. If YCombinator tells everyone there will be a tech recession, it increases odds of a recession.
- yunohn 4y ago+1, “are we manifesting a recession”: https://kyla.substack.com/p/the-vibecession-the-self-fulfilling https://kyla.substack.com/p/the-vibecession-the-self-fulfill...
- blagie 4y agoIt's a good set of thoughts. My own opinion is that COVID19 ground the economy to a halt. We had two choices for dealing with the lost productivity: a) About 2x inflation of currency (long-term -- e.g. 15% for five years). At the end, currency is worth less. b) Structural damage (e.g. businesses going bankrupt, people losing mortgage, people fired, etc.) And a bit of a spectrum in between. We chose much closer to (a) than to (b). This feels like the right choice. We didn't do it very cleanly, unfortunately, which has repercussions now. Personally, I feel like we should all just accept that money is worth less today, that it's not a runaway problem, and just deal with it. I'm concerned we'll either just delay the structural damage, or see run-away inflation.
- yunohn 4y ago> Personally, I feel like we should all just accept that money is worth less today Maybe for your situation that’s fine, but it affects me and almost everyone else quite a bit. It’s hard earned money.
- 4y ago
- I_am_tiberius 4y agoI always find it amazing that applicants only have 10 minutes to present themselves. If I only had 10 minutes, I'd be nervous as hell and it would not give a true representation as me as a person and my project - unless the nervousness factor is a key decision factor as well.
- robocat 4y agoIf you can’t sell to YC, then that is an indicator you couldn’t sell to clients, nor potential employees, nor to VCs.
- q-big 4y ago> I always find it amazing that applicants only have 10 minutes to present themselves. Consider this as a strong sign that YC is looks for companies that are an "easy sell" to VCs (the same holds for products that such companies produce). You can easily guess why they want that ...
- I_am_tiberius 4y agoThey always say that what matters most to them is the founders. How can they learn to know people in 10 minutes?
- q-big 4y ago> They always say that what matters most to them is the founders. How can they learn to know people in 10 minutes? This is not (necessarily) a contradiction: they are interested in founders who can easily be marketed. ;-)
- emptyfile 4y agoThese kind of comments irritate me so much. They would invest in mass produced bottled Himalayan air if they thought it would turn a quick buck.
- DethNinja 4y agoI think VC funds operate on the basis of greater fool theory. You don’t need a product or a capable team, you just need a shiny yuppie team, an easily marketable idea and then keep selling it to greater fools that will invest in Series B / C. I do wonder how much money has been lost by Series B / C investors in this fundamentally broken market but then again mostly likely Series B / C investors are too rich and well connected to be effected by downturns, so it balances out itself.
- benreesman 4y agoAnyone remember who wrote that doomsday deck for portfolio founders in like 2008? I can’t believe it’s escaping me, it caused quite the stir at the time.
- sokoloff 4y agoSequoia https://www.slideshare.net/eldon/sequoia-capital-on-startups-and-the-economic-downturn-presentation?type=powerpoint https://www.slideshare.net/eldon/sequoia-capital-on-startups...
- jaytxng 4y agoAdding to this thread the link to their new slides for 2022: https://s3.documentcloud.org/documents/22036831/adaptingtoenduremay2022.pdf https://s3.documentcloud.org/documents/22036831/adaptingtoen... Not titled as doom-y this time round.
- drdrek 4y agoIts actually pretty sober and to the point, and pretty relevant today. I think its just the first slide that is ingrained in peoples minds.
- CamperBob2 4y agoI don't know. Someone who took action under the assumption that the trends in that presentation were going to drive the economy over the next 10 years would have lost a LOT of money. Notice the conspicuously-missing X axis label on page 42.
- algoatecorn 4y agoThank you for posting this. Now, does anyone know how I can download the deck without logging into the site and using their free trial?
- areyousure 4y agohttps://www.allianceofceos.com/assets/forum/2008-10-Sequoia%20Capital%20on%20New%20Realities.pdf https://www.allianceofceos.com/assets/forum/2008-10-Sequoia%...
- brador 4y agoThat 40% is removal of Russian investment capital following financial restrictions due to Ukraine war.
- dzikimarian 4y agoAny source for that?
- tpae 4y agoReduce size and repeat members from previous years. I feel bad for the new applicants.
- yawboakye 4y agoYC has been irrelevant since they started admitting more than a handful of companies. It has almost become a rite of passage on to the fundraising circuit. It’s unclear what their admission philosophy is (e.g. p% of all applications?—I doubt). Or perhaps some fear of missing out dominates their thinking now? It would be interesting to know. Hopefully the current economic situation forces them to reconsider and perhaps return to admitting and cultivating an extremely small number of applications.
- deleted 4y ago[deleted]
- mizzao 4y agoWe actually thought about doing YC and demurred because (1) it wasn't a great deal and (2) because the batch size was so big, it wasn't a particularly good signal anymore. I've heard from other founders that they have so many startups no one gets much individual attention. That didn't stop us from launching on HN though :-P https://news.ycombinator.com/item?id=32266086 https://news.ycombinator.com/item?id=32266086
- sillysaurusx 4y ago
- sillysaurusx 4y agoI do not understand why the mods flagged the sibling comment. It was on topic, directly related, and is a central issue for the given discussion. Ah, yes, it’s because I tangentially pointed out exactly how much power YC has, and that’s bad for business. Got it. I’ll keep my head down before one of the powerful people reading this decides I need to get my account permanently penalized again until I learn my lesson and stop ever mentioning it. You know what? I take it back. Please succeed without applying to YC. I wish there was a way to help you directly. And if you win, please try to help others win via the same route, or at least let people know that it’s possible. Best of luck. I’m pretty bitter today for personal reasons, but not a single word of that comment was off topic, or dare I say mistaken. HN is inexorably linked to YC’s stranglehold on Silicon Valley, and moderation policy is not an off topic point. I don’t give a damn if you drag every one of my comments down to the very bottom for all eternity for saying this must because it’s true, because that’s just some small evil person exercising their power when someone else says a thing that worried them. I’m logging out for a week while I figure out my life. Whoever is the person behind that flag button that you pretend the community controls when in fact it’s you personally, please, stop and consider for one moment that you’ve already won, and there’s no reason to cull voices just because you want to. It’s scary, and smart people do exist who see what’s happening. It might take 20 years for your power to finally crumble, but stuff like this is exactly how it’ll slip away. Forget it. I put so much of my heart and soul into every one of my comments, and all of my effort into actually writing substantive, interesting, on-topic, entertaining commments, and the one time I say something laced with a little bit of (directly on-topic) truth, one specific person clicks a button to disable it ostensibly for the community’s benefit. The whole thing is just creepy, especially since the goal is to hypnotize as many programmers as possible without directly saying so. Am I wrong? If I’m mistaken, I am 100% okay with being mistaken. I’m fine with downvotes, I’m fine with seeming a little strange. My goal here is to speak to the community. I even tried to figure out these questions privately via email with you, and then one day you publicly accused me of abusing hn@ycombinator.com when I was literally just trying to figure out what you want me to say vs not say. You got the power man, you’ve won. Congratulations. I hope startups like Parsnip show that the world can do it without you.
- sealthedeal 4y agono, YC realized that they let a bunch of companies into YC that historically would have never made it in, reducing the value of the brand. This is a great move to more or less shrink the size and use the economy as a reason.
- Imnimo 4y agoThe crypto scam industry is going to need to tighten their belts, it sounds like.