4 ms·

this was a great ad for YC :) i think where people are more borderline is if they can raise at a decent seed valuation elsewhere already (eg based on existing

by swyx 4y ago

this was a great ad for YC :) i think where people are more borderline is if they can raise at a decent seed valuation elsewhere already (eg based on existing revenue or prior reputation/technology being far more established). It's well understood that YC has some value add. So the fun question is - what is the valuation you can raise at which it does NOT make sense to enter YC? YC values you at ~2m when they invest (120k divided by 7%, 380k MFN SAFE aside). Lets say you come out of it worth $10-20m on average. Maybe the connections and other stuff gives you value worth $5-10m. so if your business is valued above 15-30m you should consider NOT going into YC. Is that a good way to think about it? any of these numbers you would change?

dheera 4y ago
S16 here. I think the greatest value add was actually being able to work heads-down for 3 months knowing that you would almost certainly get investment on Demo Day. Almost all companies got investment, since YC was extremely selective back then (batch sizes were much smaller) and investors generally trusted YC's judgement. Prior to S16, this was probably even more true. If it weren't for YC one would have to spend 50% of their working hours having coffee chats and preparing demos, since investors generally had their own contorted idea of what a good demo is before they would invest, and it was usually not what the customer wanted. Being able to get twice as much work done in return for 7% was a good deal. I don't think that applies anymore, sadly, with the large batch sizes they accept now. Nowadays you'll have to waste half your summer having coffee, not have guaranteed investment, and still give away 7%. Not a good deal. Also, if you live in the bay area, it's fairly easy to come across most YC advice and get investor intros just by going to enough house parties with seasoned founder attendees.
- chrisfrantz 4y ago
  Nowadays you start with $500K though, which puts you in a much better position when speaking with investors as your initial runway isn’t as close to nil.
  - dheera 4y ago
    Yeah. It's better, though $500K is still low for a couple founders plus company expenses, given how much rents and cost of living has gone up in the past 6 years. Especially if your startup isn't purely software, and involves some operational or hardware expenses, $500K is a no-go. It's also the ballpark of what 2 technical founders could easily make by working for ~6 months in the bay area, and not have to give away any equity at all. So if you're doing it for $500K, I'd say there are better ways to get $500K than giving up 7% of your company. Now if YC handed out $2M and cut their batch size by a factor of 4 (being more selective in their applications), I think it'd be a really good play for them.
    - therusskiy 4y ago
      Isn't running a business and especially a startup is supposed to be risky? "We have an idea that's not materialized yet, give us money so we can live comfortably and reap all benefits it it works out and not lose anything if it doesn't." - sounds like a wishful thinking.
      - dheera 4y ago
        > Isn't running a business and especially a startup is supposed to be risky? No, it is risky, and you want to actively eliminate as many of the risks as possible. Having a decent sized pile of cash is one way out of several of the risks. Supply chain shortages, founder medical expenses, mishaps and accidents, rising costs of living, personal emergencies happening to founders or employees requiring leave, there are a million things that will bite you if you don't have cash and runway. "Supposed to be risky" isn't a good way to think about it, IMO. A lot of the time you'll hear people romanticize a couple of fresh graduates living on couches in a garage, living on ramen, and building a unicorn, but the reality is that most billion-dollar companies weren't actually built that way, and it isn't the best way to optimize your chances of success.
        upupandup 4y ago
        If something is risky, you should treat it as such. What I see people caught up in the startup/hustle/entrepreneur porn is the belief that they are different. No, statistics still show 95% of startups fail. You shouldn't be telling people to spend your youth on something that has 5% of less of success.
- faangiq 4y ago
  This is a good way to look at the ROI.
- snowmaker 4y ago
  Actually, the percentage of companies that raise money at demo day has remained constant from S16 to now.
- throwaway_4ever 4y ago
  > just by going to enough house parties with seasoned founder attendees Do you think this is realistic getting access to these just by living in the Bay? I don't think so.
  - dheera 4y ago
    > Do you think this is realistic getting access to these just by living in the Bay? Yes, if (a) you're nice and approachable (b) you're working on something interesting (c) are reasonably good at socializing, it's pretty easy to ask around and get looped in on such events. People here are pretty open about having interesting friends-of-friends show up to house parties.
    - throwaway_4ever 4y ago
      Hmm. I’ve lived in the Bay my whole life but I guess lack of (b) meant my social circle was always local normie friends or coworker FAANG types. Guess I need to (b), get more internet cred, and actually branch out to internet people rather than familiar territory.
jacquesm 4y ago
If all you see is the numbers, then yes. But there is more to YC than just the numbers, I think they do not only increase your chances of raising money (and likely more than if you did it yourself) but they are also very experienced in mentoring start-ups to the point where they become viable businesses and that is quite difficult.
yurisagalov 4y ago
I think it's really hard to put a purely monetary value on YC, but I think it definitely does a disservice to say that the program only adds $5-10M worth of value. If you speak to YC alumni, you'll hear from many of them that YC made them dream bigger. There's a founder in the comments here who said YC was an "ambition multiplier" for him[1]. How do you value that? [1] https://news.ycombinator.com/item?id=32556060 https://news.ycombinator.com/item?id=32556060
- swyx 4y ago
  right, sure, that is a huge value. but it's not, for example, $1B worth of value. should John Carmack do YC? no. etc. the goal of rational decisionmaking is to try to convert all factors into some kind of comparable numbers, and $ is just one utility function on which to project all these nonmonetary qualities. call it "utils" if you like (https://en.wikipedia.org/wiki/Utility#Cardinal https://en.wikipedia.org/wiki/Utility#Cardinal). so fair point if you disagree with 5-10m of nonmonetary value equivalent. Is it more like 50m? 100m? what is the lowest you can make the upper bound? a fun academic question for most, but for me personally, i have been offered a $2-3m seed pre product so that suddenly became a lot more real.
  - sevazhidkov 4y ago
    The problem with these monetary estimates is that they involve current valuations, which are probabilistically based on future outcomes, not enterprise value. PG once formalized YC value prop as average outcome multiplier [1]. Whatever the current valuation, would YC improve your expected outcome over lifetime of the company on 7.5%? If yes, then you should do it. [1] http://www.paulgraham.com/equity.html?viewfullsite=1 http://www.paulgraham.com/equity.html?viewfullsite=1
    - swyx 4y ago
      interesting framing. (and awfully convenient for yc/pg, haha, but fine) this feels like a second order analogue to the "ideas vs execution" debate - we know that idea is worth ~0, execution worth ~100 - but the harder question is - what is YC-fueled 3 months (where lets say you spend max 24 hours with YC partners/peers/events) + say 1-2 years worth of residual relevant connections worth vs a ~10 year hard grind on your own? not gonna get the answer here but was fun to contemplate :)

by swyx 4y ago

dheera 4y ago

S16 here. I think the greatest value add was actually being able to work heads-down for 3 months knowing that you would almost certainly get investment on Demo Day. Almost all companies got investment, since YC was extremely selective back then (batch sizes were much smaller) and investors generally trusted YC's judgement. Prior to S16, this was probably even more true. If it weren't for YC one would have to spend 50% of their working hours having coffee chats and preparing demos, since investors generally had their own contorted idea of what a good demo is before they would invest, and it was usually not what the customer wanted. Being able to get twice as much work done in return for 7% was a good deal. I don't think that applies anymore, sadly, with the large batch sizes they accept now. Nowadays you'll have to waste half your summer having coffee, not have guaranteed investment, and still give away 7%. Not a good deal. Also, if you live in the bay area, it's fairly easy to come across most YC advice and get investor intros just by going to enough house parties with seasoned founder attendees.

chrisfrantz 4y ago
Nowadays you start with $500K though, which puts you in a much better position when speaking with investors as your initial runway isn’t as close to nil.
- dheera 4y ago
  Yeah. It's better, though $500K is still low for a couple founders plus company expenses, given how much rents and cost of living has gone up in the past 6 years. Especially if your startup isn't purely software, and involves some operational or hardware expenses, $500K is a no-go. It's also the ballpark of what 2 technical founders could easily make by working for ~6 months in the bay area, and not have to give away any equity at all. So if you're doing it for $500K, I'd say there are better ways to get $500K than giving up 7% of your company. Now if YC handed out $2M and cut their batch size by a factor of 4 (being more selective in their applications), I think it'd be a really good play for them.
  - therusskiy 4y ago
    Isn't running a business and especially a startup is supposed to be risky? "We have an idea that's not materialized yet, give us money so we can live comfortably and reap all benefits it it works out and not lose anything if it doesn't." - sounds like a wishful thinking.
    - dheera 4y ago
      > Isn't running a business and especially a startup is supposed to be risky? No, it is risky, and you want to actively eliminate as many of the risks as possible. Having a decent sized pile of cash is one way out of several of the risks. Supply chain shortages, founder medical expenses, mishaps and accidents, rising costs of living, personal emergencies happening to founders or employees requiring leave, there are a million things that will bite you if you don't have cash and runway. "Supposed to be risky" isn't a good way to think about it, IMO. A lot of the time you'll hear people romanticize a couple of fresh graduates living on couches in a garage, living on ramen, and building a unicorn, but the reality is that most billion-dollar companies weren't actually built that way, and it isn't the best way to optimize your chances of success.
      - upupandup 4y ago
        If something is risky, you should treat it as such. What I see people caught up in the startup/hustle/entrepreneur porn is the belief that they are different. No, statistics still show 95% of startups fail. You shouldn't be telling people to spend your youth on something that has 5% of less of success.
faangiq 4y ago
This is a good way to look at the ROI.
snowmaker 4y ago
Actually, the percentage of companies that raise money at demo day has remained constant from S16 to now.
throwaway_4ever 4y ago
> just by going to enough house parties with seasoned founder attendees Do you think this is realistic getting access to these just by living in the Bay? I don't think so.
- dheera 4y ago
  > Do you think this is realistic getting access to these just by living in the Bay? Yes, if (a) you're nice and approachable (b) you're working on something interesting (c) are reasonably good at socializing, it's pretty easy to ask around and get looped in on such events. People here are pretty open about having interesting friends-of-friends show up to house parties.
  - throwaway_4ever 4y ago
    Hmm. I’ve lived in the Bay my whole life but I guess lack of (b) meant my social circle was always local normie friends or coworker FAANG types. Guess I need to (b), get more internet cred, and actually branch out to internet people rather than familiar territory.

jacquesm 4y ago

If all you see is the numbers, then yes. But there is more to YC than just the numbers, I think they do not only increase your chances of raising money (and likely more than if you did it yourself) but they are also very experienced in mentoring start-ups to the point where they become viable businesses and that is quite difficult.

yurisagalov 4y ago

I think it's really hard to put a purely monetary value on YC, but I think it definitely does a disservice to say that the program only adds $5-10M worth of value. If you speak to YC alumni, you'll hear from many of them that YC made them dream bigger. There's a founder in the comments here who said YC was an "ambition multiplier" for him[1]. How do you value that? [1] https://news.ycombinator.com/item?id=32556060 https://news.ycombinator.com/item?id=32556060

swyx 4y ago
right, sure, that is a huge value. but it's not, for example, $1B worth of value. should John Carmack do YC? no. etc. the goal of rational decisionmaking is to try to convert all factors into some kind of comparable numbers, and $ is just one utility function on which to project all these nonmonetary qualities. call it "utils" if you like (https://en.wikipedia.org/wiki/Utility#Cardinal https://en.wikipedia.org/wiki/Utility#Cardinal). so fair point if you disagree with 5-10m of nonmonetary value equivalent. Is it more like 50m? 100m? what is the lowest you can make the upper bound? a fun academic question for most, but for me personally, i have been offered a $2-3m seed pre product so that suddenly became a lot more real.
- sevazhidkov 4y ago
  The problem with these monetary estimates is that they involve current valuations, which are probabilistically based on future outcomes, not enterprise value. PG once formalized YC value prop as average outcome multiplier [1]. Whatever the current valuation, would YC improve your expected outcome over lifetime of the company on 7.5%? If yes, then you should do it. [1] http://www.paulgraham.com/equity.html?viewfullsite=1 http://www.paulgraham.com/equity.html?viewfullsite=1
  - swyx 4y ago
    interesting framing. (and awfully convenient for yc/pg, haha, but fine) this feels like a second order analogue to the "ideas vs execution" debate - we know that idea is worth ~0, execution worth ~100 - but the harder question is - what is YC-fueled 3 months (where lets say you spend max 24 hours with YC partners/peers/events) + say 1-2 years worth of residual relevant connections worth vs a ~10 year hard grind on your own? not gonna get the answer here but was fun to contemplate :)