5 ms·

I think it's actually predicated more on hiring the type of people that will be easily parachuted into FAANG companies through acquihires. I had long conceived

by dools 2y ago

I think it's actually predicated more on hiring the type of people that will be easily parachuted into FAANG companies through acquihires. I had long conceived of YC as basically a glorified recruitment channel for FAANG but when YC said they'll accept founders without an idea it cemented this view for me. That they get lucky with a handful of companies as well is a nice to have but liquidity events provided by acqui-hires can't be ignored as their bread n butter surely.

telotortium 2y ago
Interesting - I wonder if anyone has done the data analysis to see if this is plausible.
- tyre 2y ago
  Acquihires are bad for investors. Most of the negotiation happens around the comp for the employees, not the price of the acquisition. YC makes money off of huge wins like Stripe, Airbnb, etc.
tptacek 2y ago
How is it that you think YC makes money in a body shop acquihire deal? People talk about acquihires all the time but I think the bottom line to them is "most startups fail". YC isn't a fix for this; it simply accounts for the phenomenon by funding way more startups than other investors. There's a fun "human capital" vs. "signaling" argument to have here --- shocked, shocked! that YC would manage to re-invent the core controversy of higher education --- but just drastically increasing luck surface area is a pretty powerful idea, or seems that way. Maybe it'll be less effective in this coming season of high-capital companies, or maybe that narrative will turn out to be overblown when someone figures out how to make $40Bn on international benefits management or something.
- throwup238 2y ago
  > How is it that you think YC makes money in a body shop acquihire deal? Liquidation preference.
  - tptacek 2y ago
    At best that just gets them their money back, right? You can't buy for a nickel and sell for up to a nickel. That's not a business.
    - throwup238 2y ago
      That's only if they have 1X preference, which is the bare minimum (otherwise the founders could immediately e.g. flip a company with $1 mil in liquid cash for $X00k and pocket their share). The vast majority of (early stage) deals I've seen started at 2-3x preference. To be clear, I don't have any insider info on YC contracts and I'm not claiming that's where they make the bulk of their profits. But between my short time at a VC firm, the number of founders & early employees I know who have been screwed over by the practice (including myself), and >1X liquidation preference being such a pervasive clause, I suspect it's a rather significant fraction of software tech VC ROI. In practice acquihires help round out the numbers for LP presentations until the unicorns bear the real profitable fruit.
      - tptacek 2y ago
        The YC deal documents are famously public, right? You don't need "insider information" on them. This is pretty basic stuff. YC has blog posts about >1x preferences being a "dirty" term (as in, not a market term).
      - RestlessMind 2y ago
        > The vast majority of (early stage) deals I've seen started at 2-3x preference That's a very bold claim. Any citations?
deleted 2y ago
[deleted]
dilyevsky 2y ago
For most of those (probably all) acquihire deals youd be lucky to get your money back as investor so your theory doesn’t work at all. “Get lucky with a handful of companies” is in fact the entire point of venture
csomar 2y ago
acqui-hire is not really the reason. They need people who can sell on fund-raising and these are usually people who will get hired by FAANG. If you understand that, you'll understand the product that YC is creating (and most of VCs) and how it deviated from what they were supposed to do (actually investing).

by dools 2y ago

telotortium 2y ago

Interesting - I wonder if anyone has done the data analysis to see if this is plausible.

tyre 2y ago
Acquihires are bad for investors. Most of the negotiation happens around the comp for the employees, not the price of the acquisition. YC makes money off of huge wins like Stripe, Airbnb, etc.

tptacek 2y ago

How is it that you think YC makes money in a body shop acquihire deal? People talk about acquihires all the time but I think the bottom line to them is "most startups fail". YC isn't a fix for this; it simply accounts for the phenomenon by funding way more startups than other investors. There's a fun "human capital" vs. "signaling" argument to have here --- shocked, shocked! that YC would manage to re-invent the core controversy of higher education --- but just drastically increasing luck surface area is a pretty powerful idea, or seems that way. Maybe it'll be less effective in this coming season of high-capital companies, or maybe that narrative will turn out to be overblown when someone figures out how to make $40Bn on international benefits management or something.

throwup238 2y ago
> How is it that you think YC makes money in a body shop acquihire deal? Liquidation preference.
- tptacek 2y ago
  At best that just gets them their money back, right? You can't buy for a nickel and sell for up to a nickel. That's not a business.
  - throwup238 2y ago
    That's only if they have 1X preference, which is the bare minimum (otherwise the founders could immediately e.g. flip a company with $1 mil in liquid cash for $X00k and pocket their share). The vast majority of (early stage) deals I've seen started at 2-3x preference. To be clear, I don't have any insider info on YC contracts and I'm not claiming that's where they make the bulk of their profits. But between my short time at a VC firm, the number of founders & early employees I know who have been screwed over by the practice (including myself), and >1X liquidation preference being such a pervasive clause, I suspect it's a rather significant fraction of software tech VC ROI. In practice acquihires help round out the numbers for LP presentations until the unicorns bear the real profitable fruit.
    - tptacek 2y ago
      The YC deal documents are famously public, right? You don't need "insider information" on them. This is pretty basic stuff. YC has blog posts about >1x preferences being a "dirty" term (as in, not a market term).
    - RestlessMind 2y ago
      > The vast majority of (early stage) deals I've seen started at 2-3x preference That's a very bold claim. Any citations?

deleted 2y ago

[deleted]

dilyevsky 2y ago

For most of those (probably all) acquihire deals youd be lucky to get your money back as investor so your theory doesn’t work at all. “Get lucky with a handful of companies” is in fact the entire point of venture

csomar 2y ago

acqui-hire is not really the reason. They need people who can sell on fund-raising and these are usually people who will get hired by FAANG. If you understand that, you'll understand the product that YC is creating (and most of VCs) and how it deviated from what they were supposed to do (actually investing).