9 ms·

The YC VC Program

404 points by pg 14y ago

cyphersanctus 14y ago
Pg, are there really many ugly ducklings on demo day, despite the rigorous selection and the subsequent teaching/incubation process?
- ibdknox 14y ago
  people often switch ideas in the middle of YC, so there are more than a few who get up on stage with just a couple week's worth of work (if even that). By ugly ducklings in this case he means ideas that may not yet be fully fleshed out or well understood - he's making no statement about the teams themselves, which is what the selection process "solves."
  - philwelch 14y ago
    It's worth noting that in the original story of The Ugly Duckling, the "ugly duckling" is actually a cygnet (baby swan) that looks out of place next to the ducklings it grows up with, and that no one respects until it grows into a beautiful swan. So an ugly duckling would be an idea that will turn out very well even if it looks a little dubious at the beginning.
    - 001sky 14y ago
      link > http://en.wikipedia.org/wiki/The_Ugly_Duckling http://en.wikipedia.org/wiki/The_Ugly_Duckling
  - cyphersanctus 14y ago
    Good point. Thanks.
jedberg 14y ago
This is great! I always thought the $150k was too much of a runway. It allowed the poor startups to limp along for too long. And besides, the real value from these investments isn't the money, it is the mindshare you get with the VCs. This will help make that mindshare greater.
- waterlesscloud 14y ago
  I get why it's great for investors, but why is it great for founders? Especially when they could use the time to change plans.
  - jedberg 14y ago
    It's often hard to step out and see that the idea just doesn't have legs, especially if you've invested so much of your time and effort into it. When you come to the end of that runway, you need to make a hard decision. Also, when you change plans, you can look for new investment in the new idea. The assumption is that if you can't get follow on funding for your current idea, then it really is in your interest to come to the end of that runway sooner so you can be forced to make that hard decision and focus your efforts elsewhere.
  - pg 14y ago
    The office hours help all the startups. Decreasing the amount invested helps the successful and borderline startups because it means less of our time is taken up mediating founder disputes in the ones that are exploding. And yes, that was a significant time suck; Jessica says the majority of her time last batch was spent dealing with founder breakups.
    - jayzalowitz 14y ago
      pg, can you express percentages of yc startups that went through this?
      - pg 14y ago
        IIRC around a quarter of the startups lost a founder. Many of those partings were amicable though. Maybe a third required us to get involved.
    - ibdknox 14y ago
      > The office hours help all the startups. I would say that they were definitely valuable to us, if for no other reason than to get a chance to talk with investors before there was anything really at stake. The way investor meetings go is something that's hard to explain and something you just have to experience. This gave our class the opportunity to get a little used to how investors think and the way they interact with potential investments. While that may seem to be somewhat intangible, it's hard for me to estimate how much that initial experience helped ease us into doing it "for real" later.
josh2600 14y ago
I think YC has more of a problem dealing with the bad startups than it does dealing with the successful ones. My opinion from Paul's writing is that his goal is to find the AIRbnb's as quickly as possible while relegating things that aren't going to be mammoth. It makes sense when you're playing a volume/numbers game like YC has been doing. Quite the investor lineup; I think they had their choice of anyone in the world to be honest. I like reading PG's stuff because these sort of decisions are counterintuitive, but very fun academic/didactic examples.
ssebro 14y ago
What stops other investment firms from making identical blanket investments, or how do you guys plan to stop that?
- mustpax 14y ago
  Presumably Conway and Milner did not like how the initial approach was working out either and were looking for a change.
evansolomon 14y ago
Is there any significance to Ron Conway not being in the group anymore?
- pg 14y ago
  We certainly didn't kick SV Angel out. They're among our favorite investors in fact. It just didn't make sense with their fund size to keep doing these investments. Unlike the other investors, they are what's now called a "super angel" fund, and those are much smaller.
  - kami8845 14y ago
    I'm certain there are some companies that need more runway than others. Is it possible for, say, hardware companies to renegotiate for, e.g. 30k per VC rather than the current 20k?
    - pg 14y ago
      I'd never thought of that. Maybe in version 2.
      - erohead 14y ago
        I'd recommend staying at ~$80k. One of the mistakes I made last year was over-building inventory (possibly because I had access to $150k from Start fund).
      - malandrew 14y ago
        Also for version 2 and inline with the needs of hardware startups: http://news.ycombinator.com/item?id=4834831 http://news.ycombinator.com/item?id=4834831
    - ibdknox 14y ago
      This doesn't preclude a company from seeking funding elsewhere and I can imagine very, very few companies at this stage that could legitimately burn through $80k in 3 months. If that doesn't get you close enough to at least prove something that could be used as a basis for raising more, it's probably time to take a step back and figure out if that's really the best strategy for moving forward.
rdl 14y ago
It's sad to see SV Angel isn't part of the W13 VC program.
rdl 14y ago
I've never heard of Maverick Capital -- are they the hedge fund? They seem to be med-tech focused, if that's them.
- sakai 14y ago
  Looks like it: http://www.crunchbase.com/financial-organization/maverick-capital http://www.crunchbase.com/financial-organization/maverick-ca... Edit: NOT Mark Cuban.
dmmalam 14y ago
80k may be a little tight for international founders, as flights and legal fees for visas can be very expensive. Also silly things like paying extra for deposits on rent/bills as you have no US credit history. But otherwise seems reasonable.
- rdl 14y ago
  80k also substantially complicates hardware, I think. I wouldn't do a $50k hardware build without $100k in the bank.
  - ibdknox 14y ago
    It seems like the smart thing to do in this case is to then go down the Kickstarter route. I definitely wouldn't suggest it for software, as I genuinely think we got extraordinarily lucky, but for hardware it's an excellent choice.
    - rdl 14y ago
      Yeah. Getting early revenue or at least commits is key for anyone. That said, I think I'd still want to have a bigger bank doing hardware. If you kickstart or take pre-delivery payment for something at ~cost, and you need to respin a few times, you may become the next Wakemake. Being able to just take your $50k reserve fund and buy all new parts or pay for an expedited mold or something could make a big difference early on. I wish I had enough silicon-valley-version-of-Wasta to raise a $2-5mm microfund. Being able to finance hardware projects or other obviously capital-intensive YC projects on START terms with an extra $100-200k early on would be a pretty decent investment. It would still be a much more algorithmic decision than "which teams do I think will win", which probably wouldn't work as well. The ideal LP for this would be Jeff Bezos and maybe a few other guys who made bank off hardware or retail. You'd almost be a bank, vs. an investor -- you would be investing based on a specific credible expenditure. Do it as debt + warrant coverage, or secure against revenue. Just be easy about it -- it should take 5 minutes to make a decision, and you should be adding hardware/distribution/retail/logistics clue to the process to help the founders. YC hardware companies (and, honestly, all startup hardware companies) kind of sucked before the $150k START in W11.
thinkdevcode 14y ago
Does this mean that the outside investment of 150k is no longer available? I don't see whats to stop them from investing (150k) anyway, considering it wasn't part of YC in the first place. In my opinion 80k is a little too low, especially for international founders or those with international teams. I agree, though, that advice from VC would be better in terms of building a business versus just throwing cash at the startup.
- rhizome 14y ago
  Then again it lowers the bar for international VC providers to start participating in this kind of model, making US-based funders a little less necessary.
khangtoh 14y ago
Not everything scales horizontally and shouldn't have to. YC should just stick to a lower number of startups for each cycle. 1) Maintains the prestige of a team being selected. 2) Keeps investment level at previous level. 3) Spend quality time with each team.
debacle 14y ago
What kind of messy things happen with 150k that don't happen with 80k?
- rdl 14y ago
  I think the assumption is that only the most colossal implosions happen in the first 6mo after YC. It's much easier for 2-3 people plus 1-2 hires to burn through most of $80k in 6mo after YC, vs. 150k. Figure founders consume $3-4k/mo each, and hires cost $10-15k, and you spend $20-30k on corp/legal/etc.
  - debacle 14y ago
    I was asking specifically about: > it sometimes caused messy disputes in the unsuccessful ones. I can't imagine a dispute that would occur at 150k but not at 80, except maybe of the cut-and-run variety, but the same could be said of any dollar amounts - you need to know when to cut your losses.
    - rdl 14y ago
      The dispute happens after some of the money is burned off. Only very exceptional people get divorced during their honeymoon. Assuming a constant burn rate, there's much less money left when you start with a smaller pile. (and, virtually anyone who can get into YC is passing on a $10-15k/mo income opportunity by just getting a job somewhere. Fighting for 1-2 mo of wages makes less sense than fighting for 6-12. The dispute would happen anyway, but it's not worth fighting if there's only a small balance left.)
- hosay123 14y ago
  VC loses $70k
  - loceng 14y ago
    VC loses half the equity they would get otherwise..
philwelch 14y ago
Is this in addition to the $12k-20k invested by YC itself, for a total of $92k-100k?
- rdl 14y ago
  The START money has always been on top of the YC partnership investment.
bmohlenhoff 14y ago
My first thought at seeing the submission title was that YC was offering a program teaching people about how to be VCs. Then I realized that this was simultaneously awesome and nonsensical, since Joe Random probably isn't going to have the scratch necessary to fund much of anything. Still, it would probably be fascinating from an academic perspective.
kevingibbon 14y ago
love this move. I've seen first hand the 150k let's startups limp around for far to long.
metra 14y ago
Off topic: did Yuri Milner lose money on his Zynga and Groupon investments?
- photorized 14y ago
  Probably. But then he is also doing OK on FB.
namank 14y ago
I'm not sure if one amount will fit all startups. Because categorization is important for organization, how about having startup brackets? base: 80k international: 100k hardware:120k ...
polshaw 14y ago
What equity is given for this (/how has it changed?) and is this pre defined or 'negotiated' ?
- ibdknox 14y ago
  This is a convertible note[1], just like the previous incarnations. Which means that the amount of equity it is worth isn't determined until a priced round happens (where a valuation is set). [1]: http://techcrunch.com/2012/04/21/convertible-note-seed-financings-econ-101/ http://techcrunch.com/2012/04/21/convertible-note-seed-finan...
  - polshaw 14y ago
    Thanks, i see.. is there a requirement on when to take more funding then? what would happen if the startup didn't take further funding (put remained profitable)?
    - ibdknox 14y ago
      If I remember correctly there's a year long grace period after which the investors can choose to force the note to convert. I don't know much about how that works though.
johnrgrace 14y ago
Good call, guaranteeing $150K plus the seed money for the given inputs was far in excess of what you could raise elsewhere for comparable inputs. Simply the seed money, social capital, and demo day was attractive enough for me to apply.
- flyinRyan 14y ago
  >Good call, guaranteeing $150K plus the seed money for the given inputs was far in excess of what you could raise elsewhere for comparable inputs. Which would mean they would have their pick of ideas since everyone would try YC first.
realrocker 14y ago
So it has become easier to fail fast. The inertia to prevent death has been halved. Good or Bad?
andrewhillman 14y ago
YC is treated just like software. Time to scale back and move forward. Those bottlenecks were obviously causing a problem.
dreamdu5t 14y ago
$80k or $150k seem like pithy amounts of money to fund any sort of company. What am I missing? That's one good person's salary for a year. One.
- timothya 14y ago
  At an established company, yes, that's a reasonable salary for a developer. But when you're starting a startup, you don't take a salary of that size. You live cheaply and take only the minimum that you need as you commit yourself to building your company. It's not a life for everyone, but it is the startup life.
  - flyinRyan 14y ago
    Sounds like anyone with a family is pretty much excluded from what you call "startup life" then. $80k wouldn't get me alone through half a year without selling my house and moving somewhere really cheap in the US.
- 46Bit 14y ago
  If you need to pay salaries , you're going to have to burn your own savings or seek further funding. This is a seed investment to help you prove your idea, or a bit of a boost for a business with profits too low to get impact from reinvestment.
mrkmcknz 14y ago
Is there a particular reason that Maverick were involved? I don't know the guys well enough but they seem like your traditional Wall Street hedge fund. I'm probably completely wrong but guessing Sam Wyly was perhaps one of the major reasons?
waderoush 14y ago
pg briefed Xconomy on the changes this morning, and the interesting part to me was the feeling that too many failing YC startups were feuding internally over the extra cash. He said such disputes have been taking up more than half of Jessica's time recently. Now startups will have less money to argue over. http://www.xconomy.com/san-francisco/2012/11/26/y-combinator-alters-investment-package-to-avoid-contested-divorces/ http://www.xconomy.com/san-francisco/2012/11/26/y-combinator...
kmcloughlin 14y ago
Really interesting change. Not sure what metrics YC collects on each of its cohorts, but if "Cycle Length" and "Total Cycles" are two of them (i.e. end-to-end time through build-measure-learn loop), then it would be valuable to see if January's teams deviate, in a meaningful way, from the established average and mean. Hypothetically, you'd think that "Cycle Length" would decrease as less cash in hand forces teams without product-market fit to tap into higher gear (or sustain that same high level of output), rather than spend valuable attention wondering about how to get a piece of the "carcass" should things crash and burn. Total cycles would then move up and to the right, as teams get a few more in near the end of their runway. That said, there are at least two additional potentialities. 1. "Cycle Length" and "Total Cycles" are already running along their respective natural asymptotes. Consequence(s): A. Awesomely cool discovery re: limits of productivity! B. The number of founders able to remain highly productive while simultaneously squabbling (and providing PG w/ massive headaches) decreases. 2. The "Starting Date" for raising an additional round of financing shifts to the left (i.e. becomes earlier). With less cash in the bank, and hence a shorter runway, the average starting date for teams w/o product-market fit to begin seriously committing time to fundraising shifts "earlier". Consequence(s): A. If more time fundraising = less time building, then the average total output of a team, in the 12 months post-YC, could decrease. Mitigation: Personal access to the best VCs in the world could mean that the length of a "Funding Cycle" (i.e. total time spent raising a round) decreases, thus offsetting consequence 2a. It'd be great if these numbers were something YC actually collected. If there's a science to building companies, you could certainly glean great insight from those digits.
tyang 14y ago
Another way to fix the founder breakup problem is to have a pre-nup with a few menu options. Require founders to choose and sign on to prior to receiving any of the $150K (or maybe prior to acceptance to YC).
cs702 14y ago
YC is perhaps the most innovative angel/accelerator/VC firm in the planet. Despite all the success the firm has had, it is still acting like a startup -- constantly questioning, experimenting, tinkering, and gradually optimizing via careful trial-and-error, based on the real-world results achieved with each batch of companies. Clearly, it's run by hackers.
- 46Bit 14y ago
  I think this change is a definite plus, but I disagree this sort of change is startup-specific. Trying new things is just how you're supposed to build a company, at least when you care for the long term rather than next quarter.
  - deleted 14y ago
    [deleted]
- joonix 14y ago
  There's a term for that, it's entrepreneurship. It was never limited to startups. Many massive corporations are quite entrepreneurial.
- onesider 14y ago
  Its unfortunate there are so many 'sucking up to' responses to the original post. If PG is smart enough he wouldn't give a Damn to those response. If he is not, he is not worth 'sucking up to' There is nothing wrong in questioning this change. To me this is a clear indication of YC has passed its peak. If you are funding people who are going to fight over 80K after their dream company fails, there is something seriously wrong in kind of people that are being funded by the program.
  - zio99 14y ago
    Well then, to play devil's advocate, there's this - How to interview a VC: http://startupframework.tumblr.com/post/27080999978/interviewing-a-vc http://startupframework.tumblr.com/post/27080999978/intervie...
argumentum 14y ago
THANK YOU! This makes 250% sense, particularly for "no idea" companies. 150k led to several bad decisions at the beginning, and led to our breakup later on. 80k will be a lot more valuable than 150k, and make startups think more carefully about how to spend money. Perhaps for capital intensive startups that ought to be funded, there can be a separate arrangement. This shows why YC is YC.. it constantly innovates and is not afraid to change things up as needed.
- tatsuke95 14y ago
  >"This makes 250% sense, particularly for "no idea" companies." I can't decipher the level of exaggeration. If your company has "no idea", maybe that's where the blame should lie, rather than on having too much money.
  - argumentum 14y ago
    In no way do I blame the money, but it certainly made it easier to make bad decisions. A better way to put it would be that it made us make decisions that shouldn't have had to be made that early. "no idea" doesn't literally mean we had "no idea", we had plenty of ideas. We just hadn't settled on one yet.
    - davidwhodge 14y ago
      I'm curious. Would you mind sharing what kinds of early decisions you made that you wouldn't have with 80k?
      - argumentum 14y ago
        Sure. Hiring 8 interns, leasing a 7k/month house for starters. Ok, it's probably more relevant that I was an idiot (been a student my whole life). My initial thoughts were the following: 1. Demo Day was a unique non-linearity. Being especially good by that date would make you overvalued (now I realize that's a dumb thing to aim for, rather you should aim to be of genuine high value). 2. Spending all 170k by Demo Day would be the optimal way to achieve this outcome. It's pretty hard to spend 170k in three months with no idea, in fact it's a job in and of itself to figure out how to spend that much. I did manage to recoup all the losses by airbnb'ng out the house and finding other yc co's for the interns, but still it was a waste of at least one month and created an aura of bad feelings that doomed the company for good.
hippich 14y ago
The new version involves less money and more engagement. The VCs will invest $80k in each startup instead of $150k, and we'll organize sessions of office hours in which partners from the VC firms advise the startups in each batch. As before, the investments will be done as convertible notes with no valuation cap and no discount.
dogan 14y ago
This will definitely reduce the number of startups with H1B holder founders, even if you transfer the visas, the runway will be comparatively short.
bsims 14y ago
It is worth reading PG's email from 5 months back about his vision of what the fund raising environment might look like. http://www.businessinsider.com/facebook-fallout-y-combinators-paul-graham-just-emailed-portfolio-companies-warning-of-bad-times-in-silicon-valley-2012-6 http://www.businessinsider.com/facebook-fallout-y-combinator...
grandalf 14y ago
Think about it this way, nobody applies to YC for the money, so why part with it?
Rezal 14y ago
Here are my thoughts about this: 1. You have idea, a plan to validate it and a plan to execute upon different outcomes and different startups require different financing. I am just wondering if YC has clear matrices which shows there is a same optimum financing for early stage startups in all the domains (healthcare, edu, consumer web, etc.) I am just curious about this!!! But then I read the following: " it sometimes caused messy disputes in the unsuccessful ones. Switching from $150k to $80k may not completely eliminate such problems, but it will make them at most half as bad." 2. The entire funding decision and amount is changed based on negative thought of a dispute among the founders. I believe this is fundamentally wrong and is against the entrepreneurial spirit. I wouldn't feel good as a person and an entrepreneur if my investor would come up with this. It basically means you don't know what you are doing and I am going to protect you against yourself!!! 3. Although a 70K difference is a small number, but it will have a huge impact on your startup: - validating your idea and pivoting: the startups will show a tenancy towards low hanging fruit instead of seeking for the bigger picture solution - Shorter runway impacts your flexibility and thus deal negotiations for the next rounds considering a 3-6 months funding period. - Am just wondering how this will impact valuations of companies in post YC. I would think the valuations would go down. What are your thoughts on this?
- geoffschmidt 14y ago
  One of the most valuable things about YC is the pressure it puts on a startup: focus or perish, excellence or death. I've really seen this bring out the best in people, including myself. I think that reducing the "free" c-note from $150k to $80k will increase the pressure a little bit, that entrepreneurs will rise to the challenge, and that the overall outcomes will actually be better. Accountability closes the feedback loop and results in faster learning. As for (2), potential investors say a lot of things that just make you feel terrible. The best response is to dig into them and try to figure out if there is any truth in the criticism, make any adjustments you can, and keep pushing ahead.
  - Rezal 14y ago
    There is no doubt about the track of record YC has built over the years. I believe that reasoning behind it as I read it sounds not compelling from an entrepreneur's point of view (kind a putting it like we are going to protect you against yourself). From a business point of view I just don't know if there are any matrices supporting their decision. And that's why I don't want to judge since I don't have the background information. I am just wondering how this move will impact the new type of companies (big picture vs. short gains) & investment climate in the valley: 1. future valuations 2. Early stage rounds 3. product-market fit discoveries & pivots
ajaymehta 14y ago
I think this is wonderful... the expansion of VC office hours will be a huge help for future batches. Having investor allies is always a great thing for a young startup.
semerda 14y ago
This is what will make this work: "and we'll organize sessions of office hours in which partners from the VC firms advise the startups in each batch". That's the difference between "smart money" where investor(s) contribute more than cash into startups and "dumb money" where investor do not. Great move YC!
n00b101 14y ago
$80k is peanuts. Apparently these folks haven't learned the lesson that you get what you get what you pay for! Maybe $80k is enough for some ridiuclous $2 iPhone game or some startup for making a website for adding a single puny feature to an existing social network and having 15 minutes of fame. But $80k is nowhere near enough money to create an Enterprise solutions startup. I laugh at your $80k and the hubdreds of flight-by-night, gimmicky, bullshit, small businesses that you will burn your money on. It takes at least $5 million over 5 years to startup a serious business that has any chance in hell of becoming a real billion dollar company. That is the future. $80k ... it's insulting to people with real ezperience, real ideas, real businesses and real explosive growth potential. You will never fund the next Apple, Microsoft, Google, Oracle, NVIDIA, etc ... You're just going to fund a whole lot of infantile business projects and a whole lot of fail.
- deleted 14y ago
  [deleted]
- wmboy 14y ago
  $80k is guaranteed, but it's not stopping other investors to make million dollar investments if it's recognised as being the next Microsoft.
- photorized 14y ago
  I don't think they are targeting people with real experience though.
- gridspy 14y ago
  Apple and Microsoft were both making money before they had spent $80k. Apple was selling hobbiest boards, Microsoft the license to DOS. You don't have to build a whole company, just find a market and become sustainable.
  - n00b101 14y ago
    Apple was created my making devices on breadboards, that doesn't mean that the next Google/Apple/Microsoft will be able to do the same thing. Times have changed, the barriers to entry are slightly higher. $1MM to seed a company, that's the minimum... unless you are only interested in infantile businesses like glorified classified ads, crappy thow-away games, or one-trick pony "cloud" services... $80k doesn't even get you a hot dog stand!
deleted 14y ago
[deleted]
raheemm 14y ago
It just keeps getting better
genuine 14y ago
As alluded to in the post, I think that the 80k/startup rule is probably not a good one either. 80k might not be enough and "doing more with less" can just as often lead to failure. Case in point is the recent post about the lean startup that only provided the minimum viable product (MVP), but failed to really provide what was needed. If pressure is put on startups to provide a product faster for less, then less of a product will be provided. Granted, YC will provide more support and try not to let such things happen. I think the funding should be decided on a case-by-case basis instead. Possibly more funding could be given to those with a better idea that have greater need through some sort of point system, and either provide a range of funding from 40-120k without requiring more from the VC's, or provide 80-150k if the VC's are able.
littlegiantcap 14y ago
I like the 20k from each. It's always good to have a diversity of opinions.
littlegiantcap 14y ago
I like the 20k from each. It's always good to have a diversity of opinions.

404 points by pg 14y ago

Pg, are there really many ugly ducklings on demo day, despite the rigorous selection and the subsequent teaching/incubation process?

ibdknox 14y ago
people often switch ideas in the middle of YC, so there are more than a few who get up on stage with just a couple week's worth of work (if even that). By ugly ducklings in this case he means ideas that may not yet be fully fleshed out or well understood - he's making no statement about the teams themselves, which is what the selection process "solves."
- philwelch 14y ago
  It's worth noting that in the original story of The Ugly Duckling, the "ugly duckling" is actually a cygnet (baby swan) that looks out of place next to the ducklings it grows up with, and that no one respects until it grows into a beautiful swan. So an ugly duckling would be an idea that will turn out very well even if it looks a little dubious at the beginning.
  - 001sky 14y ago
    link > http://en.wikipedia.org/wiki/The_Ugly_Duckling http://en.wikipedia.org/wiki/The_Ugly_Duckling
- cyphersanctus 14y ago
  Good point. Thanks.

jedberg 14y ago

This is great! I always thought the $150k was too much of a runway. It allowed the poor startups to limp along for too long. And besides, the real value from these investments isn't the money, it is the mindshare you get with the VCs. This will help make that mindshare greater.

waterlesscloud 14y ago
I get why it's great for investors, but why is it great for founders? Especially when they could use the time to change plans.
- jedberg 14y ago
  It's often hard to step out and see that the idea just doesn't have legs, especially if you've invested so much of your time and effort into it. When you come to the end of that runway, you need to make a hard decision. Also, when you change plans, you can look for new investment in the new idea. The assumption is that if you can't get follow on funding for your current idea, then it really is in your interest to come to the end of that runway sooner so you can be forced to make that hard decision and focus your efforts elsewhere.
- pg 14y ago
  The office hours help all the startups. Decreasing the amount invested helps the successful and borderline startups because it means less of our time is taken up mediating founder disputes in the ones that are exploding. And yes, that was a significant time suck; Jessica says the majority of her time last batch was spent dealing with founder breakups.
  - jayzalowitz 14y ago
    pg, can you express percentages of yc startups that went through this?
    - pg 14y ago
      IIRC around a quarter of the startups lost a founder. Many of those partings were amicable though. Maybe a third required us to get involved.
  - ibdknox 14y ago
    > The office hours help all the startups. I would say that they were definitely valuable to us, if for no other reason than to get a chance to talk with investors before there was anything really at stake. The way investor meetings go is something that's hard to explain and something you just have to experience. This gave our class the opportunity to get a little used to how investors think and the way they interact with potential investments. While that may seem to be somewhat intangible, it's hard for me to estimate how much that initial experience helped ease us into doing it "for real" later.

josh2600 14y ago

I think YC has more of a problem dealing with the bad startups than it does dealing with the successful ones. My opinion from Paul's writing is that his goal is to find the AIRbnb's as quickly as possible while relegating things that aren't going to be mammoth. It makes sense when you're playing a volume/numbers game like YC has been doing. Quite the investor lineup; I think they had their choice of anyone in the world to be honest. I like reading PG's stuff because these sort of decisions are counterintuitive, but very fun academic/didactic examples.

ssebro 14y ago

What stops other investment firms from making identical blanket investments, or how do you guys plan to stop that?

mustpax 14y ago
Presumably Conway and Milner did not like how the initial approach was working out either and were looking for a change.

evansolomon 14y ago

Is there any significance to Ron Conway not being in the group anymore?

pg 14y ago
We certainly didn't kick SV Angel out. They're among our favorite investors in fact. It just didn't make sense with their fund size to keep doing these investments. Unlike the other investors, they are what's now called a "super angel" fund, and those are much smaller.
- kami8845 14y ago
  I'm certain there are some companies that need more runway than others. Is it possible for, say, hardware companies to renegotiate for, e.g. 30k per VC rather than the current 20k?
  - pg 14y ago
    I'd never thought of that. Maybe in version 2.
    - erohead 14y ago
      I'd recommend staying at ~$80k. One of the mistakes I made last year was over-building inventory (possibly because I had access to $150k from Start fund).
    - malandrew 14y ago
      Also for version 2 and inline with the needs of hardware startups: http://news.ycombinator.com/item?id=4834831 http://news.ycombinator.com/item?id=4834831
  - ibdknox 14y ago
    This doesn't preclude a company from seeking funding elsewhere and I can imagine very, very few companies at this stage that could legitimately burn through $80k in 3 months. If that doesn't get you close enough to at least prove something that could be used as a basis for raising more, it's probably time to take a step back and figure out if that's really the best strategy for moving forward.

rdl 14y ago

It's sad to see SV Angel isn't part of the W13 VC program.

rdl 14y ago

I've never heard of Maverick Capital -- are they the hedge fund? They seem to be med-tech focused, if that's them.

sakai 14y ago
Looks like it: http://www.crunchbase.com/financial-organization/maverick-capital http://www.crunchbase.com/financial-organization/maverick-ca... Edit: NOT Mark Cuban.

dmmalam 14y ago

80k may be a little tight for international founders, as flights and legal fees for visas can be very expensive. Also silly things like paying extra for deposits on rent/bills as you have no US credit history. But otherwise seems reasonable.

rdl 14y ago
80k also substantially complicates hardware, I think. I wouldn't do a $50k hardware build without $100k in the bank.
- ibdknox 14y ago
  It seems like the smart thing to do in this case is to then go down the Kickstarter route. I definitely wouldn't suggest it for software, as I genuinely think we got extraordinarily lucky, but for hardware it's an excellent choice.
  - rdl 14y ago
    Yeah. Getting early revenue or at least commits is key for anyone. That said, I think I'd still want to have a bigger bank doing hardware. If you kickstart or take pre-delivery payment for something at ~cost, and you need to respin a few times, you may become the next Wakemake. Being able to just take your $50k reserve fund and buy all new parts or pay for an expedited mold or something could make a big difference early on. I wish I had enough silicon-valley-version-of-Wasta to raise a $2-5mm microfund. Being able to finance hardware projects or other obviously capital-intensive YC projects on START terms with an extra $100-200k early on would be a pretty decent investment. It would still be a much more algorithmic decision than "which teams do I think will win", which probably wouldn't work as well. The ideal LP for this would be Jeff Bezos and maybe a few other guys who made bank off hardware or retail. You'd almost be a bank, vs. an investor -- you would be investing based on a specific credible expenditure. Do it as debt + warrant coverage, or secure against revenue. Just be easy about it -- it should take 5 minutes to make a decision, and you should be adding hardware/distribution/retail/logistics clue to the process to help the founders. YC hardware companies (and, honestly, all startup hardware companies) kind of sucked before the $150k START in W11.

thinkdevcode 14y ago

Does this mean that the outside investment of 150k is no longer available? I don't see whats to stop them from investing (150k) anyway, considering it wasn't part of YC in the first place. In my opinion 80k is a little too low, especially for international founders or those with international teams. I agree, though, that advice from VC would be better in terms of building a business versus just throwing cash at the startup.

rhizome 14y ago
Then again it lowers the bar for international VC providers to start participating in this kind of model, making US-based funders a little less necessary.

khangtoh 14y ago

Not everything scales horizontally and shouldn't have to. YC should just stick to a lower number of startups for each cycle. 1) Maintains the prestige of a team being selected. 2) Keeps investment level at previous level. 3) Spend quality time with each team.

debacle 14y ago

What kind of messy things happen with 150k that don't happen with 80k?

rdl 14y ago
I think the assumption is that only the most colossal implosions happen in the first 6mo after YC. It's much easier for 2-3 people plus 1-2 hires to burn through most of $80k in 6mo after YC, vs. 150k. Figure founders consume $3-4k/mo each, and hires cost $10-15k, and you spend $20-30k on corp/legal/etc.
- debacle 14y ago
  I was asking specifically about: > it sometimes caused messy disputes in the unsuccessful ones. I can't imagine a dispute that would occur at 150k but not at 80, except maybe of the cut-and-run variety, but the same could be said of any dollar amounts - you need to know when to cut your losses.
  - rdl 14y ago
    The dispute happens after some of the money is burned off. Only very exceptional people get divorced during their honeymoon. Assuming a constant burn rate, there's much less money left when you start with a smaller pile. (and, virtually anyone who can get into YC is passing on a $10-15k/mo income opportunity by just getting a job somewhere. Fighting for 1-2 mo of wages makes less sense than fighting for 6-12. The dispute would happen anyway, but it's not worth fighting if there's only a small balance left.)
hosay123 14y ago
VC loses $70k
- loceng 14y ago
  VC loses half the equity they would get otherwise..

philwelch 14y ago

Is this in addition to the $12k-20k invested by YC itself, for a total of $92k-100k?

rdl 14y ago
The START money has always been on top of the YC partnership investment.

bmohlenhoff 14y ago

My first thought at seeing the submission title was that YC was offering a program teaching people about how to be VCs. Then I realized that this was simultaneously awesome and nonsensical, since Joe Random probably isn't going to have the scratch necessary to fund much of anything. Still, it would probably be fascinating from an academic perspective.

kevingibbon 14y ago

love this move. I've seen first hand the 150k let's startups limp around for far to long.

metra 14y ago

Off topic: did Yuri Milner lose money on his Zynga and Groupon investments?

photorized 14y ago
Probably. But then he is also doing OK on FB.

namank 14y ago

I'm not sure if one amount will fit all startups. Because categorization is important for organization, how about having startup brackets? base: 80k international: 100k hardware:120k ...

polshaw 14y ago

What equity is given for this (/how has it changed?) and is this pre defined or 'negotiated' ?

ibdknox 14y ago
This is a convertible note[1], just like the previous incarnations. Which means that the amount of equity it is worth isn't determined until a priced round happens (where a valuation is set). [1]: http://techcrunch.com/2012/04/21/convertible-note-seed-financings-econ-101/ http://techcrunch.com/2012/04/21/convertible-note-seed-finan...
- polshaw 14y ago
  Thanks, i see.. is there a requirement on when to take more funding then? what would happen if the startup didn't take further funding (put remained profitable)?
  - ibdknox 14y ago
    If I remember correctly there's a year long grace period after which the investors can choose to force the note to convert. I don't know much about how that works though.

johnrgrace 14y ago

Good call, guaranteeing $150K plus the seed money for the given inputs was far in excess of what you could raise elsewhere for comparable inputs. Simply the seed money, social capital, and demo day was attractive enough for me to apply.

flyinRyan 14y ago
>Good call, guaranteeing $150K plus the seed money for the given inputs was far in excess of what you could raise elsewhere for comparable inputs. Which would mean they would have their pick of ideas since everyone would try YC first.

realrocker 14y ago

So it has become easier to fail fast. The inertia to prevent death has been halved. Good or Bad?

andrewhillman 14y ago

YC is treated just like software. Time to scale back and move forward. Those bottlenecks were obviously causing a problem.

dreamdu5t 14y ago

$80k or $150k seem like pithy amounts of money to fund any sort of company. What am I missing? That's one good person's salary for a year. One.

timothya 14y ago
At an established company, yes, that's a reasonable salary for a developer. But when you're starting a startup, you don't take a salary of that size. You live cheaply and take only the minimum that you need as you commit yourself to building your company. It's not a life for everyone, but it is the startup life.
- flyinRyan 14y ago
  Sounds like anyone with a family is pretty much excluded from what you call "startup life" then. $80k wouldn't get me alone through half a year without selling my house and moving somewhere really cheap in the US.
46Bit 14y ago
If you need to pay salaries , you're going to have to burn your own savings or seek further funding. This is a seed investment to help you prove your idea, or a bit of a boost for a business with profits too low to get impact from reinvestment.

mrkmcknz 14y ago

Is there a particular reason that Maverick were involved? I don't know the guys well enough but they seem like your traditional Wall Street hedge fund. I'm probably completely wrong but guessing Sam Wyly was perhaps one of the major reasons?

waderoush 14y ago

pg briefed Xconomy on the changes this morning, and the interesting part to me was the feeling that too many failing YC startups were feuding internally over the extra cash. He said such disputes have been taking up more than half of Jessica's time recently. Now startups will have less money to argue over. http://www.xconomy.com/san-francisco/2012/11/26/y-combinator-alters-investment-package-to-avoid-contested-divorces/ http://www.xconomy.com/san-francisco/2012/11/26/y-combinator...

kmcloughlin 14y ago

Really interesting change. Not sure what metrics YC collects on each of its cohorts, but if "Cycle Length" and "Total Cycles" are two of them (i.e. end-to-end time through build-measure-learn loop), then it would be valuable to see if January's teams deviate, in a meaningful way, from the established average and mean. Hypothetically, you'd think that "Cycle Length" would decrease as less cash in hand forces teams without product-market fit to tap into higher gear (or sustain that same high level of output), rather than spend valuable attention wondering about how to get a piece of the "carcass" should things crash and burn. Total cycles would then move up and to the right, as teams get a few more in near the end of their runway. That said, there are at least two additional potentialities. 1. "Cycle Length" and "Total Cycles" are already running along their respective natural asymptotes. Consequence(s): A. Awesomely cool discovery re: limits of productivity! B. The number of founders able to remain highly productive while simultaneously squabbling (and providing PG w/ massive headaches) decreases. 2. The "Starting Date" for raising an additional round of financing shifts to the left (i.e. becomes earlier). With less cash in the bank, and hence a shorter runway, the average starting date for teams w/o product-market fit to begin seriously committing time to fundraising shifts "earlier". Consequence(s): A. If more time fundraising = less time building, then the average total output of a team, in the 12 months post-YC, could decrease. Mitigation: Personal access to the best VCs in the world could mean that the length of a "Funding Cycle" (i.e. total time spent raising a round) decreases, thus offsetting consequence 2a. It'd be great if these numbers were something YC actually collected. If there's a science to building companies, you could certainly glean great insight from those digits.

tyang 14y ago

Another way to fix the founder breakup problem is to have a pre-nup with a few menu options. Require founders to choose and sign on to prior to receiving any of the $150K (or maybe prior to acceptance to YC).

cs702 14y ago

YC is perhaps the most innovative angel/accelerator/VC firm in the planet. Despite all the success the firm has had, it is still acting like a startup -- constantly questioning, experimenting, tinkering, and gradually optimizing via careful trial-and-error, based on the real-world results achieved with each batch of companies. Clearly, it's run by hackers.

46Bit 14y ago
I think this change is a definite plus, but I disagree this sort of change is startup-specific. Trying new things is just how you're supposed to build a company, at least when you care for the long term rather than next quarter.
- deleted 14y ago
  [deleted]
joonix 14y ago
There's a term for that, it's entrepreneurship. It was never limited to startups. Many massive corporations are quite entrepreneurial.
onesider 14y ago
Its unfortunate there are so many 'sucking up to' responses to the original post. If PG is smart enough he wouldn't give a Damn to those response. If he is not, he is not worth 'sucking up to' There is nothing wrong in questioning this change. To me this is a clear indication of YC has passed its peak. If you are funding people who are going to fight over 80K after their dream company fails, there is something seriously wrong in kind of people that are being funded by the program.
- zio99 14y ago
  Well then, to play devil's advocate, there's this - How to interview a VC: http://startupframework.tumblr.com/post/27080999978/interviewing-a-vc http://startupframework.tumblr.com/post/27080999978/intervie...

argumentum 14y ago

THANK YOU! This makes 250% sense, particularly for "no idea" companies. 150k led to several bad decisions at the beginning, and led to our breakup later on. 80k will be a lot more valuable than 150k, and make startups think more carefully about how to spend money. Perhaps for capital intensive startups that ought to be funded, there can be a separate arrangement. This shows why YC is YC.. it constantly innovates and is not afraid to change things up as needed.

tatsuke95 14y ago
>"This makes 250% sense, particularly for "no idea" companies." I can't decipher the level of exaggeration. If your company has "no idea", maybe that's where the blame should lie, rather than on having too much money.
- argumentum 14y ago
  In no way do I blame the money, but it certainly made it easier to make bad decisions. A better way to put it would be that it made us make decisions that shouldn't have had to be made that early. "no idea" doesn't literally mean we had "no idea", we had plenty of ideas. We just hadn't settled on one yet.
  - davidwhodge 14y ago
    I'm curious. Would you mind sharing what kinds of early decisions you made that you wouldn't have with 80k?
    - argumentum 14y ago
      Sure. Hiring 8 interns, leasing a 7k/month house for starters. Ok, it's probably more relevant that I was an idiot (been a student my whole life). My initial thoughts were the following: 1. Demo Day was a unique non-linearity. Being especially good by that date would make you overvalued (now I realize that's a dumb thing to aim for, rather you should aim to be of genuine high value). 2. Spending all 170k by Demo Day would be the optimal way to achieve this outcome. It's pretty hard to spend 170k in three months with no idea, in fact it's a job in and of itself to figure out how to spend that much. I did manage to recoup all the losses by airbnb'ng out the house and finding other yc co's for the interns, but still it was a waste of at least one month and created an aura of bad feelings that doomed the company for good.

hippich 14y ago

The new version involves less money and more engagement. The VCs will invest $80k in each startup instead of $150k, and we'll organize sessions of office hours in which partners from the VC firms advise the startups in each batch. As before, the investments will be done as convertible notes with no valuation cap and no discount.

dogan 14y ago

This will definitely reduce the number of startups with H1B holder founders, even if you transfer the visas, the runway will be comparatively short.

bsims 14y ago

It is worth reading PG's email from 5 months back about his vision of what the fund raising environment might look like. http://www.businessinsider.com/facebook-fallout-y-combinators-paul-graham-just-emailed-portfolio-companies-warning-of-bad-times-in-silicon-valley-2012-6 http://www.businessinsider.com/facebook-fallout-y-combinator...

grandalf 14y ago

Think about it this way, nobody applies to YC for the money, so why part with it?

Rezal 14y ago

Here are my thoughts about this: 1. You have idea, a plan to validate it and a plan to execute upon different outcomes and different startups require different financing. I am just wondering if YC has clear matrices which shows there is a same optimum financing for early stage startups in all the domains (healthcare, edu, consumer web, etc.) I am just curious about this!!! But then I read the following: " it sometimes caused messy disputes in the unsuccessful ones. Switching from $150k to $80k may not completely eliminate such problems, but it will make them at most half as bad." 2. The entire funding decision and amount is changed based on negative thought of a dispute among the founders. I believe this is fundamentally wrong and is against the entrepreneurial spirit. I wouldn't feel good as a person and an entrepreneur if my investor would come up with this. It basically means you don't know what you are doing and I am going to protect you against yourself!!! 3. Although a 70K difference is a small number, but it will have a huge impact on your startup: - validating your idea and pivoting: the startups will show a tenancy towards low hanging fruit instead of seeking for the bigger picture solution - Shorter runway impacts your flexibility and thus deal negotiations for the next rounds considering a 3-6 months funding period. - Am just wondering how this will impact valuations of companies in post YC. I would think the valuations would go down. What are your thoughts on this?

geoffschmidt 14y ago
One of the most valuable things about YC is the pressure it puts on a startup: focus or perish, excellence or death. I've really seen this bring out the best in people, including myself. I think that reducing the "free" c-note from $150k to $80k will increase the pressure a little bit, that entrepreneurs will rise to the challenge, and that the overall outcomes will actually be better. Accountability closes the feedback loop and results in faster learning. As for (2), potential investors say a lot of things that just make you feel terrible. The best response is to dig into them and try to figure out if there is any truth in the criticism, make any adjustments you can, and keep pushing ahead.
- Rezal 14y ago
  There is no doubt about the track of record YC has built over the years. I believe that reasoning behind it as I read it sounds not compelling from an entrepreneur's point of view (kind a putting it like we are going to protect you against yourself). From a business point of view I just don't know if there are any matrices supporting their decision. And that's why I don't want to judge since I don't have the background information. I am just wondering how this move will impact the new type of companies (big picture vs. short gains) & investment climate in the valley: 1. future valuations 2. Early stage rounds 3. product-market fit discoveries & pivots

ajaymehta 14y ago

I think this is wonderful... the expansion of VC office hours will be a huge help for future batches. Having investor allies is always a great thing for a young startup.

semerda 14y ago

This is what will make this work: "and we'll organize sessions of office hours in which partners from the VC firms advise the startups in each batch". That's the difference between "smart money" where investor(s) contribute more than cash into startups and "dumb money" where investor do not. Great move YC!

n00b101 14y ago

$80k is peanuts. Apparently these folks haven't learned the lesson that you get what you get what you pay for! Maybe $80k is enough for some ridiuclous $2 iPhone game or some startup for making a website for adding a single puny feature to an existing social network and having 15 minutes of fame. But $80k is nowhere near enough money to create an Enterprise solutions startup. I laugh at your $80k and the hubdreds of flight-by-night, gimmicky, bullshit, small businesses that you will burn your money on. It takes at least $5 million over 5 years to startup a serious business that has any chance in hell of becoming a real billion dollar company. That is the future. $80k ... it's insulting to people with real ezperience, real ideas, real businesses and real explosive growth potential. You will never fund the next Apple, Microsoft, Google, Oracle, NVIDIA, etc ... You're just going to fund a whole lot of infantile business projects and a whole lot of fail.

deleted 14y ago
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wmboy 14y ago
$80k is guaranteed, but it's not stopping other investors to make million dollar investments if it's recognised as being the next Microsoft.
photorized 14y ago
I don't think they are targeting people with real experience though.
gridspy 14y ago
Apple and Microsoft were both making money before they had spent $80k. Apple was selling hobbiest boards, Microsoft the license to DOS. You don't have to build a whole company, just find a market and become sustainable.
- n00b101 14y ago
  Apple was created my making devices on breadboards, that doesn't mean that the next Google/Apple/Microsoft will be able to do the same thing. Times have changed, the barriers to entry are slightly higher. $1MM to seed a company, that's the minimum... unless you are only interested in infantile businesses like glorified classified ads, crappy thow-away games, or one-trick pony "cloud" services... $80k doesn't even get you a hot dog stand!

deleted 14y ago

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raheemm 14y ago

It just keeps getting better

genuine 14y ago

As alluded to in the post, I think that the 80k/startup rule is probably not a good one either. 80k might not be enough and "doing more with less" can just as often lead to failure. Case in point is the recent post about the lean startup that only provided the minimum viable product (MVP), but failed to really provide what was needed. If pressure is put on startups to provide a product faster for less, then less of a product will be provided. Granted, YC will provide more support and try not to let such things happen. I think the funding should be decided on a case-by-case basis instead. Possibly more funding could be given to those with a better idea that have greater need through some sort of point system, and either provide a range of funding from 40-120k without requiring more from the VC's, or provide 80-150k if the VC's are able.

littlegiantcap 14y ago

I like the 20k from each. It's always good to have a diversity of opinions.

littlegiantcap 14y ago

I like the 20k from each. It's always good to have a diversity of opinions.