5 ms·

Y Combinator Gets The Sequoia Capital Seal Of Approval

153 points by vaksel 18y ago

pclark 18y ago
Enormous. Shows the YCombinator model is working, or in the future it'll be working. (which it will)
- vaksel 18y ago
  I think this could be a way for Sequoia/Ron Conway to find good companies ahead of other investors. This way, they'll know all about the current crop of YC companies and will be able to spot the winners from day 1. After all as investors, pg would probably have to report what companies he has selected for the program
  - mattmaroon 18y ago
    Investors who have a history of writing checks to YC companies tend to get previews ahead of the rest as it is. Still, for only $2m (a paltry sum for the VC and angels involved) it's well worth the good will.
  - pclark 18y ago
    surely if Sequoia or Ron Conway rang any YC startup today the startup would fall over themselves to meet?
    - ajju 18y ago
      The problem is, Sequoia or Ron Conway need to have heard about the startup for them to call it. By investing in this fund, they not only get to hear about it before others but also get to monitor each as it grows, find out more about the co.s than other investors, which would help them make a better decision on whether to invest directly and at at what valuation.
  - pg 18y ago
    This deal explicitly does not include any provisions for anyone to get an early look at the companies. That said, anyone who speaks at YC dinners obviously gets an early look at the companies in that cycle, since the point of the dinners is to introduce the startups to these experts, and you will notice that 3 out of 4 of the investors already speak at the dinners: http://ycombinator.com/w8speakers.html http://ycombinator.com/w8speakers.html So the investors didn't need to do this deal to get an early look at the startups, because (along with all the other speakers) most of them already had it.
- mattmaroon 18y ago
  This is a common fallacy, that investment confers some sort of validity. It doesn't. It means only that Sequoia et al. think Y Combinator's model will work. They don't have a crystal ball, and the model is no more or less likely to work than if they found $2m on the side of the road. I've thought it will work (for them anyway, not for many of the competitors) since before I went through it, but I don't really consider this validation of my belief.
aristus 18y ago
Question for paul: your limiting factor is not money, but time, right? Are you just going to say yes to more interviewees or will you interview more startups? Will YC alums take a more active role between funding and demo day?
- aneesh 18y ago
  I don't think his time (or really, all 4 YC founders' time) was the reason YC started small. YC is an experiment, and you don't want to fund 100 startups at once if you're not quite sure what you're getting into. Now that they've learned from several cycles, they can start to scale up responsibly. At the same time, you don't want to start too small and inhibit the learning process.
- pg 18y ago
  Because of the recession, money started to be the limiting factor. We didn't feel like we could prudently expand when there might not be any more returns for the next several years. We are probably going to invite more startups to interviews, and we definitely hope to accept a higher percentage of those we invite. And yes, we're going to encourage YC alums to help the other startups. They already do a lot, but we're going to set up more ways for this to happen.
  - netcan 18y ago
    Is there an estimate of how long YC needs in order to become self sufficient?
    - pg 18y ago
      It would be very hard to guess, because it all depends on accidents of liquidity.
      - netcan 18y ago
        Isn't that were numbers start to kick in? 60 per round @ 10 years is 1200 startups? Actually, that brings up a completely different question: Can YC scale to the point where you can't remember most of the names anymore?
ivankirigin 18y ago
I really don't understand this. Why would YC want to manage a fund and investors? Is it more likely to get Sequoia to invest down the road?
- sachinag 18y ago
  I also worry that it will hurt YC companies raising angel/VC money after YC. If these angels and Sequoia pass, won't other investors think that something is wrong with the company?
  - pg 18y ago
    No. The deal doesn't give them any special rights or access to the startups. So nothing changes in that respect.
    - sachinag 18y ago
      That's fantastic news; thank you, Paul!
- pclark 18y ago
  aren't you over thinking this? YC simply took fund to expand their current operations. Sequoia merely put money in, its like thinking the people that put money in the Sequoia funds get involved in who Sequoia finances.
  - ivankirigin 18y ago
    People that put money into Sequoia get a lot of attention from Sequoia partners. If I were YC I wouldn't want to manage that.
    - pg 18y ago
      It won't be any extra work. We already pay a lot of attention to all the investors in this deal, because they are the biggest investors in YC startups. In fact, that's how they were chosen.
mattmaroon 18y ago
Hmm, legal question here, since I don't know exactly how this deal is arranged. Is this a fund in the traditional angel/vc model, or do they just now own a chunk of Y Combinator? And if so, do they therefore own a small chunk of past YC companies still in the portfolio? If so, it would seem my startup is now partially owned by some of the many angels and VCs who turned us down, which will really kill some of my revenge fantasies :)
- chiffonade 18y ago
  The article states this is a third fund owned by Sequoia and managed by YC. More than likely some of Sequoia's investors got intrigued and wanted to get into the YC game, but didn't feel like taking their money elsewhere because Sequoia has been good to them. Best of both worlds.
  - mattmaroon 18y ago
    It was more of a joke than a serious question.
gcheong 18y ago
Is this the first step towards a YC IPO?
- ntoshev 18y ago
  It is not really clear how is it structured, but it seems that Sequoia will own equity in the new startups funded by the YC-managed fund. In this way YC or that new fund won't need an exit strategy.
- ajju 18y ago
  Venture capital funds (which is what YC is very very roughly) don't do IPOs because a public company has to produce returns every quarter with some degree of regularity and VC returns are always very very skewed. I can bet YC will never do an IPO. More importantly, you typically do an IPO to raise money for your operations. VC funds raise money from private investors. So it doesn't usually make sense for VC funds to do an IPO.
  - gcheong 18y ago
    It's not something they would rush into for the reasons you point to, but it's not unheard of (e.g Harris and Harris), and if the goal of YC is to maximize the number of companies they can fund then an IPO may make sense at some point.
- pg 18y ago
  No! Companies like YC don't go public, and even if it were an option, I wouldn't want to do it.
  - mattmaroon 18y ago
    Anymore I'm always skeptical of anyone that would. People now think "if they're doing so well, why would they want to IPO?" Seems like a tremendous bad beat for investors.
jacoblyles 18y ago
The most important part of this for me is a 50% increase in the number of startups funded. I approve of anything which increases our chances. Of course, in the long term, this will mean that Y Combinator will be more sustainable if it is drawing interest from outside investors. I wouldn't be surprised if Sequoia is doing this just for the publicity, or just to find out more about Y Combinator. $2 million might well be worth the price for information about how Y Combinator is doing, since it is a very popular but secretive fund.
smallpaul 18y ago
I love Robert Morris' crunchbase bio: "... He has published extensively on wireless networks, distributed operating systems, and peer-to-peer applications. In 1988 his discovery of buffer overflow first brought the Internet to the attention of the general public." I think we know that the "discovery" of a vulnerability is never enough to get the general public interested...I didn't hear a peep in the MSM about the huge Debian/SSL debacle.
danielzarick 18y ago
Everybody is over speculating the significance of this. This just means more opportunity for each of us to seize. All of you can continue debating why this is good or bad, but I am going to go finish my YC application.

153 points by vaksel 18y ago

pclark 18y ago

Enormous. Shows the YCombinator model is working, or in the future it'll be working. (which it will)

vaksel 18y ago
I think this could be a way for Sequoia/Ron Conway to find good companies ahead of other investors. This way, they'll know all about the current crop of YC companies and will be able to spot the winners from day 1. After all as investors, pg would probably have to report what companies he has selected for the program
- mattmaroon 18y ago
  Investors who have a history of writing checks to YC companies tend to get previews ahead of the rest as it is. Still, for only $2m (a paltry sum for the VC and angels involved) it's well worth the good will.
- pclark 18y ago
  surely if Sequoia or Ron Conway rang any YC startup today the startup would fall over themselves to meet?
  - ajju 18y ago
    The problem is, Sequoia or Ron Conway need to have heard about the startup for them to call it. By investing in this fund, they not only get to hear about it before others but also get to monitor each as it grows, find out more about the co.s than other investors, which would help them make a better decision on whether to invest directly and at at what valuation.
- pg 18y ago
  This deal explicitly does not include any provisions for anyone to get an early look at the companies. That said, anyone who speaks at YC dinners obviously gets an early look at the companies in that cycle, since the point of the dinners is to introduce the startups to these experts, and you will notice that 3 out of 4 of the investors already speak at the dinners: http://ycombinator.com/w8speakers.html http://ycombinator.com/w8speakers.html So the investors didn't need to do this deal to get an early look at the startups, because (along with all the other speakers) most of them already had it.
mattmaroon 18y ago
This is a common fallacy, that investment confers some sort of validity. It doesn't. It means only that Sequoia et al. think Y Combinator's model will work. They don't have a crystal ball, and the model is no more or less likely to work than if they found $2m on the side of the road. I've thought it will work (for them anyway, not for many of the competitors) since before I went through it, but I don't really consider this validation of my belief.

aristus 18y ago

Question for paul: your limiting factor is not money, but time, right? Are you just going to say yes to more interviewees or will you interview more startups? Will YC alums take a more active role between funding and demo day?

aneesh 18y ago
I don't think his time (or really, all 4 YC founders' time) was the reason YC started small. YC is an experiment, and you don't want to fund 100 startups at once if you're not quite sure what you're getting into. Now that they've learned from several cycles, they can start to scale up responsibly. At the same time, you don't want to start too small and inhibit the learning process.
pg 18y ago
Because of the recession, money started to be the limiting factor. We didn't feel like we could prudently expand when there might not be any more returns for the next several years. We are probably going to invite more startups to interviews, and we definitely hope to accept a higher percentage of those we invite. And yes, we're going to encourage YC alums to help the other startups. They already do a lot, but we're going to set up more ways for this to happen.
- netcan 18y ago
  Is there an estimate of how long YC needs in order to become self sufficient?
  - pg 18y ago
    It would be very hard to guess, because it all depends on accidents of liquidity.
    - netcan 18y ago
      Isn't that were numbers start to kick in? 60 per round @ 10 years is 1200 startups? Actually, that brings up a completely different question: Can YC scale to the point where you can't remember most of the names anymore?

ivankirigin 18y ago

I really don't understand this. Why would YC want to manage a fund and investors? Is it more likely to get Sequoia to invest down the road?

sachinag 18y ago
I also worry that it will hurt YC companies raising angel/VC money after YC. If these angels and Sequoia pass, won't other investors think that something is wrong with the company?
- pg 18y ago
  No. The deal doesn't give them any special rights or access to the startups. So nothing changes in that respect.
  - sachinag 18y ago
    That's fantastic news; thank you, Paul!
pclark 18y ago
aren't you over thinking this? YC simply took fund to expand their current operations. Sequoia merely put money in, its like thinking the people that put money in the Sequoia funds get involved in who Sequoia finances.
- ivankirigin 18y ago
  People that put money into Sequoia get a lot of attention from Sequoia partners. If I were YC I wouldn't want to manage that.
  - pg 18y ago
    It won't be any extra work. We already pay a lot of attention to all the investors in this deal, because they are the biggest investors in YC startups. In fact, that's how they were chosen.

mattmaroon 18y ago

Hmm, legal question here, since I don't know exactly how this deal is arranged. Is this a fund in the traditional angel/vc model, or do they just now own a chunk of Y Combinator? And if so, do they therefore own a small chunk of past YC companies still in the portfolio? If so, it would seem my startup is now partially owned by some of the many angels and VCs who turned us down, which will really kill some of my revenge fantasies :)

chiffonade 18y ago
The article states this is a third fund owned by Sequoia and managed by YC. More than likely some of Sequoia's investors got intrigued and wanted to get into the YC game, but didn't feel like taking their money elsewhere because Sequoia has been good to them. Best of both worlds.
- mattmaroon 18y ago
  It was more of a joke than a serious question.

gcheong 18y ago

Is this the first step towards a YC IPO?

ntoshev 18y ago
It is not really clear how is it structured, but it seems that Sequoia will own equity in the new startups funded by the YC-managed fund. In this way YC or that new fund won't need an exit strategy.
ajju 18y ago
Venture capital funds (which is what YC is very very roughly) don't do IPOs because a public company has to produce returns every quarter with some degree of regularity and VC returns are always very very skewed. I can bet YC will never do an IPO. More importantly, you typically do an IPO to raise money for your operations. VC funds raise money from private investors. So it doesn't usually make sense for VC funds to do an IPO.
- gcheong 18y ago
  It's not something they would rush into for the reasons you point to, but it's not unheard of (e.g Harris and Harris), and if the goal of YC is to maximize the number of companies they can fund then an IPO may make sense at some point.
pg 18y ago
No! Companies like YC don't go public, and even if it were an option, I wouldn't want to do it.
- mattmaroon 18y ago
  Anymore I'm always skeptical of anyone that would. People now think "if they're doing so well, why would they want to IPO?" Seems like a tremendous bad beat for investors.

jacoblyles 18y ago

The most important part of this for me is a 50% increase in the number of startups funded. I approve of anything which increases our chances. Of course, in the long term, this will mean that Y Combinator will be more sustainable if it is drawing interest from outside investors. I wouldn't be surprised if Sequoia is doing this just for the publicity, or just to find out more about Y Combinator. $2 million might well be worth the price for information about how Y Combinator is doing, since it is a very popular but secretive fund.

smallpaul 18y ago

I love Robert Morris' crunchbase bio: "... He has published extensively on wireless networks, distributed operating systems, and peer-to-peer applications. In 1988 his discovery of buffer overflow first brought the Internet to the attention of the general public." I think we know that the "discovery" of a vulnerability is never enough to get the general public interested...I didn't hear a peep in the MSM about the huge Debian/SSL debacle.

danielzarick 18y ago

Everybody is over speculating the significance of this. This just means more opportunity for each of us to seize. All of you can continue debating why this is good or bad, but I am going to go finish my YC application.