3 ms·

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.
    - ivankirigin 18y ago
      That makes complete sense. Thanks
swombat 18y ago
I guess they don't have enough cash in the bank to keep investing half a million dollars twice a year with no mostly returns for 7+ years (typical time for a start-up to become valuable).
- pclark 18y ago
  I read it that they wanted to expand their operations, rather than they were running out of money.
  - jwilliams 18y ago
    If it is a cash/deal flow thing then the same principle swombat mentioned applies.
- colins_pride 18y ago
  How much did they rake in from reddit?
  - gommm 18y ago
    Let's see, if I remember well they invested about 80 000$ in reddit (there was a second investment from YC if I'm not mistaken). So from this, they maybe took 10-15%. Reddit sold for about 12 million dollars, so that would mean about 1.2-1.8 million: 2-3 years of yc investment. Of course those numbers are pure speculation and it wouldn't suprise me if I'm completely mistaken...
ajju 18y ago
* YC gets: - $2M more to invest in startups (more money can't hurt and they clearly enjoy what they do) - Sequoia investing in YC makes YC that much more trustworthy in the eyes of a lot of potential investees and potential acquirers of their startups. Also YC's reach in terms of potential acquirers and potential round 2 investors probably increases. - It gets YC startups almost all the advantages of having Sequoia as an investor without the dilution of a large Sequoia investment (eg: opens a lot of doors for the YC startups to get their products in the marketplace.) * In return for $2M, Sequoia gets: - YC acting as a filter / very high quality pipeline for them - Early access to YC deals (though not exclusive) - Most likely, great returns on the $2M itself in the long term.
- dbul 18y ago
  Great returns because the market is down now and will go up in the next 4 years. If you think about this in relation to the stock market it makes perfect sense. People are investing now because they think the bad times are over (even if they aren't, it is still not a bad time to start investing in something that will take 3 or 4 years to mature like a startup). So both YC and Sequoia win because the valuation of the startup whether it is public or not will be greater in just a matter of years. More small risk, much greater potential return.
- pg 18y ago
  It gets YC startups almost all the advantages of having Sequoia as an investor without the dilution of a large Sequoia investment (eg: opens a lot of doors for the YC startups to get their products in the marketplace.) I want to emphasize that this one isn't true. We're not claiming any such advantage. Sequoia won't be a direct investor in these startups.
  - ajju 18y ago
    Kudos for ensuring "truth-in-advertising" even when it's someone else (me) doing the advertising for you :)
sahaj 18y ago
pg, will you please comment on this?
pg 18y ago
We wanted to increase the number of startups we funded, but we didn't feel we could do that in a recession. We probably had enough money to last out the recession at the current rate, but we noticed that thinking this way was starting to make us conservative, which is the last thing you want in the seed funding business. I don't think this deal would increase the likelihood of Sequoia investing in a given YC startup. They make up their own minds about who to invest in. But it should increase the absolute number they fund, because the number we fund will increase.

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.
  - ivankirigin 18y ago
    That makes complete sense. Thanks

swombat 18y ago

I guess they don't have enough cash in the bank to keep investing half a million dollars twice a year with no mostly returns for 7+ years (typical time for a start-up to become valuable).

pclark 18y ago
I read it that they wanted to expand their operations, rather than they were running out of money.
- jwilliams 18y ago
  If it is a cash/deal flow thing then the same principle swombat mentioned applies.
colins_pride 18y ago
How much did they rake in from reddit?
- gommm 18y ago
  Let's see, if I remember well they invested about 80 000$ in reddit (there was a second investment from YC if I'm not mistaken). So from this, they maybe took 10-15%. Reddit sold for about 12 million dollars, so that would mean about 1.2-1.8 million: 2-3 years of yc investment. Of course those numbers are pure speculation and it wouldn't suprise me if I'm completely mistaken...

ajju 18y ago

* YC gets: - $2M more to invest in startups (more money can't hurt and they clearly enjoy what they do) - Sequoia investing in YC makes YC that much more trustworthy in the eyes of a lot of potential investees and potential acquirers of their startups. Also YC's reach in terms of potential acquirers and potential round 2 investors probably increases. - It gets YC startups almost all the advantages of having Sequoia as an investor without the dilution of a large Sequoia investment (eg: opens a lot of doors for the YC startups to get their products in the marketplace.) * In return for $2M, Sequoia gets: - YC acting as a filter / very high quality pipeline for them - Early access to YC deals (though not exclusive) - Most likely, great returns on the $2M itself in the long term.

dbul 18y ago
Great returns because the market is down now and will go up in the next 4 years. If you think about this in relation to the stock market it makes perfect sense. People are investing now because they think the bad times are over (even if they aren't, it is still not a bad time to start investing in something that will take 3 or 4 years to mature like a startup). So both YC and Sequoia win because the valuation of the startup whether it is public or not will be greater in just a matter of years. More small risk, much greater potential return.
pg 18y ago
It gets YC startups almost all the advantages of having Sequoia as an investor without the dilution of a large Sequoia investment (eg: opens a lot of doors for the YC startups to get their products in the marketplace.) I want to emphasize that this one isn't true. We're not claiming any such advantage. Sequoia won't be a direct investor in these startups.
- ajju 18y ago
  Kudos for ensuring "truth-in-advertising" even when it's someone else (me) doing the advertising for you :)

sahaj 18y ago

pg, will you please comment on this?

pg 18y ago

We wanted to increase the number of startups we funded, but we didn't feel we could do that in a recession. We probably had enough money to last out the recession at the current rate, but we noticed that thinking this way was starting to make us conservative, which is the last thing you want in the seed funding business. I don't think this deal would increase the likelihood of Sequoia investing in a given YC startup. They make up their own minds about who to invest in. But it should increase the absolute number they fund, because the number we fund will increase.