4 ms·

In order to make sense of this from a financial perspective, I'd have to know more about the performance of YC's existing fund(s). Is that published anywhere?

• charlesju 18y ago
  $15k for 6% is proportionally much higher.
  • numair 18y ago
    Yes, but if it's working, why let Sequoia in the deal? YC has an existing brand and deal pipeline... This just doesn't make sense to me. You're also inevitably leaving other potential follow-on investors, such as Founders Fund, at a disadvantage... This really seems like more of a win for Sequoia (access to deal pipeline, continue to expose itself as the preferred VC of Internet startups, etc) than for YC (get $2m and funnel startups to Sequoia for follow-on financing). I know Paul's a smart guy, so there must be a missing piece somewhere.
    • shimon 18y ago
      How about this: 1. The YC founder-investors probably lost 30% or so of their wealth in the recent stock market decline (maybe they did better, maybe they did worse, but they probably feel poorer). 2. At the same time, YC has continued to improve their deal flow and develop connections in Silicon Valley, so they are turning down better applications than they used to. 3. Other VC firms are continuing to notice YC and compete. If YC can remain the top seed firm because of its founders' fame and network, YC will be poised to dominate seed investment for many years, as lower-tier seed firms spur demand but have their most promising prospects sniped by a YC now able to fund and advise a larger pool of companies. Just like top-tier VCs like Sequoia get access to better companies while lower-tier VCs lose money. Whether it's a good idea really depends on the average quality of the deals YC has been turning down. If YC rejects are increasingly good, expanding the funding pool and accepting more startups makes sense.
    • abossy 18y ago
      > Yes, but if it's working, why let Sequoia in the deal? You are thinking of YC as a for-profit company; don't. Remember, it was conceived as the result of PG's guilt when he advised students to seek out rich hackers for seed money--just not him. Moreover, one of YC's key goals is to give young, bright hackers the freedom to build valuable things without the impediments of bureaucracy. While the expense/revenue/profit structure is necessary for YC to attract talent and thrive, it's otherwise a benevolent venture. PG wants to expand the goodness. The four YC folks can only do so much.
      • ErrantX 18y ago
        At the same time it has to be about the money too - otherwise it's a pretty silly venture :) (i.e. it is throwing good money at bad ideas).
    • pg 18y ago
      it's working, why let Sequoia in the deal? Because working is not the same as being liquid.
      • numair 18y ago
        Point taken; thanks. As I replied to your reply further up in the thread, I could definitely see how a future Sequoia-YC combination would be beneficial to both parties. I hope this works out well for you, as you're doing a great job of helping a new generation of entrepreneurs.
• briansmith 18y ago
  My thoughts exactly. It looks like YC's operating expenses will be around $1M to $1.5M per year, depending on what their overhead is. Paul's explanation (increasing investments by 50%, no special access for Sequoia) doesn't really explain why the deal is for just one year's worth of extra capital unless YC is close to broke or Sequoia has absolutely nothing else to do with their money. Actually there are all kinds of possible explanations but none was given. It is interesting how a press release designed to shine a positive light on both companies can easily have the opposite effect. As far as YC's past performance goes, I don't think you'll get much information about that. The near-term prospects for YC companies being acquired look much worse than they did this time last year. The ones who planned on using tiny classified ads as their sole source of income are probably the worst off. It seems to me that the ones most likely to succeed are going to be the ones that operate more like "lifestyle businesses" that are frequently derided in discussions here. Considering that, it is pretty risky to bet the future of the business on any deals happening soon. Maybe that is why they decided to take $2M now while they can get it on good terms.
• pg 18y ago
  We have no idea what our performance will be. It could take 10 years to know something like that, and the median YC startup is about 18 months old. If you add up all the valuations of the companies we've invested in so far, I'm pretty sure we're doing well on paper. But I don't even know how well, because I've never done it. It would be so misleading; I'd rather just wait till I have real data. In the meantime we're operating on a hunch that YC is a good idea. The evidence so far does tend to confirm that hunch, or we wouldn't be so eager to expand.
  • davidw 18y ago
    This is what, to me, is inspiring about your work: YC is first and foremost a 'cool hack'. It's not a finance guy thing or an 'entrepreneur' thing in the sense of a calculated attempt to make a big bunch of money, it's taking some existing pieces and putting them together in a novel way, and creating something new and valuable, and hopefully, in the process, also making a good return on the risk. I think that, ultimately, this attitude is what I've always liked in your essays - hackers can do business stuff and do a good job of it. Sorry if that seems a bit fawning... let's balance it out a bit: a skeptic might wonder if the YC bunch's investments are not panning out enough to continue investing at the current pace and think that therefore, they're seeking outside funding.
  • numair 18y ago
    Thanks for the guidance, Paul. In thinking more about this, I came to the conclusion that this is probably a "taster" for what may become a closer relationship between YC and Sequoia. For example... Could you see a future where YC was part of Sequoia? It seems to be a good fit, as they are not currently targeting deals of the size you pursue, and you'd gain access to their resources and infrastructure.
    • pg 18y ago
      I don't think of it that way and I'm sure they don't either. You can't have the same company doing both seed and series A investments.
      • 18y ago