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On average, the accelerator has invested between $15,000 to $20,000 in each company participating in their program... If this is the case... Based on specific

On average, the accelerator has invested between $15,000 to $20,000 in each company participating in their program... If this is the case... Based on specific macroeconomic assumptions, we calculate an economic value of around $6.1 bn added since the accelerator was founded in 2005. ...this seems phenomenal, but also highly suspect. How is it that YC is investing so little in so many companies that the average investment is $20k or less? That's almost nothing by Silicon Valley living standards (which, based on HN bias, seems to be a significant share of YC's audience). $20k, even in very low-income areas, isn't even half the yearly pre-tax salary of anyone who's very good at anything or has an adult's bills to pay. And that's one year for one person. They cite 2-3 founders as average... this absolutely does not compute. Unless the average YC alum gets enough to operate for about three to six months without employees, advertising expenses, hosting, or any other paid service, and this somehow results in an average of $15,000,000 in "economic value," this article is some inexplicable sort of bullshit.

graeme 14y ago
For a while all YC startups were getting 150,000 in additional funding. I don't know exactly how the terms work as I don't know VC finance. http://news.cnet.com/8301-32973_3-57554351-296/ron-conway-steps-back-as-y-combinator-cuts-team-funding/ http://news.cnet.com/8301-32973_3-57554351-296/ron-conway-st...
- michaelochurch 14y ago
  Terms are everything. It's not hard to get money. It's hard to get money in a way that doesn't make you angry or miserable on a regular basis.
  - rdl 14y ago
    The $80k or $150k is independent of YC, so it doesn't affect YC's returns. The terms for the $80k or $150k were incredibly favorable; essentially uncapped/no discount and would inherit the cap of the next round of financing.
timcederman 14y ago
The figures are accurate. It used to be enough to properly fund people, but now it's a nominal figure. Each company gets an automatic investment, if they choose to take it, of just less than $100k.
- michaelochurch 14y ago
  With what terms? What's the valuation and how bad are the liquidation preferences, board concessions, etc.?
  - timcederman 14y ago
    For YC's, I believe it's all listed out online. For the rest of the money, it's simply an uncapped convertible note.
ibdknox 14y ago
That is indeed the average amount invested by YC. As stated below in recent batches there has been the startfund blanket investment which used to be $150k and is now $80k. Technically speaking this blanket investment has nothing to do with YC and is given as uncapped convertible note (basically the best possible terms). To address if this is enough, I'd say you'd be surprised how much you can make things stretch if you absolutely have to, but most companies also raise a small amount of money after YC's demo day as well to help them continue. You can think of YC as a startup bootcamp at the end of which you have to prove yourself to get the opportunity (further investment, usually) to continue on. With the startfund though, you get more than those three months to do so. In short, yes, YC invests $20k and produces $6.1bn in value across the alumni.
- loganfrederick 14y ago
  "In short, yes, YC invests $20k and produces $6.1bn in value across the alumni." For the sake of clarity, an accurate comparison would be: $20K * # of startups funded : $6.1 billion in valuation for all portfolio companies
btilly 14y ago
The analysis is clearly slanted, but the quoted numbers are based in reality. YC indeed only invests enough money to keep the founders from starving for the first few months, and offers all kinds of support and advice to help them get going. After that, lots of other investors are willing to invest more dollars, but YC does not. The billions figure is an estimate of the aggregate value across all companies. Most of which is concentrated in a handful of stellar successes like Airbnb and Dropbox. Attributing value is hard to do. Obviously not all of these billions are the result of YC. But without YC, much of these billions in value would not have been created. So the quoted figure is an upper bound for the value of YC investment. If you want a lower bound, YC itself takes just a few percent of the company, which can get diluted in later rounds. It would not be worthwhile to be in YC if YC did not provide more value than that. That figure is ballpark likely somewhere around $100 million (could be off by a substantial factor either way). There is a wide range between, and many, many values in that range could be argued for. In fact many people not in YC claim to have received value from trying to get into YC, and from reading about YC. So one could even argue for figures above the upper bound that this article uses. (Not very tenably in my opinion, but the argument can be made.)
- hkmurakami 14y ago
  >YC itself takes just a few percent of the company Typically around 6% at that stage.
rdl 14y ago
I'd estimate the investment by YC as more like $50k per company. ~$20k in cash, and then $30k or so in costs (partner time, meals, etc.), as an upper bound. That's still an essentially trivial amount of money for the return YC receives.
garry 14y ago
Note that the amount raised is typically meant for a small team of people to work on things for a few months. Most YC companies go on to raise several hundred thousand dollars from angel investors and VC's at the end of the three months -- some raise millions. The $15K-$20K (plus $80K YC VC program) is enough money to get to market and prove people want it. It's also enough money to change your idea and try something else if your initial tries do not work.

graeme 14y ago

For a while all YC startups were getting 150,000 in additional funding. I don't know exactly how the terms work as I don't know VC finance. http://news.cnet.com/8301-32973_3-57554351-296/ron-conway-steps-back-as-y-combinator-cuts-team-funding/ http://news.cnet.com/8301-32973_3-57554351-296/ron-conway-st...

michaelochurch 14y ago
Terms are everything. It's not hard to get money. It's hard to get money in a way that doesn't make you angry or miserable on a regular basis.
- rdl 14y ago
  The $80k or $150k is independent of YC, so it doesn't affect YC's returns. The terms for the $80k or $150k were incredibly favorable; essentially uncapped/no discount and would inherit the cap of the next round of financing.

timcederman 14y ago

The figures are accurate. It used to be enough to properly fund people, but now it's a nominal figure. Each company gets an automatic investment, if they choose to take it, of just less than $100k.

michaelochurch 14y ago
With what terms? What's the valuation and how bad are the liquidation preferences, board concessions, etc.?
- timcederman 14y ago
  For YC's, I believe it's all listed out online. For the rest of the money, it's simply an uncapped convertible note.

ibdknox 14y ago

That is indeed the average amount invested by YC. As stated below in recent batches there has been the startfund blanket investment which used to be $150k and is now $80k. Technically speaking this blanket investment has nothing to do with YC and is given as uncapped convertible note (basically the best possible terms). To address if this is enough, I'd say you'd be surprised how much you can make things stretch if you absolutely have to, but most companies also raise a small amount of money after YC's demo day as well to help them continue. You can think of YC as a startup bootcamp at the end of which you have to prove yourself to get the opportunity (further investment, usually) to continue on. With the startfund though, you get more than those three months to do so. In short, yes, YC invests $20k and produces $6.1bn in value across the alumni.

loganfrederick 14y ago
"In short, yes, YC invests $20k and produces $6.1bn in value across the alumni." For the sake of clarity, an accurate comparison would be: $20K * # of startups funded : $6.1 billion in valuation for all portfolio companies

btilly 14y ago

The analysis is clearly slanted, but the quoted numbers are based in reality. YC indeed only invests enough money to keep the founders from starving for the first few months, and offers all kinds of support and advice to help them get going. After that, lots of other investors are willing to invest more dollars, but YC does not. The billions figure is an estimate of the aggregate value across all companies. Most of which is concentrated in a handful of stellar successes like Airbnb and Dropbox. Attributing value is hard to do. Obviously not all of these billions are the result of YC. But without YC, much of these billions in value would not have been created. So the quoted figure is an upper bound for the value of YC investment. If you want a lower bound, YC itself takes just a few percent of the company, which can get diluted in later rounds. It would not be worthwhile to be in YC if YC did not provide more value than that. That figure is ballpark likely somewhere around $100 million (could be off by a substantial factor either way). There is a wide range between, and many, many values in that range could be argued for. In fact many people not in YC claim to have received value from trying to get into YC, and from reading about YC. So one could even argue for figures above the upper bound that this article uses. (Not very tenably in my opinion, but the argument can be made.)

hkmurakami 14y ago
>YC itself takes just a few percent of the company Typically around 6% at that stage.

rdl 14y ago

I'd estimate the investment by YC as more like $50k per company. ~$20k in cash, and then $30k or so in costs (partner time, meals, etc.), as an upper bound. That's still an essentially trivial amount of money for the return YC receives.

garry 14y ago

Note that the amount raised is typically meant for a small team of people to work on things for a few months. Most YC companies go on to raise several hundred thousand dollars from angel investors and VC's at the end of the three months -- some raise millions. The $15K-$20K (plus $80K YC VC program) is enough money to get to market and prove people want it. It's also enough money to change your idea and try something else if your initial tries do not work.