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We haven't seen a decrease in the valuations/valuation caps at which YC companies have raised money after Demo Day. Valuations are high by historical standards

by pg 13y ago

We haven't seen a decrease in the valuations/valuation caps at which YC companies have raised money after Demo Day. Valuations are high by historical standards, which means at some point they'll probably fall, but we're not seeing evidence of a fall yet. It does seem to be getting harder to raise later rounds. But I think that is a secular change, not a market fluctuation. VCs seem to be shifting toward a strategy of spraying money at early stage startups, and then ruthlessly culling them at the next stage. This may well be the optimal strategy, but it's tough on the late bloomers.

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fraserharris 13y ago
There is another aspect to this that is not getting much mention: many more startups are reaching profitability without VC, but still don't have metrics to justify going for a home run. Ergo, the "ruthless culling" is not resulting in the bloodbath that some predicted. In general, great for startup founders & great for (the remaining) active VCs. pg - do you have any stats around how many more recent YC co's are profitable & have not secured/pursued Series A?
- pmarca 13y ago
  My guess is very few but I'd love to know as well.
  - MediaSquirrel 13y ago
    ZeroCater, Mobileworks.
- pg 13y ago
  That's a complicated question, because the nature of series A rounds has changed in the last couple years. A lot of so-called series A rounds now are de facto series B rounds, huge "seed" rounds having taken the place of series As (at least financially). A bunch of the companies we've funded are profitable and haven't raised a series A round yet, but it looks like there is only one that is way past the (now much later) series A stage and yet didn't raise a series A: Weebly.
  - 2pasc 13y ago
    Didn't Weebly raise a Series A with Sequoia? They list them as a portfolio Company at least! http://www.sequoiacap.com/us/home/weebly/info http://www.sequoiacap.com/us/home/weebly/info
    - drusenko 13y ago
      we skipped what would traditionally be called a series A and series B and went straight to a growth-staged round with Sequoia
      - 2pasc 13y ago
        Interesting. Looking at some of the Weebly figures on the Sequoia website, I thing many people (myself included) would be surprised of the revenue run rate you guys must have today. This is an amazing venture - congratulations to you guys! Well executed "simple ideas" are the best!
      - earbitscom 13y ago
        I learned of Weebly when someone complained on HN about your email communications. I immediately signed up and (with very few technical bones in my body) built a totally bad ass website for a friend of mine in 2 hours. There's a very good reason for your success. Incredible product.
jacques_chester 13y ago
> VCs seem to be shifting toward a strategy of spraying money at early stage startups, and then ruthlessly culling them at the next stage. Looking at this from way outside: I think this is because they're much more aggressive on product-market fit. Pivot once or twice, then give up when you're not the next instagram. Ideas have consequences; here it's the concept of startups as early-terminating simulated annealing search algorithms that has been consequential.
ChuckMcM 13y ago
I wonder if there isn't another force in play here, given the aggressiveness of acqui-hires a VC firm can make book by spraying a lot of 100 - 200K investments around, maybe a 1M and then harvesting the acquihire dollars when the team works out. They are essentially glorified head hunters with a bigger contract bounty but they put together teams instead of just individuals. So putting in a million $ to get a couple of young stars to recruit 5 or 6 of the best programmers they know, and organize them into a team that can build a project. Then scare them with the "Series A crunch" and sell them off to BigCo for a million dollars a head. I know, I know, too cynical. But looking at the exits that way skews the numbers.
- pg 13y ago
  Definitely not. For some reason there is a persistent myth that investors make money from HR acquisitions, but they don't. Even we don't, and we invest at much lower valuations than VC funds.
  - davemc500hats 13y ago
    completely agree with PG -- acqui-hires aren't a big source of capital returns at all, especially anything below $10M.
  - ChuckMcM 13y ago
    Interesting, do the investors get to keep any IP and/or remaining funds in your experience? Of the two acquisitions where I had good visibility into the terms, in both cases the original Investors were cashed out at approximately 2x their total investment and the rest put into an earnout/retention package for the people that were coming on board. It was a haircut to be sure, but it wasn't actually a loss for anyone with preferred stock. I would have thought with smaller starting chunks that would be easier rather than harder than it was after the dot-com debacle. I certainly defer to your greater experience here as it is much more current than mine. I made the mistake of figuring those were more typical than I guess they actually are.
    - danmaz74 13y ago
davemc500hats 13y ago
i will defer to PG & YC in terms of their data on valuation/caps post-demo day, however our experience is that they probably reached a local max sometime last year, and they are certainly softer this year. in general, most companies with similar progress are being valued less highly than last year. which isn't to say they are either cheap, or a bargain -- just not as high as last year.
bayesianhorse 13y ago
On the other side of the table, are Investors suddenly finding better/safer/more profitable opportunities now?
loceng 13y ago
This just further reenforces to make sure you get enough money to get where you need to prove what you need to..
ivankirigin 13y ago
One explanation is that the startups you fund are on average better than ones you funded before. You did become increasingly selective. Having higher standards and valuations remaining flat implies valuations are falling on average.
- pg 13y ago
  Hmm, yes, that could be.

by pg 13y ago

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fraserharris 13y ago

There is another aspect to this that is not getting much mention: many more startups are reaching profitability without VC, but still don't have metrics to justify going for a home run. Ergo, the "ruthless culling" is not resulting in the bloodbath that some predicted. In general, great for startup founders & great for (the remaining) active VCs. pg - do you have any stats around how many more recent YC co's are profitable & have not secured/pursued Series A?

pmarca 13y ago
My guess is very few but I'd love to know as well.
- MediaSquirrel 13y ago
  ZeroCater, Mobileworks.
pg 13y ago
That's a complicated question, because the nature of series A rounds has changed in the last couple years. A lot of so-called series A rounds now are de facto series B rounds, huge "seed" rounds having taken the place of series As (at least financially). A bunch of the companies we've funded are profitable and haven't raised a series A round yet, but it looks like there is only one that is way past the (now much later) series A stage and yet didn't raise a series A: Weebly.
- 2pasc 13y ago
  Didn't Weebly raise a Series A with Sequoia? They list them as a portfolio Company at least! http://www.sequoiacap.com/us/home/weebly/info http://www.sequoiacap.com/us/home/weebly/info
  - drusenko 13y ago
    we skipped what would traditionally be called a series A and series B and went straight to a growth-staged round with Sequoia
    - 2pasc 13y ago
      Interesting. Looking at some of the Weebly figures on the Sequoia website, I thing many people (myself included) would be surprised of the revenue run rate you guys must have today. This is an amazing venture - congratulations to you guys! Well executed "simple ideas" are the best!
    - earbitscom 13y ago
      I learned of Weebly when someone complained on HN about your email communications. I immediately signed up and (with very few technical bones in my body) built a totally bad ass website for a friend of mine in 2 hours. There's a very good reason for your success. Incredible product.

jacques_chester 13y ago

> VCs seem to be shifting toward a strategy of spraying money at early stage startups, and then ruthlessly culling them at the next stage. Looking at this from way outside: I think this is because they're much more aggressive on product-market fit. Pivot once or twice, then give up when you're not the next instagram. Ideas have consequences; here it's the concept of startups as early-terminating simulated annealing search algorithms that has been consequential.

ChuckMcM 13y ago

I wonder if there isn't another force in play here, given the aggressiveness of acqui-hires a VC firm can make book by spraying a lot of 100 - 200K investments around, maybe a 1M and then harvesting the acquihire dollars when the team works out. They are essentially glorified head hunters with a bigger contract bounty but they put together teams instead of just individuals. So putting in a million $ to get a couple of young stars to recruit 5 or 6 of the best programmers they know, and organize them into a team that can build a project. Then scare them with the "Series A crunch" and sell them off to BigCo for a million dollars a head. I know, I know, too cynical. But looking at the exits that way skews the numbers.

pg 13y ago
Definitely not. For some reason there is a persistent myth that investors make money from HR acquisitions, but they don't. Even we don't, and we invest at much lower valuations than VC funds.
- davemc500hats 13y ago
  completely agree with PG -- acqui-hires aren't a big source of capital returns at all, especially anything below $10M.
- ChuckMcM 13y ago
  Interesting, do the investors get to keep any IP and/or remaining funds in your experience? Of the two acquisitions where I had good visibility into the terms, in both cases the original Investors were cashed out at approximately 2x their total investment and the rest put into an earnout/retention package for the people that were coming on board. It was a haircut to be sure, but it wasn't actually a loss for anyone with preferred stock. I would have thought with smaller starting chunks that would be easier rather than harder than it was after the dot-com debacle. I certainly defer to your greater experience here as it is much more current than mine. I made the mistake of figuring those were more typical than I guess they actually are.
  - danmaz74 13y ago

davemc500hats 13y ago

i will defer to PG & YC in terms of their data on valuation/caps post-demo day, however our experience is that they probably reached a local max sometime last year, and they are certainly softer this year. in general, most companies with similar progress are being valued less highly than last year. which isn't to say they are either cheap, or a bargain -- just not as high as last year.

bayesianhorse 13y ago

On the other side of the table, are Investors suddenly finding better/safer/more profitable opportunities now?

loceng 13y ago

This just further reenforces to make sure you get enough money to get where you need to prove what you need to..

ivankirigin 13y ago

One explanation is that the startups you fund are on average better than ones you funded before. You did become increasingly selective. Having higher standards and valuations remaining flat implies valuations are falling on average.

pg 13y ago
Hmm, yes, that could be.