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Y Combinator's YC VC may lose the actual VCs
- nishankkhanna 13y agoThis is good for YC startups in the long run. When you're out raising a series A, you really don't want the negative signals when Horowitz or Khosla decide to pass.
- alooPotato 13y agoThis can't really be a problem. These firms spend so little time with the startups and invest in ~70 each batch, that them not investing signals almost nothing.
- joncalhoun 13y ago^ This. It is roughly the equivalent of them never investing in your seed round, and then again passing on your A round. That is a signal, just not a strong one of any sort. Where signaling may seem off is when they invest 500k in your seed, and then don't invest in your A. They were heavily committed and liked your company, and then for some reason lost interest in investing any more.
- salimmadjd 13y ago> 2. Negative signaling risks if the participating firms passed on a startup To me that would be the most significant reason to do it.
- cwilson 13y agoI actually disagree with this. It was never a problem in the past because everyone gets said initial investment, regardless of startup performance. It's in no way a signaling issue (at least in my class if wasn't) if one of those firms doesn't invest anything further.
- btrautsc 13y agoAgreed, in many cases you have early access to those firms (as they have some very small interest in your company) - but I've not heard of anyone experiencing signaling issues from those LPs
- wtvanhest 13y agoI'm an outsider, but I believe the signalling risk comes at or after demo day. You already have those VCs in the deal, they already know the team... Why didn't they invest? If I were a 3rd party looking at the deal, the known information asymmetry would make me leery of any company not funded by those who have the most access to information.
- cwilson 13y agoIf this were the case for the majority of investors post demo day, how are so many YC companies raising money even if the start fund / YC fund partners are not investing a second time? My impression is most investors view the Start Fund / YC Fund instant investments as "free money" for the startups, and they view those investment partners as hedging their bets with YC as a whole. While I see your point, I don't think it's ever been an issue for anyone (as far as I've heard and personally experienced). I think the unfair early advantage these third party investors had is the real issue here, and much more in-line with changes YC has made in the past
- wtvanhest 13y ago>I think the unfair early advantage these third party investors had is the real issue here, and much more in-line with changes YC has made in the past* That makes more sense than the signaling issue.
- asanwal 13y agoThe data doesn't really support the signaling risk narrative. http://www.cbinsights.com/blog/trends/seed-venture-capital-funds http://www.cbinsights.com/blog/trends/seed-venture-capital-f... It's an idea smaller micro-VC funds have propagated as a way to scare startups from taking seed money from larger multi-stage VC investors.
- mikikian 13y agoOn an unrelated note, does anyone know if YC is investing their $[18]k using their SAFE security or will they continue using Series AA?
- memossy 13y agoIt would not make sense to structure it as a SAFE security as then it would be a tiny percentage of the company at Series A when it converts, messes up the entire economics.
- thecolorblue 13y agoSo do SAFE securities only ever make sense in a seed round?
- memossy 13y agoThe purpose (as I see it) for SAFE, just like convertible notes, is that early stage startups are hard to value. At Series A you have a value and subsequent raisings can use that as a benchmark for up/down rounds. You also tend to have VCs etc take liquidation preferences and such like, which dilute the benefits of a convertible note. The initial $20k(ish) for 6-7% of the company is where the real value for Y-combinator kicks in, if that was in the form of a SAFE, using a 25% discount to a $5m Series A valuation at $4m would mean that Y-combinator owned just 0.5% for their investment of $20k + value add. I imagine the $80k convertible note should be a SAFE though?
- kirsty 13y agoYC will continue to structure our investment as we have always done - ie we use a Share Purchase Agreement to buy shares. The docs are not the same as the Series AA docs that we publish though. We buy common stock and the Seris AA docs are for investors that buy preference stock. In the most recent batch, the YCVC investment was made using the safe documents.
- lquist 13y agoI'm a bit confused. The YC VC program (and it's earlier incarnation) made sense to me because VCs wanted access to YC deal flow. But now with the new program traditional LPs are investing at the same time (i.e., acceptance to YC) as YC LPs, but with much worse terms. Maybe I'm missing something here?
- corry 13y agoPart of it would have been access to YC deal flow, sure. But to me it was also like an index fund - i.e. invest in the basket of companies rather than picking and choosing because on aggregate the group is going to do very well. Really, you're blind betting on YC having chosen a few winners in the cohort. Not a bad bet to make!
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- corry 13y agoThe best way to look at the uncapped note is like investing in an index fund. Rather than picking and choosing specific companies, the money behind YC VC is betting that the basket of companies as a whole is going to perform well on aggregate (thanks to power law). It's really putting faith in the YC selection process / mentoring multiplier as a whole rather than any particular company (which they can do later after demo day).
- Geekette 13y agoExactly, which is why I disagree with the 2nd reason mentioned. I don't see how anyone can perceive a lack of follow-on investment in any startup negatively, when it is widely known that each participating firm only plans to invest in some, not all startups in a batch.
- jules 13y agoYou really don't see how somebody can perceive a lack of follow-on investment negatively, when an entity that has more knowledge of said startups than yourself invests extra in some startups but not all?
- Geekette 13y agoNo. Especially not when that entity typically invests only in a fixed number of startups per batch, subject to certain criteria such as addressing specific sectors of interest to the investing firm.
- downandout 13y agoDoes anyone know how these investments/loans have actually performed overall? We don't know what the catalyst for this move is. It makes me wonder if the smart money (from VC's) has decided that the YC model isn't generating ROI, leaving YC to go searching for dumb(er) money (from LP's).
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- nrao123 13y agoThey may be the best performing fund of all time. My post from 2-3 years ago: https://news.ycombinator.com/item?id=2854630 https://news.ycombinator.com/item?id=2854630 320 YC Companies X $30k/Company = ~$10M Investment Dropbox Return=~3% Share X $10BN Valuation=$300M 30X return for the entire fund even without accounting for companies such as AirBnB, Heroku etc. I have heard of 30x/100x returns on specific investments e.g. Skype/Google/Facebook etc... But for the entire fund itself- wouldn't that be a record?
- masonhensley 13y agoI would guess that YC's stake in Dropbox would be much lower than 3% due to dilution from all the subsequent investment rounds.
- btrautsc 13y agoYes. there is no pro-rata follow on.
- deleted 13y ago[deleted]
- robk 13y agoThat's not a record at all. Your math overestimated ownership. And even 10x isn't a record at all (though good obviously)
- mindcrime 13y agoIf there was one change I'd like to see YC make, it's this: expand the franchise outside of the Bay area. Open a branch on the East Coast (Raleigh/Durham would be a nice location!). OK, yes, I'm being selfish here, but this is just the way it is for us... moving, even for 3 months, just isn't an option and may never be. But that's really the main thing preventing us from taking a stab at doing YC. Of course, we do have a similar accelerator/incubator here in The Startup Factory, but competition and more choices are a Good Thing. :-)
- speeder 13y agoAs a Brazillian that did not went to YC because of that, yes! (explaining for those wondering: I believe Bay Area costs are too ridiculous of high, and the YC money is too low to cover them when I have to also account the costs of moving from another country entirely and then moving back...)
- m_ke 13y agoHow exactly would YC benefit from having an office in NC? Access to government contractors?
- aryastark 13y agoRaleigh? Access to students from NC State, Duke, and UNC Chapel Hill, all within a few miles. And of course... http://en.wikipedia.org/wiki/Research_Triangle_Park http://en.wikipedia.org/wiki/Research_Triangle_Park It may completely shock some of you stuck in bubble land, but many people don't want to live in SV. Even for a day.
- tlb 13y agoIf you're planning to run a successful tech company, you'll need to spend time talking to customers, partners, suppliers and investors. A large fraction will be in SV. You should really learn to be comfortable in any of the major tech cities.
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- argumentum 13y agoInteresting, obviously I doubt Sam/PG will comment prematurely. However I wonder if this affects the summer batch that's applying right now?
- hisabness 13y agowhat is an LPA?
- berberous 13y agoI assume they mean a Limited Partnership Agreement.
- bourdine 13y agoWe apply to YC S14, and I think, it does not matter. That's why - if your product team will selected, you still get access to best community. Anyway, you get as much money from VC on Demo Day, as your product look. And you still YC alumnum. So, don't worry. Just work harder.
- adamhooper 13y agoThis. The initial funding is by no means the reason to participate in YC - it should have zero impact on any company's decision making process. It is a bonus that takes some pressure off in the short term to allow you to focus on absolute execution. Build something awesome and you'll have a good shot at getting funding with or without YC. There are many other benefits to the program beyond the up front money.
- bourdine 13y agoWe are not applyed for money, no. We need understand a vision of YC companies. Vision let grow, not funding. Vision let you understand, how to build something awesome.