5 ms·

How much do Y Combinator founders earn?

113 points by theduffman 12y ago

deleted 12y ago
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diego 12y ago
"When it invests in its companies, Y Combinator values them at US$1.7 million, of which each founding team owns $1.6 million. This implies that founders must earn substantially more than $100,000 per year" I have no idea how/why the author makes that leap.
- aashaykumar92 12y ago
  Yeah I saw that as a pretty glaring mistake too. I'm guessing he thinks that because the founding team is valued at $1.7M, they actually get $1.6M to spend but I can't believe that to be true at all. From what I know, YC companies receive $120K to spend.
- jiggy2011 12y ago
  I thought YC used convertible notes?
  - bri3d 12y ago
    YC uses this, as of recently: http://ycombinator.com/safe/ http://ycombinator.com/safe/ Previously they did use convertible notes, I believe.
- theduffman 12y ago
  Thanks - I clarified it so that it makes clear that this is talking about equity and not cash. The idea is that YC must make a large return on their $120k and so your $1.6m will end up being worth a lot more than that too - eventually. This is rough because it depends what financing device they use.
nutjob123 12y ago
My takeaway, the pie chart makes it look like %50 of Y Combinator companies from 05-09 were essentially failures. Either dying or selling for less than $5M. On the upside there were a few home runs which essentially made up most of the fund value. I would like to know how these results compare with those of a traditional VC firm.
- JustinRubin 12y ago
  It would also be interesting to compare to the first five years (or founding to present if younger) of other startup accelerators that exist, like Techstars or DreamIt.
- ma2rten 12y ago
  Unless it is a seed fund, because traditional VCs invest later they will have less misses.
- nedwin 12y ago
  In the latest episode of EconTalk Marc Andreesson frequently mentions that half their investments fail. The half that succeed make up for the ones that fail. Check it out here, it is awesome: http://www.econtalk.org/archives/2014/05/marc_andreessen.html http://www.econtalk.org/archives/2014/05/marc_andreessen.htm...
sillysaurus3 12y ago
On average, founders from the first five years of Y Combinator are now worth US$18 million after 5-9 years, giving past average earnings of US$2.5 million per year The total earnings of all Y Combinator founders is around US$9 billion and so the average founding team is worth US$14 million. Why is the piece talking about averages, when wealth is distributed as a power curve? Talking about average this-or-that gives you almost no insight about the real state of affairs. Both sentences might be true, but not useful. The YC homepage does a pretty good job of showing off the incredible value you get by being a YC founder. Trying to quantize that value into dollars might not be a good idea. EDIT: To expand a little more, YC has to be an incredible value. They must offer so much more value than a traditional employer in order to get most people seriously considering whether to do it. YC's biggest competitor is the cushy office job. "The office job" is undoubtedly responsible for removing the vast majority of potential YC applicants, so YC must continue to be a way better deal. I suspect YC's second biggest competitor is the lover. Falling in love is pretty common, and you tend to lose perspective about the rest of your life in comparison to what you have now. So, it's really as simple as that: Being a part of YC is valuable because it has to be.
- bcx 12y ago
  I agree, I am not sure there is really that much interesting in this article. I'd love to have the author re-write it looking at the distribution, rather than averaging in returns for the top companies which makes up less than 1% of YC companies.
  - larrys 12y ago
    It would be interesting (but unfortunately not practical or possible) to have two groups. Members of both groups are accepted to YC but then randomly selected as to who actually goes with YC or not. [1] Of course just knowing that you have been accepted to YC (or telling others) would no doubt skew any outcome. Just like knowing you were accepted to "a Harvard" and/or telling people you were will skew how you are perceived. That said there certainly could be a study (sans the halo effect) done of startups, as a group that applied but were rejected by YC vs. those that were accepted. Sounds like something that mattermark could potentially take on. Or maybe priceonomics in a blog post. [1] Then, years later, compare outcomes.
deleted 12y ago
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deleted 12y ago
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kenrikm 12y ago
Lies, damned lies, and statistics.. Talking about averages on data that looks more like a hockey stick chart (even if you exclude the outliers like DropBox and AirBnB) is not going to yield very accurate numbers.
- scrafty 12y ago
  Did you read the whole article? The author acknowledges that point more than once.
tslathrow 12y ago
You guys should organize. YC Founders Union. Obviously shortened to YCFU.
yeukhon 12y ago
Is it just me or do people feel confused after reading this article? I thought this article was after people like Paul Graham, investors of Y Combinator. > if you can get into Y Combinator, how much will you earn? We then > Y Combinator recently increased their standard investment to US$120,000, valuing each company at US$1.7 million, of which each founding team owns $1.6 million10. I personally would call people who came up with the idea founders. People who invested the startup are investors (or managers of capital ventures). Furthermore, earning !== net worth or valuation Until you sold the company or until you start making big profit like Google does, the numbers present in the article are just pure numbers. The citations are bad. You called them references? Things like "~US$1.7 million / ~2.2 cofounders / ~7 years = ~104 million." are not even references; they are in-line page note. You don't put that under references! The one that requires references like "This is from AirBnB, Dropbox and a handful of others." doesn't have proper citation. The last thing is the font CSS style on the page. Seriously, don't go fancy. I almost go blind trying to understand the article three times. Seriously, I haven't rant so much lately but I really want to find out how much they earn instead the article provides little useful information, is confusing, not professionally written, and is published with horrible font style.
- kkotak 12y ago
  Yes, I felt the same. In many ways, I'm more interested in how the YC group is organized and how they make money.
orky56 12y ago
The way the author is calculating "earnings per year" is by backward-looking from a valuation, which obviously has many holes. 1) Valuation != Liquidity. Even if your company is worth millions and your share is also worth millions, until you have exited you are not going to see much or any of that. Even when you do exit, vesting schedules and taxes make that number much different. 2) Earnings != Salary. If you make a certain amount at exit, that doesn't mean you were being paid an annuity in prior years. As stated in the article, with angel investment 50k salary and with VC 100k. You're still a founder making a salary less than you would in industry, which this article should point out to benchmark things a bit. It's a tough question to answer and the author is taking a bold step to try and tackle it. However, better methods can and should be used to paint a more realistic picture of what founders earn in the moment rather than being optimistic and backward looking.
- BenjaminTodd 12y ago
  That's a good point - most of the compensation is in equity, which is non-liquid, which makes it significantly less valuable than salary.
coherentpony 12y ago
The pie chart is really misleading. It'd be nice to see number of companies as a function of operating income.
mwetzler 12y ago
The piece starts out by very nicely warning us about the THREE HUGE OUTLIERS but then, surprisingly, doesn't take them out of the remaining analysis. (Well, they sort of do in the "founders that didn't win" part). Would be useful & interesting to see the bulleted stats list in the first paragraph with averages & medians (with and without the 3 big successes).
- theduffman 12y ago
  Yes, unfortunately the data is most solid on the successes because their valuations are public information whereas the figures are more shakey with the smaller companies, and creating an estimate that subtracts the outliers is pretty flimsy. Our best guess is that 78% of the earnings are in the top three companies gives a general idea of the kind of adjustment you'd have to make.

113 points by theduffman 12y ago

deleted 12y ago

[deleted]

diego 12y ago

"When it invests in its companies, Y Combinator values them at US$1.7 million, of which each founding team owns $1.6 million. This implies that founders must earn substantially more than $100,000 per year" I have no idea how/why the author makes that leap.

aashaykumar92 12y ago
Yeah I saw that as a pretty glaring mistake too. I'm guessing he thinks that because the founding team is valued at $1.7M, they actually get $1.6M to spend but I can't believe that to be true at all. From what I know, YC companies receive $120K to spend.
jiggy2011 12y ago
I thought YC used convertible notes?
- bri3d 12y ago
  YC uses this, as of recently: http://ycombinator.com/safe/ http://ycombinator.com/safe/ Previously they did use convertible notes, I believe.
theduffman 12y ago
Thanks - I clarified it so that it makes clear that this is talking about equity and not cash. The idea is that YC must make a large return on their $120k and so your $1.6m will end up being worth a lot more than that too - eventually. This is rough because it depends what financing device they use.

nutjob123 12y ago

My takeaway, the pie chart makes it look like %50 of Y Combinator companies from 05-09 were essentially failures. Either dying or selling for less than $5M. On the upside there were a few home runs which essentially made up most of the fund value. I would like to know how these results compare with those of a traditional VC firm.

JustinRubin 12y ago
It would also be interesting to compare to the first five years (or founding to present if younger) of other startup accelerators that exist, like Techstars or DreamIt.
ma2rten 12y ago
Unless it is a seed fund, because traditional VCs invest later they will have less misses.
nedwin 12y ago
In the latest episode of EconTalk Marc Andreesson frequently mentions that half their investments fail. The half that succeed make up for the ones that fail. Check it out here, it is awesome: http://www.econtalk.org/archives/2014/05/marc_andreessen.html http://www.econtalk.org/archives/2014/05/marc_andreessen.htm...

sillysaurus3 12y ago

On average, founders from the first five years of Y Combinator are now worth US$18 million after 5-9 years, giving past average earnings of US$2.5 million per year The total earnings of all Y Combinator founders is around US$9 billion and so the average founding team is worth US$14 million. Why is the piece talking about averages, when wealth is distributed as a power curve? Talking about average this-or-that gives you almost no insight about the real state of affairs. Both sentences might be true, but not useful. The YC homepage does a pretty good job of showing off the incredible value you get by being a YC founder. Trying to quantize that value into dollars might not be a good idea. EDIT: To expand a little more, YC has to be an incredible value. They must offer so much more value than a traditional employer in order to get most people seriously considering whether to do it. YC's biggest competitor is the cushy office job. "The office job" is undoubtedly responsible for removing the vast majority of potential YC applicants, so YC must continue to be a way better deal. I suspect YC's second biggest competitor is the lover. Falling in love is pretty common, and you tend to lose perspective about the rest of your life in comparison to what you have now. So, it's really as simple as that: Being a part of YC is valuable because it has to be.

bcx 12y ago
I agree, I am not sure there is really that much interesting in this article. I'd love to have the author re-write it looking at the distribution, rather than averaging in returns for the top companies which makes up less than 1% of YC companies.
- larrys 12y ago
  It would be interesting (but unfortunately not practical or possible) to have two groups. Members of both groups are accepted to YC but then randomly selected as to who actually goes with YC or not. [1] Of course just knowing that you have been accepted to YC (or telling others) would no doubt skew any outcome. Just like knowing you were accepted to "a Harvard" and/or telling people you were will skew how you are perceived. That said there certainly could be a study (sans the halo effect) done of startups, as a group that applied but were rejected by YC vs. those that were accepted. Sounds like something that mattermark could potentially take on. Or maybe priceonomics in a blog post. [1] Then, years later, compare outcomes.

deleted 12y ago

[deleted]

deleted 12y ago

[deleted]

kenrikm 12y ago

Lies, damned lies, and statistics.. Talking about averages on data that looks more like a hockey stick chart (even if you exclude the outliers like DropBox and AirBnB) is not going to yield very accurate numbers.

scrafty 12y ago
Did you read the whole article? The author acknowledges that point more than once.

tslathrow 12y ago

You guys should organize. YC Founders Union. Obviously shortened to YCFU.

yeukhon 12y ago

Is it just me or do people feel confused after reading this article? I thought this article was after people like Paul Graham, investors of Y Combinator. > if you can get into Y Combinator, how much will you earn? We then > Y Combinator recently increased their standard investment to US$120,000, valuing each company at US$1.7 million, of which each founding team owns $1.6 million10. I personally would call people who came up with the idea founders. People who invested the startup are investors (or managers of capital ventures). Furthermore, earning !== net worth or valuation Until you sold the company or until you start making big profit like Google does, the numbers present in the article are just pure numbers. The citations are bad. You called them references? Things like "~US$1.7 million / ~2.2 cofounders / ~7 years = ~104 million." are not even references; they are in-line page note. You don't put that under references! The one that requires references like "This is from AirBnB, Dropbox and a handful of others." doesn't have proper citation. The last thing is the font CSS style on the page. Seriously, don't go fancy. I almost go blind trying to understand the article three times. Seriously, I haven't rant so much lately but I really want to find out how much they earn instead the article provides little useful information, is confusing, not professionally written, and is published with horrible font style.

kkotak 12y ago
Yes, I felt the same. In many ways, I'm more interested in how the YC group is organized and how they make money.

orky56 12y ago

The way the author is calculating "earnings per year" is by backward-looking from a valuation, which obviously has many holes. 1) Valuation != Liquidity. Even if your company is worth millions and your share is also worth millions, until you have exited you are not going to see much or any of that. Even when you do exit, vesting schedules and taxes make that number much different. 2) Earnings != Salary. If you make a certain amount at exit, that doesn't mean you were being paid an annuity in prior years. As stated in the article, with angel investment 50k salary and with VC 100k. You're still a founder making a salary less than you would in industry, which this article should point out to benchmark things a bit. It's a tough question to answer and the author is taking a bold step to try and tackle it. However, better methods can and should be used to paint a more realistic picture of what founders earn in the moment rather than being optimistic and backward looking.

BenjaminTodd 12y ago
That's a good point - most of the compensation is in equity, which is non-liquid, which makes it significantly less valuable than salary.

coherentpony 12y ago

The pie chart is really misleading. It'd be nice to see number of companies as a function of operating income.

mwetzler 12y ago

The piece starts out by very nicely warning us about the THREE HUGE OUTLIERS but then, surprisingly, doesn't take them out of the remaining analysis. (Well, they sort of do in the "founders that didn't win" part). Would be useful & interesting to see the bulleted stats list in the first paragraph with averages & medians (with and without the 3 big successes).

theduffman 12y ago
Yes, unfortunately the data is most solid on the successes because their valuations are public information whereas the figures are more shakey with the smaller companies, and creating an estimate that subtracts the outliers is pretty flimsy. Our best guess is that 78% of the earnings are in the top three companies gives a general idea of the kind of adjustment you'd have to make.