

YC has just closed a new $8.25 million fund - pc
http://ycombinator.posterous.com/yc-has-just-closed-a-new-825-million-fund

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staunch
I'm hoping we'll eventually see some experimentation with the model, now that
they have more money to work with.

I've always believed there's room for a YC-like company to do slightly bigger
investments. Instead of $17k for 2 founders, it would be $80k for 2 founders.
That way they could attract people with higher cost of living/high paying jobs
(who would hopefully tend to be more successful due to more
experience/connections/stability)

~~~
pg
Actually given an incremental dollar to invest I'd always prefer to expand
sideways rather than depthwise. It's much more interesting to fund a whole new
startup than to give more money to an existing one.

Plus the startups themselves don't need that as much; there are already lots
of investors ready to give the next $100k to startups we seed.

~~~
staunch
The idea would be to get all the awesome 100k/yr+ hackers with
mortgages/families to try their hand at a startup. Their current options are
1) Risk their marriage/mortgage/savings by quitting their day job. 2) Build up
traction on the side of their day job.

Most people won't do #1 and #2 makes failure much more likely. If _some_ of
these people are significantly more likely to succeed (my theory) it would
make sense to invest more on one of these.

~~~
pg
Another way (and perhaps the optimal way) to mitigate your risk is to join an
existing startup early on, which we're also trying to make easier for hackers
to do:

<http://workatastartup.org>

As I pointed out in another thread, you can titrate the amount of startupness
you want by the age of the company you join.

~~~
benmathes
The value proposition for not-quite-founders when you compare your market-rate
salary vs. a startup-salary + equity tends to drop steeply. I don't have data,
but from my own anecdotal experience you'll probably take around a 20-25k _per
year_ salary cut for 0.1% - 0.5% in _options_ if you take a position at a
series-A to Series-C funded startup.

This economic situation is really a kind of hybrid of full-salary and
apprenticeship, where you're partially compensated in startup experience. I'm
doing it now so I can learn the ropes of an early-stage startup while paying
off my student loans. But long term I suspect your EV is better as a founder
or cash-compensated so long as you properly invest your cash compensation.

<only-marginally-realistic rant>

Even better is to be one of those VP's who come in during Series C at an
already-successful company and somehow make a market-salary and get 10%+ in
equity. You know, the fuckers in suits who come in and do nothing.

</only-marginally-realistic rant>

~~~
pg
Risk and reward tend to be correlated, at least in efficient markets. And
since there are so many startups to choose from, all desperate to get
programmers, there's a reasonable hope of getting market price for your risk.

The startups presenting at Workatastartup range from established companies 5
years old to startups from the most recent YC cycle that are currently run by
single founders and are looking for people to be _de facto_ cofounders, in
every sense including equity.

~~~
benmathes
Fundamentally I think startups overvalue the risk of coming up with a product
vision and undervalue the risk of executing on that vision. It's arguable
harder and more risky to go from _"lets make a social network"_ to the entire
product that is Facebook, and a majority of the people that bridge that gap
get _relatively_ shafted on equity.

As to your point about joining a post-YC company, employees #1-#5 are
generally defacto cofounders and are often given similar equity. I'm not
disputing that. I'm talking more about (roughly) employees #6 -> #30. At that
point you have a product vision, but no concrete product. _Since the major
work of a startup is discovering the details of what to build, a majority of
the work isn't done yet, and the real risk hasn't been mediated_. However, a
majority of the equity has already been passed around.

The risk and reward are certainly correlated. To say for certain you'd need a
rather complex economic analysis that factors in opportunity costs to really
say what the monetary sweet-spot is on the founder<->enterprise-employee
spectrum. My suspicion is that the startup talent market isn't very efficient;
As an industry we haven't really found a good way to judge technical skill
other than working alongside someone for months. This hurdle means all the
good jobs come via social connections. All the good positions are taken by the
founder's network, and all the great devs already have a good gig.

~~~
patio11
_My suspicion is that the startup talent market isn't very efficient_

I think this is true of the hiring market in general. "You made $80k at your
last job as a senior developer? Super. Alright, we have to ask: FizzBuzz. Can
you do it?"

 _shudder_

~~~
smanek
I hate to say it, but I've interviewed a 'senior devs' who made six figures
before who couldn't do fizz buzzish problems in any language of their choice
(and many more who took >15min to do so ...)

What's the harm in asking if it's a quick and simple discriminator?

~~~
patio11
My apologies for being imprecise: I was shuddering because I know that that
question needs to be asked, not because I find it insulting.

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bkrausz
That should keep YC going practically indefinitely :).

Assuming the data at
[http://spreadsheets.google.com/ccc?key=0AkkhSN3vaY4jdF90b1l1...](http://spreadsheets.google.com/ccc?key=0AkkhSN3vaY4jdF90b1l1Vnl5NmZjaTBNQWlJYVozMEE&hl=en)
is complete. And assuming a $17k investment for 6% from all the companies who
have exited (I know, big assumptions):

    
    
      207 investments @ $17k is $3.5m
      13 exits @ $69m total is $4.1m for YC
    

That means that YC is probably close to breaking even already, plus they have
all their equity in a ton of successful companies that haven't exited yet.

I don't know much about investing, but at this rate $8.25m should keep them
going for quite some time.

~~~
joshu
Funds don't generally work that way. They return the investment to the
investors. When the money is done they raise a new fund.

(This isn't absolute. There are evergreen funds that have the returns go back
into the fund.)

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abstractbill
Congrats pg, jl, tlb and rtm! 70 startups per year is an amazing number - how
long before YC is involved in practically every startup in Silicon Valley?

~~~
pg
I couldn't resist calculating the answer to your rhetorical question. It
depends how many startups get started each year in SV of course. If the answer
is 1000 and we continue to expand at 1/3 per year, then 12 more years. But
since we could never get _all_ the startups, what this calculation really
proves is that our growth rate is going to have to slow down at some point
within the next 12 years.

Unless of course there start to be a lot more startups, which is a real
possibility.

But it's alarming to think what sort of monstrosity we'd have to evolve into
in order to fund 1000 startups a year.

[http://upload.wikimedia.org/wikipedia/commons/b/b7/B-24_Libe...](http://upload.wikimedia.org/wikipedia/commons/b/b7/B-24_Liberator_Consolidated-
Vultee_Plant,_Forth_Worth_Texas.jpg)

I doubt I'd want to run it.

~~~
MaysonL
You won't have to. Your alumni network will do it. A more interesting
question: how long will it be before YC, or its alumni, are involved in a
majority of SV startups?

~~~
pg
Hmm, interesting question, but so much harder to calculate, however bogusly.
Paradoxically enough, the answer there would be the fewer, the better, because
the spread of YC alumni to companies they didn't found tends to happen through
startups dying or getting acquired in small, early acquisitions. Ideally all
the startups we funded would go public and the founders would still be working
for them 10 years later, like Larry & Sergey are. In that ideal scenario the
number YC alumni were involved with would reduce to the number we funded.

~~~
philwelch
What about the case where successful YC alums become angel investors in their
own right?

~~~
pg
That already happens. The Reddits and Zenters have made angel investments in
later YC funded companies. They make great investors. They're completely
trustworthy, because they're all part of the network, and they understand the
founders' situation better than any other investor could.

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tansey
Coming from the hedge fund world, $8.25M seems so small. It's amazing how much
it can fund.

What are the requirements for becoming part of the next YC round?

Do you have to know someone already involved with YC?

Does YC only accept investors who are successful tech entrepreneurs?

What about people who have the money through other means and are tech savvy?

Can investors send a proxy who is qualified at helping out?

~~~
pg
Basically, we just ask our friends, who mostly turn out to be hackers.

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jazzychad
Posterous's removal of decimal points from titles makes for an interesting
permalink :)

~~~
pg
I noticed that when I sent the link to the YC partners. It was interesting how
horrifying it seemed.

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sadiq
I'm wondering, will YC's current setup scale with the increase in numbers? As
in, will new YC companies have less time with staff, etc..?

How do you plan to cope with this?

~~~
pg
I think the reason people are surprised that we fund so many startups compared
to other YC-like organizations is that I work full time on this, whereas at
nearly all (perhaps all) the others, the startups are advised by a consortium
of people doing it part time. When you're doing it full time, it's no problem
to advise, say, 25 new startups at once. At least once you have some practice.

Earlier this year we hired Harj Taggar who also works full time advising
startups. Since this kind of work scales nearly linearly, we're about as busy
as one person would be advising 18, which was no problem at all.

~~~
netcan
Any idea what you would need to do differently to fund, say, 250?

~~~
pg
That is a type of question we think about a lot. But we know that our guesses
are likely to be pretty bogus. We approach scaling YC the way you would
approach scaling software. And the way scaling works is that you can never be
sure what the bottlenecks are, or how you're going to get around them, till
you hit them.

So it's interesting to speculate about, but not useful except in a mind-
opening way.

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rewind
Perfect timing -- I was just finishing my 93-page business plan and the last
line of my nine pages of Excel spreadsheets told me I needed $8.25 million.
I'm definitely applying for the next round.

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paraschopra
You can definitely fund more startups but as you admit yourself, the startups
you fund don't give up equity for money. They give up equity for your
guidance, network and the whole ethos of the program.

Scaling up the YC experience would be an interesting challenge.

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gcv
_The previous YC funding cycle, winter 2010, had 27 startups. Already 20 of
them (74%) are either profitable or have commitments for further funding._

That's amazing. Congratulations.

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johnrob
8.25 million / 20 K per startup = 412.5 startups!

~~~
pg
Sadly, you are forgetting our operating expenses. We calculate it will fund
around 240.

~~~
kapitti
That's a pretty steep management fee.

~~~
pg
As a percentage, but not as an absolute number. YC is actually run very
cheaply, but the amounts we invest are so small that any expenses seem high in
comparison.

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henning
The way I see it, there's no way to show confidence in the future like putting
your own money up. This is great even for people not affiliated with YC, its
partners, or YC-funded startups.

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jagjit
It is very heartening to know that many YC winter 2010 startups are already
profitable.

Is more information available on profitable YC companies so far? And how they
got to cash flow positive.

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andrewhyde
Congratulations! Can't wait to see the new classes and what they do to evolve
the web.

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daniel-cussen
Is it possible to defer YC?

~~~
pg
We don't have a policy about it. No one has ever wanted to. We do sometimes
defer interviews.

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OoTheNigerian
pg, is there any possibility of expanding YC outside the US?

