

YC Investment Policy and Email List - austenallred
http://blog.ycombinator.com/yc-investment-policy-and-email-list

======
OmarIsmail
Sam seems to be one of the best things that's happened to YC - and extra kudos
to pg for recognizing that and working so hard to grab him.

The most important piece of this write up is concerning the rules for being
part of the investor email list. This takes what was previously an informal
rule (don't mess with YC companies) to a much more formalized rule. Every
decent investor is going to want to be on this email list which means they are
very clearly and explicitly incentivized to not screw a YC company.

This will hopefully not just have a positive impact on YC companies. What I
hope is that the idea of what "screwing" a company means will get further
standardized which will have a positive impact on every startup around the
world. i.e. a very good filter may simply be "are you on the YC list?"

~~~
donw
Agreed. The other big news here is that they're leveling the playing field a
bit, by moving away from LP (or LP-like) relationships with a collection of VC
firms.

Smart and classy move.

~~~
lifeisstillgood
It strikes me that while it less unlevel (if that's a word) the playing field
is still skewed. I have occasionally assumed that YC companies would be amount
the first to use crowd-funding for their early and Series A rounds.

(About a year ago there was a lot of interest in new rules allowing small
investors to get more easily fleeced / access to startups and YC seemed that
sort of "Brand" I would trust in that area)

So yes a more level playing field for professional investors but still opaque
for spreading the wealth around once the great hollowing out takes hold.

(Before my socialist underpinnings are revealed I want to point out I welcome
this - YC seems in good hands - I was just interested now they moved slightly
in one direction, I want to see more movement !)

~~~
rattray
You might be somewhat interested in FundersClub, a YC company which has helped
fund other YC companies. FundersClub does limit membership to "Accredited
Investors" (rich people), but I don't believe they take steps to verify
whether you qualify for this. They got their start before the new rules you
mentioned, so that limitation may change soon.

(CrowdTilt, which IMO democratizes crowdfunding better than Kickstarter does,
is also a YC company).

On a separate note, I personally think that "microbonds" would be a better
model for the general public to invest in small companies for whom
presales/crowdfunding don't work, as equity actually _is_ hard for the average
person to really grok.

~~~
lifeisstillgood
Is a person who does not understand equities really the sort of person who
should invest in them?

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austenallred
It's crazy that this is even an issue. Investors fighting over YC companies to
the extent that YC has to play politics to make sure everyone is getting a
fair shot; that's pretty insane.

The accelerator I participated in had relatively open doors and investors who
came to everything from office hours to pitch practice. We ended up taking
money from one of the most involved investors first, (and left some who really
wanted to participate out) but the group of investors who didn't get in on the
deal said, "Well it's fair if they want to put that much time and effort into
it; we're not willing to do that."

It is, however, a major signal; if the guys who know you intimately well don't
want to invest, could cause other investors to be cautious/skeptical, which
isn't fair to the companies that don't get an investment from the YC partners.

~~~
akbar501
> It's crazy that this is even an issue.

Agreed.

"Investors fighting over YC companies" also shows that there is insufficient
high-quality deal flow (real or perceived). Stated another way, there is a
supply/demand imbalance for high-quality deal flow. While hard to tap, there's
an opportunity for creating/finding/aggregating high-quality startups.

Obviously, replicating YC has been tried, so a real solution likely requires
some innovative approach that I can't currently think of. But, if I'd bet on a
company that creates a solution because there is clearly high demand from
willing and able buyers.

~~~
jacquesm
It's much simpler than that. YC is a stamp-of-approval, and there is a very
large amount of money available for pre-vetted deals because this
substantially improves the chances VCs have for a return on their investment.

So the YC advantage is what creates this scarcity, and that's rapidly starting
to exhibit network effects and this is one of those.

The 'classes' model is a stroke of genius, it reduces the question of whether
or not an investment is a good one to is this investment a good one against
the backdrop of a whole pile of possible investments. That question in
isolation is _much_ harder to answer than the question with a lot of material
around it to compare against.

~~~
akbar501
Good points.

> there is a very large amount of money available for pre-vetted deals

This is part of the point I was making. Which is that there is an obvious
opportunity for a company to come along and commercialize this demand. I'm not
saying it's easy, just that it would be lucrative. More specifically, the
demand volume far exceeds the amount of supply that YC or any single
organization can produce. YC is benefiting from the demand b/c they produce a
high quality product (pre-vetted startups). However, the demand would exist
with or without YC...just that without YC the supply/demand imbalance would be
worse.

If YC could double its output while maintaining quality, or if a 2nd
organization/company comes along and creates high-quality, pre-vetted startup
supply then they too will enjoy high demand.

~~~
jacquesm
You're missing one crucial bit I think. The vetting is the hard part. And YC
has that down to an art form, they've crunched the numbers on thousands of
applications, have built up a large network of alumni who are very smart
individually and scary smart collectively.

This is one very tough act to follow. Not that that should stop you from
trying.

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borski
This may get downvoted, but I hope not, as it's a genuine question:

Why not just use AngelList? They do a lot of curation, you can have custom
groups (I'm sure Naval would set it up), and there are already reviews and
qualification of investors, big and small. Rather than having a totally
separate list, why not leverage AngelList's network and also benefit from the
increased awareness/signaling of being able to state someone is invested and
share among their network?

~~~
blazespin
Angel list is the equivalent of self publishing. YC is like going to a
publisher who separates the wheat from the chaff. You also really open the
kimono to a bunch of unknowns on AngelList.

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jimmyfalcon
I am very surprized by this statement:

"In general, we don’t start introducing startups to investors until a maximum
of 10 days before Demo Day"

I know for a fact that accelerators like TechStars start introducing startups
to investors 4 weeks into the program. They actually have groups of investors
come in and talk to the startups. Although, they don't talk about investments,
but everyone knows there is a vetting element in there.

Accelerators are very different nowadays from what its roots. Many YC
companies (as well as TechStars companies) come into the program with
significant traction. (See note)

I always had the expectation that accelerators are about helping young
startups to figure out what they do. Although the reality is that they are all
fund raising bootcamps to help startups that already know what they do to
raise their round easily.

I am curious to hear YC founders on their thoughts of accelerators,
especially, the traction you have or your peers already had before YC.

Note: e.g. Memebox - YC company was already on 1.5 million runrate before
entering into the program and have already raised 1+million dollars; There are
many more examples, in both YC and TechStars which I can list if anyone is
interested

~~~
d0m
>> I always had the expectation that accelerators are about helping young
startups to figure out what they do.

Not to be pedantic but I see accelerators as _accelerating_ a startup. Try to
picture something accelerating really fast, but apply that concept to a
startup. I think it's a bit of a myth that YC helps young startups figure out
what to do.. they are more about helping great startups move and grow faster.

>> I am very surprized by this statement: "In general, we don’t start
introducing startups to investors until a maximum of 10 days before Demo Day"

Simply because it's better to focus on the product and get more users before
demo day. Raising is just a way to grow faster.

>> am curious to hear YC founders on their thoughts of accelerators,
especially, the traction you have or your peers already had before YC.

Loved the experience, would do it again. We had great traction for a very
early startup.

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lpolovets
These are great changes. How does an investor get onto the email list
(assuming that the investor satisfies the membership criteria)?

~~~
JacobAldridge
I guess if you have to ask you probably haven't invested in 5 YC companies
yet...

~~~
lpolovets
My fund fits the criteria, but I don't know the YC partners personally...

~~~
JacobAldridge
Apologies if my reply came off as glib - I'm surprised (though only through my
ignorance) to learn a personal connection may not be present despite a number
of mutual connections. I guess the volume of YC companies has had that effect
over the years.

~~~
lpolovets
No worries. I think many investors know at least one YC partner, but many do
not. YC is so big these days =). Last demo day was probably ~150 founders and
maybe ~500 investors.

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god_bless_texas
I'm sure I'm stupid, but what is "signaling"?

~~~
terravion
Signaling is the idea that you can get the insight of information that is not
public yet by watching the behavior of insiders with access to the private
information.

For example if the officers and board members of a company are selling shares
in a company, they probably think the company is going to decline in value. At
the same time, they might make statements saying everything is great and
getting better, but the signal that they are selling is stronger than their
words.

~~~
7Figures2Commas
In the public equities markets, a lot of amateurs lose money making
assumptions based on lazy analyses of Form 4 filings. There are a variety of
reasons insiders sell which have absolutely nothing to do with the health of
their companies. Trying to glean meaningful and profitable insight from these
filings is a lot more difficult than you suggest.

The same dynamic applies to startup investments, particularly in the early
stages. There are any number of reasons why an investor may not make a follow-
on investment. These range from the personal finances of the investor to
conflicts that have emerged in the investor's portfolio. More importantly, at
the seed stage, even the most successful angel investors (if they're honest)
will readily admit that it's damn near impossible to tell the future winners
from the losers, and anybody who has been investing actively can tell stories
about ones that got away, so there's limited value in playing follow the
leader.

Signaling is a bigger issue in later stage financings, but there too, if you
make assumptions without digging deeper (something any good investor does),
you're bound to draw the wrong conclusions.

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sadfaceunread
Removing the signal of YC Partner investment is probably good for YC batches
as a whole.

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cperciva
_We’ll use this instead of individual introductions, where we often don’t
think of someone that would be really interested in the company._

I think I understand what this means, but it really needs to be reworded. It
could be interpreted as either "We'll use this instead of individual
introductions (which often have the property of unintentionally missing
people)", which I think is the intended meaning, or "We'll use this instead of
individual introductions when we don't think anyone will be really
interested", which would be a very bad misinterpretation.

------
gadders
"The rules for membership are simple—5 total investments in YC companies of
any size or 2 big ones, a positive reputation among our alumni, and no history
of bad behavior like breaking term sheets without great cause, pressuring
founders into advisor shares in addition to an investment alongside others in
a round, etc."

Or being a pervert/sex pest.

