
Stanford, Michael Bloomberg Now Back Every Y Combinator Startup - cryptoz
http://blogs.wsj.com/digits/2015/10/15/stanford-michael-bloomberg-now-back-every-y-combinator-startup/
======
Animats
Stanford is really an investment fund that runs a school on the side for the
tax break. This started in 1991, when Stanford spun off their endowment
management as the Stanford Management Company.[1] SMC's headquarters was on
Sand Hill Road, across from all the VCs. This ended up putting Stanford into
venture capital in a big way.

This was new. Before that, universities tended to put their endowments into
passive investments - real estate, stocks, and bonds. Investing in startups
worked out very well for Stanford. Stanford had pre-IPO stock in Cisco, Yahoo,
Google... They have money in various VC funds. Buying into YCombinator is
consistent with that investing approach.

As SMC became more powerful, executives from SMC started moving into positions
in the university itself. SMC moved its HQ onto the main campus. Not clear
where this will end; we'll have to see who replaces Henessey as president.

[1] [http://www.smc.stanford.edu/](http://www.smc.stanford.edu/)

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nrao123
Stanford did not pioneer investments in alternative assets classes (VC/PE
etc...) Robert Swenson of the Yale endowment fund was much earlier than that.
It also became known as the "Yale Model"

===

 _For the two decades after Swensen took over as manager of Yale’s endowment
in 1985 (just five years after he’d gotten his economics Ph.D at Yale), this
worked spectacularly well — with a 16.1% annualized return compared with 12.3%
for the S &P 500 and a remarkable record of sailing through stock market
downturns that pummeled most other institutional investors.

[https://hbr.org/2010/04/why-the-yale-model-of-
investin/](https://hbr.org/2010/04/why-the-yale-model-of-investin/) _

===

 _The prevalence of Swensen acolytes in leadership posts highlights how
dominant the Yale investment model has become among major U.S. universities.
Colleges and universities ended 2014 with 51% of their portfolios invested in
less-traditional fare like hedge funds, private equity and real estate that
Yale favors—nearly double the allocation to those investments in 2001,
according to annual surveys done by Nacubo and Commonfund.

[http://www.wsj.com/articles/universities-look-to-yale-for-
in...](http://www.wsj.com/articles/universities-look-to-yale-for-investment-
managers-1430299801) _

===

 _Swensen’s idea, implemented at Yale and copied nationwide, was that
universities should shift their endowment money out of traditional investments
such as stocks and bonds and into higher-yielding ones like private equity,
hedge funds, and real estate. The Yale model, as it came to be known,
perennially outperformed stodgier strategies, gaining Swensen gurulike
adulation.

[http://upstart.bizjournals.com/executives/2009/03/18/David-S...](http://upstart.bizjournals.com/executives/2009/03/18/David-
Swensen-and-the-Yale-Model.html?page=all) _

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beambot
You know what would be really awesome / disruptive / game-changing? If YC
funded the program via crowdfunding (eg. JOBS Act) monies so that normal peons
(sorry, "non accredited investors") could realize gains from a fund of early
startups while effectively locking out all these institutional investors.

This would be a real coup for people who believe in Basic or Guaranteed
Minimum Income [1], like Sama.

[1] [http://blog.samaltman.com/technology-and-wealth-
inequality](http://blog.samaltman.com/technology-and-wealth-inequality)

~~~
iheartmemcache
Eh, it might be a good idea for the small population of tech savvy investors
in Silicon Valley who make 6 figures and work within the industry so they can
make informed decisions. But the whole SEC regulatory dictum that allows only
accredited investors (accreditation based on annual income and net worth, not
passing a Series 7 test or what not) can invest in certain forms of securities
is a good thing.

Imagine if Joe Schmo reads an article on the home page of the tech section of
"his Yahoo" about this new investment vehicle, decided to put all of his 401k
money that as safely placed in low-load index funds into a YC fund that didn't
particularly do so well when the fund finally matured and he cashed out. I've
seen people pissed off at losing 10 bucks on Kickstarter prototypes-- imagine
how pissed off Joe would be that he lost 200k because he wanted to "get in on
this Web 3.0 stuff".

Those accredited investors regulations do more good than harm mostly because
people in aggregate are greedy and don't read prospectus' in their entirety.
Most people didn't even read their mortgages in 2007 (or now for that matter,
even after the systemic ..situation of 2008), look what happened there.

If you're living in SF and married to someone in tech, odds are you make
enough to qualify as an accredited investor anyways-- the per annum barrier is
pretty low.

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skellington
No it is not a good idea.

The whole "we're protecting you" argument is a line of garbage intended to
sway meatheads into thinking that being denied access to ownership and
prosperity is a good thing. That these these opportunities should only be
given to already wealthy people and that the peons are too stupid to
understand concepts like "this is pretty risky, you'll probably lose it all,
but if it hits you might make a bundle."

In the meantime, the lobbyist for every other way to lose your shirt have made
sure that all the doors are open to everyone. The poor little peons too stupid
to understand if Facebook might have been a good risk are still able to: blow
all their money in Vegas, invest in penny stocks, buy Apple at a top and sell
at a bottom, buy a virtual spaceship for $10K, buy a house with maximum
leverage into a bubbly market, have $100K in credit card and vehicle debt, and
on and on. There are a million ways to shoot yourself in the foot and they are
all perfectly fine, but if you want to put $1000 into Google pre-IPO then WHOA
we gotta protect you from that!

I don't know what world you live in, but the accreditation barrier limits
investors to the top 1-2% of the US. Very few people make $200K/yr single,
$300K/yr married. Plus they changed the net worth provision to exclude home
value. How many people do you think there are that have $1M net worth
exclusive of their house?

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pbreit
"Y Combinator has struggled to hold on to its founder-friendly mentality"

This assertion wasn't backed up by much and it's not my impression.

~~~
anonbanker
let's pretend it's a TV show. Y Combinator is Blues Clues. pg was Steve. we're
currently in the first part of the Joe Era. Joe was actually better than Steve
in many ways[1], but he just isn't Steve, and everyone, including the
audience, is trying not to notice, because yay, new Blue's Clues.

Now, when it fully pivots into Blue's Room, run.

[1] ways that don't include Steven Drozd.

~~~
pbreit
I didn't understand a word you just wrote.

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gameshot911
>Each startup that goes through the three-month program now receives$120,000
in cash — $20,000 from Y Combinator, plus $100,000 from the outside investors
– in exchange for 7% equity in their company.

$120k for 7% in a company!? Is that really a favorable term to startups?
There's __no way __I would __ever __, EVER sell 7% of my company for a such a
small sum. Who would sell out their passion for such a pittance?

It's very possible I'm missing something here, because my impression is that
YC truly tries to act as a partner with founders. I just can't see giving a go
at a startup - with all that entails - for an idea I believe is worth only
$1.7M (even at the nascent stage).

~~~
vessenes
You are wrong. So, so, wrong.

If you were allowed to, the best thing you could possibly do for your early
stage company would be to go take $100,000, nay $500,000 plus 30% of your
stock and give it to Paul Graham in exchange for being let in to YC.

It's not just the education you get, nor the peer pressure of being in a
'class' with other companies, it's also the social cache, the network of other
YC funders, the access to investors, and lately, the benefits of YC punishing
investors who treat their portfolio companies badly.

Good/Great investors are all people you would always pay to have on your
board, and gunning for your company. The money they give you helps keep the
lights on and grow, but it's really a proxy for getting (and holding) their
attention and focus on what you need to succeed.

~~~
jacquesm
The big draw of YC to me seems to be the alumni network, that's the real gold
and with every class that network expands.

~~~
kristiandupont
I am wondering hos this dilutes over time though. I mean, if I was in a select
group of 100 people, I would pick up the phone if one of them rang and wanted
my help. However, as that group grows to 1000, it would be less likely and at
10.000 I would probably not bother. But maybe there are stronger ties within
the batches?

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tkinom
Love to see Stanford leverage their successful models in incubating large part
of Silicon Valley huge startup and franchise/multiple/clone into Stanford NY,
Stanford LA, HongKong, Shanghai, Bangalore, London, etc.

With large amount of the Stanford class contents already online, it is
probably just setup small local campus for testing, group study local students
and meetup.

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georgeglue1
I wonder if YC's seed investment being LP money changes the incentives/advice
on the part of the partners. (?)

~~~
jacquesm
It should not, they'll try hard not to let it make a difference (and in the
case of the Yuri Milner investments it did not as far as I can see) but it
_could_ change if decisions made in one funding round would affect their
ability to attract capital in the next.

In other words, LPs have bigger influence in follow on rounds if any of the
decisions made in the current round turn out bad for YC, but so far there is
no evidence of that as far as I can see.

It's a very interesting question though, sources of funds tend to exert
pressure on the places those funds flow to. YC has always been 'as much hands
on as you need or want' so in that respect they've been very good about
letting their portfolio companies run themselves as much as possible while
being there when needed.

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cmsmith
Thanks, I'll forward this the next time they ask for money. A shotgun approach
to investing other people's money in tech startups is fine, but drawing down
the $__B endowment in 2008-2009 to avoid salary freezes was too risky.

~~~
choppaface
Wow, any links about Stanford's position on the salary issues? Agree that
Stanford putting in so much money (more than YC!!) seems pretty wonky. Perhaps
not as bad as Larry Summers blowing billions of Harvard's money on
derivatives, though.

