
Vinod Khosla: “I Feel Sad Sometimes For YC Companies That Get So Much Hype” - salimmadjd
http://techcrunch.com/2012/09/12/vinod-khosla-y-combinator/
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pg
Well, that's a new one, that we help the startups too much with their pitches.
I suppose I should take that as a compliment, since pitches are my particular
specialty.

It's simply false though that raising money at a high valuation means you
don't get investors that help you. If anything it's the opposite; the startups
that raise at the highest valuations also tend to raise money from the best VC
funds.

~~~
pud
I make about 5 angel investments per year, several of which are YC companies.
When I'm pitched by entrepreneurs, it's because they want my help, not my
money.

Khosla may have a point. The last few deals I did were five-figure investments
at eight-figure valuations. Statistically (my small number of investments) and
mathematically (my small piece of large valuations), I'm not going to get rich
off the investments. I just do it for fun.

But there may be other folks out there like me, who feel they can help -- but
who also like the idea of making money. They might be more active if
valuations were smaller, as they were in the olden days.

This is hypothetical. But as an entrepreneur & small angel investor who isn't
backed by $1B LPs, it's hard to justify my investments from a financial
perspective. I just find 'em fun and like helping when called on. I also find
blackjack fun. (I don't really find blackjack fun, but illustrating a point.
maybe poker is a better example since there's some skill involved).

That said, PG (and team, and YC alumni) seem to do a fine job of investing
early, at low valuations, and mentoring. In other words, PG, Vinod is worried
that YC is disrupting the angel investor business. Which is kind of bad-ass.

~~~
lifeisstillgood
Forgive me if these questions are well known or answered elsewhere but I am
genuinely interested

How did you invest in some YC companies at 25k levels - was this Pre-yc
investment?

Did you come across these (and others I guess) via friends nd family, or are
you well known as an angel? (for a given value of well known)

if as your edit says you have been disrupted, where next? Or rather, if the
secret seems to be finding talented teams and mentoring them (rather than
great ideas), where will a small investor get attention when YC has worldwide
reach?

Edit: is it fair to say that mentoring and experience are all well and good
but handing over enough cash that a small company just cannot go bust (ie the
150k each YC supposedly gets) actually more useful - telling people not to do
something may help but paying for their survival while they learn the lesson
is pretty good too.

I have sometimes thought it would be a good idea for governemnts to pay young
people entrepreneur stipend - basically YC for anyone. It has to beat some of
the ways I spent my twenties, certainly must beat welfare, and probably would
make mcjobs just unbearable.

ps

thanks for doing fuckedcompany - it made not being a millionaire in 2002 seem
normal again instead of the nagging worry I had not noticed the free money
machine outside.

~~~
nostrademons
"I have sometimes thought it would be a good idea for governemnts to pay young
people entrepreneur stipend - basically YC for anyone."

I'm not sure that'd work out so well. For the folks who read Hacker News,
sure, they're probably going to be productive (or at least work hard and learn
things) if you pay their living costs. However, I know a lot of people from
high school & college who, if you paid their living costs, would play video
games, smoke weed, or bum around in front of the TV all day. Hell, a good
number of them do that already, and live off of boyfriends/parents.

~~~
lifeisstillgood
I know but ... My conjecture is that the vast majority of people, put in a
situation where they are socially, culturally expected to deliver a better
world, and given the time to do so, will.

I know it's pointlessly naive, but otherwise it's mcjobs all round.

~~~
nostrademons
They have to be given the means and direction as well. That's the main missing
ingredient: a lot of people have time and expectations, but they don't know
where to start. A lot of the people I know in this situation simply spin their
wheel in unemployment-related anxiety because they can't think of any concrete
first steps that will lead to making a better world.

------
jpdoctor
LMAO. Vinod must be going senile if he forgot the KPCB hype around Bloom
Energy.

Not to mention Segway, which was going to supplant the car like cars
supplanted horse and buggies.

And those are just the two examples that spring to mind. I'm sure I could come
up with a slew if I went back to Y2K (anybody remember the whole kereitsu
hype?)

------
kimmiller
I like to think about this criticism in the context of Twitter's recent API
pullback and push towards advertising.

When a start-up raises at a valuation that is high, most assume current owners
win and new owners lose. Yet I contend that everyone loses.

Setting a val that is too high means the profits needed to achieve a decent
return are sky high. More importantly they are different from the early
investors/founders.

How much of Twitter's recent strategy is being driven by their multi-million
dollar investors (at multi-billion vals) wanting clarity on an exit plan?
These guys put large quantums of money in and are pushing hard for dollars
back. IMHO, they'll tank the company - all because they raised too much at too
higher val.

At the end of the day it's best to have everyone in the company (post-deal)
feeling like they got a good deal. Kinda like a partner/wife - you never want
to feel like you're the one that's trading down in the relationship.

Same can happen at seed.

Disclosure: I invested in a YC company this round.

~~~
veyron
"At the end of the day it's best to have everyone in the company (post-deal)
feeling like they got a good deal. Kinda like a partner/wife - you never want
to feel like you're the one that's trading down in the relationship."

By definition someone is trading down. If the valuation is low, the company
and its people lose out on potential money. The FB approach (extreme
valuation), while discouraging most people, at least maximized value for those
that liquidated at the IPO.

------
diego
Of course Vinod Khosla has an agenda. However, I know some very smart and
helpful investors who don't do convertible notes and/or won't touch YC
companies because they think they're overpriced (I'm not one of them).

There is no one-size-fits-all for this. Some companies need certain investors
to help them, some are better off getting cheap capital. A smart entrepreneur
would decide what his/her company needs and optimize accordingly.

------
cwilson
As someone who graduated from the last class (S12) I definitely take issue
with the "too much polish" on slides comment. PG tells us many times to NOT
spend weeks making a pitch deck because it will likely change dramatically
during practice. Sure, we are coached and our pitches evolve, but this happens
over the course of a few days and we still keep our slides extremely simple
because we have 2:15 to speak.

------
zaidf
_During his TechCrunch Disrupt talk, Khosla explained that the key role of
early investors is not funding, but personal attention and guidance._

This particular criticism made me chuckle as one of my fondest memories of my
time at YC is of pg giving me advice and feedback in the yc kitchen while
preparing the evening dinner for 50+ founders.

------
joshhart
So he's complaining that YC startups won't get the guidance they need from
VCs, and hence won't be successful. But isn't that part of the model? That
they now have access to a YC network that could give them guidance and
insight? Possibly in place of VC?

------
lifeisstillgood
I remember very clearly queueing in Waterstones Old Street to buy a book on
Marimba - it had sooo much hype that even I thought I needed to get upto speed
_now_

Yes, hype is death to expectation management, but it sure beats everyone
ignoring you

this is not the fault of YC companies nor even pg. Just live with it. And keep
polishing those pitches :-)

edit : bit more positive

~~~
hnriot
Wow, it's been a while since I've thought about Marimba and their Castanet
product. Back then I was working at their competitor (of sorts,) PointCast.

Reminds me also of CriticalPath

~~~
MattGrommes
Wow, Pointcast. What a trigger for my mental Wayback Machine. I woke up to my
Pointcast feeds every morning for a long while in college, but I haven't
thought about them in years.

------
relaunched
Is this like 1st world problems for startups?

------
cwilson
Irony: A YC company just won Disrupt.

~~~
joshu
Woohoo! It's one I invested in. They fit my current investment thesis
PERFECTLY, too.

~~~
memnips
And your current investment thesis is...? :)

~~~
joshu
businesses that are rentseeking because they have a phone number or address
yet the actual work is done by a group of people who are typically independent
contractors and are paid only a small % are eminently ripe for disruption.

there are hundreds of industries like this. black car service - the drivers
are independant contractors. mechanics, too. there are many more.

------
lifeisstillgood
@pud - my apologies I seem not to be able to reply directly - I suspect I
edited my post after you replied.

Thank you for a fast reply. And at the risk of seeming rude, if you came on
board as an advisor post-YC it was clearly for experience, but how, even as
friend of friend did _you_ sell yourself to _them_ (they presumably enjoyed
demo day with VCs throwing them money so there was competiton)

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wiradikusuma
Any downloadable slick slides that can cause "so much hype that they get
valuations"? For someone who don't know how to make one, it'll be blessing.

------
markmm
He is spot on, from reading this board it seems like people think you can use
a formula to create a successful start-up, just follow YC's template and you
will soon be running a successful company. Get a co-founder,produce a slick
presentation...etc.

If your start-up is really good you should just be able to explain in in a few
sentences a swift demo and your done, and if you really believe in it then you
should not be going with X other cookie cutter start-ups to chase a few
dollars from some company with not exactly a good record.

You should have multiple investor's lined up and you should be choosing them
not the other way around.

