
Y Combinator Numbers - pg
http://ycombinator.com/nums.html
======
lionhearted
Back of napkin math:

Funding of $25,000 per startup (funding plus costs) x 210 = $5,250,000 in
funding costs. To factor other costs and be conservative, double that to $10.5
million.

YC usually takes 6% equity. Assume that's diluted in half, conservatively
again, to get 3%.

Total current valuation of 4.7 billion: $4,700,000,000 * .03 = $141,000,000

So... using all conservative numbers, YC's return has been .... $141,000,000 /
$10,500,000 = 13.4

Whoa... did I do that math right?

A return of 1340%

That's... pretty astounding. Talk about a win/win/win situation for everyone
involved... if the order of magnitudes here are even close, well, massive
congratulations to everyone involved. Wow. Wow.

~~~
redthrowaway
My problem with pg's numbers is that they are almost entirely theoretical. The
valuations don't represent anything close to liquidity, and the chances of
those companes generating anywhere near that return in real terms are slim at
best. The portfolio might be "worth" 4.7 billion, but what are the chances
they'll generate a real return anywhere close to that?

I'm not arguing against pg's methodology, as I realize it's fairly consistent
with standard practices, but the ycombinator investors are nowhere near as
wealthy in real terms as these numbers would suggest. If airbnb were to fail
that would destroy a huge amount of that wealth, with no ability to extract
any value before then.

None of this is meant to rain on YC's parade. I have a great deal of respect
and admiration for all involved, and congratulate them heartily on the very
real successes they have had and continue to have. I'd simply be heasitant to
describe YC as being "worth" 5BB, given a reasonable expected cash return.

~~~
byrneseyeview
This is obviously a valid criticism.

But it would be far more valid to criticize any alternative valuation that
fixed the problem you're addressing. For example, it would be conservative to
value all of YC's startups in terms of their cash and receivables, plus the
liquidation value of their furniture and servers. But then it would be trivial
to say "Hey! AirBNB isn't an asset play. It's valued based on growth. The
asset value is a worst-case scenario, but most of the other scenarios involve
a lot of revenue growth and free cash flow."

Basically, is there any valuation method you have that would make you
indifferent to a bet on the portfolio's valuation going up or down? (i.e.
anything you think would produce a "fair" market price?)

Actually, more directly: how much of your net worth would you invest in
shorting YC's portfolio at this inflated $4.7bn valuation?

~~~
redthrowaway
>Basically, is there any valuation method you have that would make you
indifferent to a bet on the portfolio's valuation going up or down?

No, there isn't. Angel investing is an inherently speculative game. What I
would say is this: a YC investor could reasonably claim to have seen a return
on any shares he sold, or any shares he holds of a company that has gone
public. That's it. Beyond that, all investments are good only in theory. Were
I to buy a house, I would decide what was affordable based on the former, not
the latter. The same is true for my contributions to my children's college
fund or my retirement fund. In short, all of the things that actually matter
in life would be based off of what I had sold and what shares I held of public
companies. To make any long term financial decisions based on the projected
worth of companies that had, at best, gone through a successful series A or B
would be foolish. They're nice numbers to think about, but they don't mean a
damned thing until they're putting food in my kids' mouths.

Let's illustrate my point like this: Suppose you are given the chance to pay
1MM for some good that has a 20% chance of being worth 1BB in 5 years. If you
can spare the million, then this is a fantastic investment by any measure.
Having bought into this investment, however, how would you describe your net
worth? Your investment is valued at 1BB. The fact that it will likely never be
worth that much doesn't change its value. Heading off the foreseen criticism,
let's say that savvy investors would only say it is worth 200MM, the ultimate
value times the expectation of realizing it. Still, that 200MM is fairy money.
It doesn't exist, and you can't do a damned thing with it until you somehow
manage to convince someone to give it to you. To claim that you're "worth"
200MM is silly, as you can't spend a dime of it.

This is the problem I have with pg's numbers: They sound great until you ask
what the cash-out is. Saying "I've invested in companies that are worth 4.7BB"
is great, but it doesn't say anything useful about how well your money has
been used. Remember, prior to investment it was real money that could buy
apples and tuitions. Now it's theoretical money that could buy a whole lot of
apples, but only under a specific set of favorable circumstances.

A final reduction: There is a claimed ROI of ~13:1. Being generous, I would
ask this: how many people who invested 1MM into YC have pulled 5MM out?

~~~
byrneseyeview
_The fact that it will likely never be worth that much doesn't change its
value. Heading off the foreseen criticism, let's say that savvy investors
would only say it is worth 200MM, the ultimate value times the expectation of
realizing it._

A market price is a price at which someone with good information is
indifferent between going long and short. If you're applying some discount to
the $200mm based on the possibility of a $0 outcome, you'd have to put your
money where your mouth is and sell short at that level.

If you'd made $200mm through some other means, and bought that 20% chance for
a billion dollars at the market rate, would you treat that as a loss? At what
market value would buying that constitute a good deal?

The whole reason we have valuation is to answer questions like that. The
question of "What is this worth?" is very different from the question "How
much cash can I extract from this now? "What is this worth?" means "What is
the net present value of all the cash I can extract from this asset, assuming
I extract at the optimal time?" It's the difference between the value of a
couple scraps of gold in a creek and the value of a massive gold mine.

 _A final reduction: There is a claimed ROI of ~13:1. Being generous, I would
ask this: how many people who invested 1MM into YC have pulled 5MM out?_

That's not the point, though. Startups are illiquid, so it doesn't make sense
to sell. Plus, the YC people just don't seem to need that much money. Some
people get rich in order to buy jets and vacation homes--the impression I get
is that the YCers got rich enough to spend their time working on cool stuff,
e.g. YC.

------
staunch
Long term I think the big question is how much of the success of YC companies
is directly related to the external benefits of being YC companies. There's no
question they tend to get far more attention on every front
(VC/valuations/press/bizdev/hiring, etc) than they otherwise would.

In a few years when there are 1000 YC companies it will start to mean a lot
less to all those people who have been helping YC companies succeed to date.
It probably already means a lot less to a VC to hear you're a YC company,
because they've met 300 of them.

If it's the YC halo effect that's driving high returns it will be a big
problem if it starts to wear off.

~~~
stevenj
>In a few years when there are 1000 YC companies it will start to mean a lot
less to all those people who have been helping YC companies succeed to date.

Harvard, Yale, MIT, Stanford, etc. seem to be doing rather well, as far as
higher education goes.

And I would imagine those that have partnered with them are doing okay too.

Quality matters.

>It probably already means a lot less to a VC to hear you're a YC company,
because they've met 300 of them.

I doubt that. A VC is just trying to pick the next Google. Or the next Google
founder(s).

~~~
Jd
Right on. I think as long as the quality of YC companies remains high, the
presence of imitators will of course increase the value of the original, just
as in higher ed.

Startup incubators may in some ways be easier to replace than universities
(Harvard, Brown, etc. are still going strong after 200+ years), but they are
subject to similar dynamics, insofar as there is team loyalty and networking
benefits (as there obviously are). Personally, I would accept 10% dilution of
my company simply to be an YCombinator alumnus since I think the benefits are
and will remain that high.

------
Jd
Far better than I would have expected, given the various spreadsheets, etc.
that I had seen floating around. I was a bit skeptical about YCombinator's
growth and the ability to mentor new startups, but with numbers like these
(esp. the 34/36 number) I've a lot more confidence that they will be able to
do just fine with more startups in each class.

In many ways, it also makes me comfortable saying that the "Harvard of
startups" description is appropriate. Sprinkle in a bit of elitism based on
merit, give people some general framework, a bit of advice, and a lot of free
reign, and brilliant and hardworking people will make things happen. Much
better to be a bit hands-off and cultivate excellence then micro-managing the
actions of the less focused or ambitious.

This, even more than recent acquisitions, is the best news I've seen out of YC
in awhile, and truly excellent. Congratulations!

btw, to pg or anyone else, would be a little bit interesting to see more about
the power law distribution as it applies to investing. I'm assuming this is
true across the field, but don't know for sure (do all vcs get the same
distribution, or is it simply true of software startups, or is it simply true
of software startups that manage to include big hits? Moreover, do you simply
get big hits by funding enough decent sluggers, or are there other strategies
to make sure you have a decent shot at the next Dropbox, Twitter, Google,
etc.)

------
limist
It seems safe to say that Y Combinator's expectancy* as an investor is
currently unsurpassed - no private investor, mutual fund, hedge fund, VC, etc.
I've ever heard of comes close. Congratulations!

* expectancy = (probability of win * average win) – (probability of loss * average loss)

~~~
eru
I guess if Warren Buffet were to start again with only a few million USD, like
Y Combinator did, he would do really well in terms of percentage return, too.

------
VaedaStrike
A question for PG - What's been the most surprising numbers to emerge, in your
opinion, up to this point?

You mention the concern that would be inherent if funding was at 100% prior to
yuri with regards to an overly conservative stance. With, as you have stated,
the real goal being finding the next google or facebook isn't a 90+% level
almost as worrying ??? Wouldn't something closer to 70 make a better balance
in terms of maximizing coverage to increase the chance of landing the outliers
?

~~~
pg
The most surprising thing was the number of companies with valuations between
30 and 60 million.

------
thenduks
Please enlighten me if I'm missing something obvious here, but wouldn't a
pretty interesting number be the percentage of funded companies that are
_profitable_ today? I mean, maybe not as a measure of YC's success monetarily,
but certainly as a success rate for choosing viable products/teams, no?

So to be clear. I'm most interested in how many of the 208 considered as part
of the $22.4 million calculation are self-sustaining and making a profit
today.

~~~
paul
That would be the wrong metric. A sandwich shop could become profitable much
faster than a Google, but I'd much rather invest in the next Google.

~~~
thenduks
Well, it still has to be a good sandwich shop to succeed, and I'd rather
invest in a successful sandwich shop than one which will flop. So I'm just
curious to know the overall track record of success had by YC funded companies
- from a perspective other than 'got more funding' or 'is valued at X'.

~~~
staunch
Investors would rather invest in a company that has a 1% shot at being Google
than 100% shot at being a normally successful sandwich shop.

~~~
mashmac2
But can we make the assumption that YC companies are chosen because they have
the potential at becoming the next Google, therefore if they are profitable
they're on their way towards that goal?

It's a small assumption, but I think one that could be made.

It makes more of a success/failure comparison than a return percentage
calculation, but it would still be really interesting to know.

~~~
thenduks
Yes exactly. I definitely didn't mean to say I wanted the numbers for
profitable _as opposed to_ the '1% chance of being Google'.

------
shimon
Terminology question: In footnote 1 it says

    
    
      "We're looking for companies with high beta. E.g. we're
      ok funding groups for whom the likelihood of failure is
      high but for whom success, if it happens, will be big."
    

I'm not sure what beta means here. My understanding had been that beta for an
investment refers to correlation with a benchmark index (see
<http://en.wikipedia.org/wiki/Beta_(finance)> ). So high beta for YC would
mean startups that perform similarly to the average, which is probably not
what YC seeks. Alpha ( <http://en.wikipedia.org/wiki/Alpha_(finance)> ), or
risk-adjusted return, is what any investor seeks, but still doesn't seem to
capture the idea of seeking very high-risk, very high-return investments.

Am I using the wrong definition of beta? Is there another term that better
expresses this characteristic of investments?

~~~
byrneseyeview
Beta can also refer to relative volatility. A stock with a beta of 2 has twice
the fluctuation of the index.

But in terms of asset allocation, you're right: PG is actually looking for
alpha. You can get all the beta you want with leverage: just buy short-term
out-of-the-money calls if you want extremely high beta.

(There's actually a lot to think about, here. Startups are pure "alpha" since
the beta component is an expected return of zero.)

~~~
joshu
Beta does not measure volatility.

PG means alpha here.

~~~
byrneseyeview
<http://www.investopedia.com/terms/b/beta.asp>

"Beta" has two popular definitions. One is "market beta," i.e. the return
you've gotten from the market you're in versus the particular trades you make
in that market. I have only heard professional investors refer to this. The
other kind is the one defined by investopedia. I only hear this mentioned by
retail brokers.

If PG said he wanted high alpha, it wouldn't make sense to increase the
probability of failure. All else being equal, higher alpha means a lower
chance of failure (at any given volatility level, the higher-alpha portfolio
has a lower chance of going to zero, since e.g. if beta is -99% and the lower-
alpha portfolio generates -1% alpha, that takes it to zero. Right?

~~~
joshu
Return of a security = return due to correlation to the market + return due
not due to correlation to the market.

Rs = BRm + A

It doesn't speak to general volatility at all. The definition linked is inane;
Beta of 2 only twice as volatile as the market if the security is highly
correlated to the market.

Beta is literally cov(Rs, Rm) / var(Rm).

In this particular case, if he wanted returns highly correlated to beta he
would just invest in VCs. To get a beta of 2 he'd leverage the funds somehow
and invest that.

He thinks he has an edge, which is contained in alpha (return not captured by
market performance.)

~~~
byrneseyeview
I don't know. Still sounds to me like he's using the linked definition. _Which
I agree is not a useful concept_.

People do cite betas. e.g. here's a quote page for Yahoo, on a big personal
finance site, that cites the "beta" as defined earlier:
<http://www.dailyfinance.com/quotes/yahoo-inc/yhoo/nas> It's entirely possible
for a typical investor to only encounter that version.

Colloquially, if someone says "I like high-beta stocks," they mean "I like
really volatile stocks," not "I like stocks that have some combination of high
volatility and high correlation to some index." So the statement makes sense
colloquially.

A more accurate version would be "YC looks for a moderately negative beta and
expects a very high alpha." Since that describes companies that fundamentally
alter their target industries--e.g. by harming all the established players,
but still making money.

~~~
joshu
The only time I've heard people talking about high beta has been in the
context of leveraged securities that track the indexes.

But what do I know, I only spent a decade on wall street.

------
dtap
These numbers are astonishing. By my calculation YC has a cash-on-cash return
of 67X!

Avg. value (22.4M) * Avg. equity (6%) = Value of average stake (1.34M)

Compare this to an investment of $20k, wow.

I am sure there is some sort of dilution that occurs, but anywhere in this
order of magnitude is remarkable.

~~~
emmett
6% is undiluted, you have to assume YC has been diluted quite a bit during
fundraising. But even assuming a more realistic 3%, those are great returns.

~~~
seats
Also, remember this is a power law distribution. So talking about an average
amount of dilution is probably risky. The dilution on the single largest exit
is going to move the needle the most.

------
ivankirigin
One way to measure is just on exists so far, which is a strict lower bound,
but doesn't change with the market. I bet YC is in the black just from exits,
and this can be measured explicitly. What is the sum of YC's returns from
exits (and cash value for stock) over the sum of money spent on investments?

Measuring the value of companies that have grown dramatically since the last
round if pretty arbitrary. If this estimate were done on the same companies in
the same states but in 2009, wouldn't it be off by 50%?

------
jasonshen
> When startups are acquired, acquirers usually give the founders incentives
> to stay on. Sometimes to make the founders feel better these incentives are
> included in the number the acquirer quotes as the acquisition price. In that
> situation there are effectively two prices, the quoted price, and a lower
> price investors see.

Wow - I didn't know this. Does anyone have any more detailed examples of this
happening they can share?

~~~
tptacek
What, of acquisitions with earn-outs? Search NEWS.GOOGLE.COM for "earnout".

------
nostrademons
I'm curious what the top 5 or 10 YC companies by valuation are, and what their
valuations are. AirBnB? Heroku? Dropbox? What else is in the $1B range?

Most of this seems like it should be public information, since fundings that
large are usually announced by press release. Has anyone compiled a list?

~~~
raldi
yclist.com

~~~
nostrademons
Interesting, but it only has valuations for exits. I'm kinda curious what
valuations for going companies are, based on recent rounds of funding. The
totals on YCList are nowhere near the $4.7B that PG quotes.

Actually, I'm surprised how many of the acquisitions were talent acquisitions
for ~$2M/founder. Decent sized chunk of change, but you can get that much by
going to work for Google, kicking ass, and then getting a FaceBook offer.

------
petervandijck
"1 didn't bother because they were already so profitable" -> anyone an idea
which one that was?

~~~
allantyoung
My guess would be Wufoo.

~~~
allantyoung
Never mind - that statement referred to a startup in a recent batch while
Wufoo was part of a much earlier batch.

Interesting to note that there are probably a few Wufoos in the total YC
universe that reached meaningful profitability without having to raise more
money.

Those are the ones worth emulating even though they don't get nearly the
amount of attention as ones raising mega vc rounds.

------
ry0ohki
I'd be interested in the valuations based on traditional things such as
revenue, assets, cash on hand etc... not that these things necessarily matter
to Y Combinator as a company making $0 that is bought for $1 billion is still
significant, I'm just curious what percentage actually is profitable.

------
jseliger
This reminds me of my family's business. We do grant writing for nonprofit and
public agencies, and people always want to know if they're going to get
funded. We always say that we have no idea, for reasons discussed in this
post: [http://blog.seliger.com/2008/12/21/the-worse-it-is-the-
bette...](http://blog.seliger.com/2008/12/21/the-worse-it-is-the-better-it-is-
your-grant-story-needs-to-get-the-money) :

"All this also helps explain why a “batting average” or “track record” figure
is useless regarding general purpose grant writers, as we describe in this FAQ
question: <http://seliger.com/faq.html#anchor5> . We don’t know if our clients
are going to come from Beverly Hills or from places where most residents
haven’t graduated from high school. From a grant writing perspective, a client
from the latter place might be more likely to be funded than someone from
Beverly Hills."

------
sabj
Here's a question to PG:

I can imagine many reasons, but I'd be interested to hear from you why you
chose to share these numbers at this time?

~~~
portman
Possibly prompted by PG's interview with Charlie Rose last week on stage at
TechCrunch Disrupt.

I was present, and a two things were clear from the interview:

1\. Charlie Rose had a few wildly incorrect assumptions about YC. (e.g. "so,
to date, you've invested, what, $100M?")

2\. Paul Graham had not given a lot of thought to aggregate numbers. When
asked, he about total the total value of the YC portfolio, he could only
guess.

Edit: interview link <http://www.ustream.tv/recorded/14928956>

~~~
pg
Yes, the interview I mention in the first sentence of the post was the Charlie
Rose interview. When he asked how we were doing, I quoted some numbers based
on a back of the envelope calculation that turned out to be way off (an
underestimate, fortunately).

~~~
portman
BTW, I found that interview very enlightening.

I hadn't realized how _nice_ you are. Your real-life persona completely
contradicts the caricature I had developed in my mind after years of reading
your essays.

I was expecting Vulcan (hyper-smart, non-sentimental), but instead got Camp
Counselor (humble, encouraging).

You should do more on-stage stuff.

~~~
pg
Seeming Vulcan is probably an artifact of conciseness.

------
achompas
_$4.7 billion / 210 = $22.4 million, so the average value of startups we've
funded is about $22.4 million.

Of course that could be cut in half tomorrow. Startup valuations are even more
volatile than ordinary equities._

Couldn't one argue that startup valuations are sticky in a downward direction?
The 21 largest companies are highly valued because they're generating tons of
revenue (or even profits). Nothing short of a market collapse would hault that
revenue generation, and it's hard to imagine such a collapse in the market of,
say, peer-to-peer vacation rentals or cloud-based multi-platform storage.

It's entirely possible, though, that by "cut in half tomorrow" PG meant that
Winter 2012 will include 210 companies. :P

~~~
kenjackson
_The 21 largest companies are highly valued because they're generating tons of
revenue (or even profits), and nothing short of a collapse in their market
could halt that income generation._

I don't think valuation of startups are strongly based on revenue and profit.
At least not in a way where their revenue/profits force a certain valuation,
rather than simply suggest that the potential and growth is there. (if that
makes sense).

~~~
achompas
Yeah, absolutely makes sense. Here's a proof by cases on my point:

Companies are highly valued b/c they (a) generate income or (b) have the
potential to generate income. (a) companies are trivial cases, since they
already make money. Let's move on.

Looking at (b) companies: they're highly valued because market conditions +
company fundamentals suggest they CAN generate income soon. Let's assume
company fundamentals (leadership, labor) are constant and solid (trivial,
since they're being advised by PG and other VCs).

Therefore, highly-valued companies that do no yet generate income can only be
negatively disrupted by market forces. Based on the initial assumption about
(b) companies' potential, I argue that (b) have been selected such that they
are not particularly vulnerable to negative shocks.

Therefore, their valuations have a very, very high floor and are sticky in the
downward direction.

~~~
kenjackson
What about AirBnB? You don't think a $500M valuation would be considered
reasonable by many? AirBnB seems like a classic example. $25M in revenue and
$1B valuation (40x). The market moving slightly to a more hardcore earnings
based valuation could easily see their valuation cut in half (20x).

No less of a company, but a slight change (yet reasonable change) could
drastically effect their value (as it would with most startups at a similar
phase).

------
mattmanser
Congratulations, I'm sure you've already felt it, but I just wanted to say
you've built something truly amazing that helps so many other people realize
their dreams. And as an added bonus it validates your assertions on what a
startup needs to do.

Visionary indeed!

------
freshfunk
Interesting analysis but the statistic I find most disturbing (and selective)
is the "average" value of startups funded. What would be more informative is
the mean value. I'm guessing the mean value would be extremely lower since
most of the total value is made by a few outliers on the top end.

By taking the average value in this case, it's likely giving an inaccurate
picture of what the average YC funded company is actually worth.

Just a thought. I could be wrong assuming most of the total value does not
come from outliers but my sense is that I'm right based on the news I've seen
around YC companies.

~~~
BrandonM
He did show the mean. It looks like you're interested in the median. From a
potential startup founder's perspective, the median is pretty important. From
YC's perspective, mean is all that really matters (except to the extent that
median affects the input to their program).

~~~
freshfunk
Yes, thank you. I meant to say median.

------
KennethMyers
>If it were 100%, I'd worry we were being too conservative in >who we funded."

Note to self: if you're succeeding in everything you're doing, you're probably
failing to attempt awesome things in which you could succeed.

------
seats
>> That number is about as high as I'd want it to be. If it were 100%, I'd
worry we were being too conservative in who we funded.

There is market feedback in this thought (and in the footnote where you cite
'beta'). Really what you are saying is that you are aiming for a level of
conservatism/risk relative to the market.

I'm curious what the funding rates were in 2006 and how they changed. How much
of the increase on funding percentages were due to being better at doing YC
and how much of the increase was due to their being much more risk capital in
the market?

------
RealGeek
With the numbers of startups growing with every batch. Do you think it dilutes
the value Y Combinator provides?

I wonder if pg and YC partners would be able to give enough time and attention
to 62 startups.

YC brand and alumni network is stronger than ever. YC is great at scouting
great entrepreneurs at early stage. At this point YC may be acting as a filter
for investors.

The big question is, Will YC still the advisory role to create great products?
or Is it now a funding school that provides a brand and access to Angels and
VCs?

Would love pg, YC partners or alumni to chime in on this.

~~~
Harj
Currently the request queue for office hours is empty, meaning everyone who
wants to meet with us has been able to. We have capacity for more office hours
this week and will be adding more. PG added office hours for this afternoon,
with more slots than there were requests in the queue. Things seem to be
working so far.

------
larrik
"...so far at least the great majority of VC investments in YC-funded startups
have been by the better firms. I'm not sure exactly why, since bad VCs are
more numerous than good ones; perhaps the bad VCs assume the companies at an
event as public as Demo Day will already have been picked over by the time
they get a shot at them."

Or perhaps the lower tier VCs just can't compete with the "better" firms.

I find it interesting that you so readily equate "lower-tier" VCs with "lower
quality" VCs. Is this a reliable rule?

~~~
hugh3
_I find it interesting that you so readily equate "lower-tier" VCs with "lower
quality" VCs. Is this a reliable rule?_

If you were a low-tier good-quality VC, surely you'd become known as a top-
tier VC pretty soon?

------
ivankirigin
Fun math: if

\- the average YC investment is $20K for 5% (400K valuation),

\- YC's share get's diluted in each company by a round giving up 30% of the
company

\- the average YC company is worth $22.4M

...then that translates to a 43X return for YC. Woah.

------
SemanticFog
If YC holds common shares, then you need to adjust the expected value down
quite a bit. On any exit that isn't a huge win, non-employee common
shareholders are by far the most likely to get short end. The expected value
is probably 10-50% of the fully diluted headline value of a VC deal.

But YC is clearly going to do spectacularly well. They deserve big congrats
for what they've accomplished.

~~~
myoung8
This isn't generally the case anymore--funding rounds these days tend to
assign a 1X liquidation preference to both common and preferred shares, so
assuming that a company gets acquired for more than its valuation, you
shouldn't need to adjust EV down.

~~~
usaar333
True, but there's still a very good chance of being acquired for less - which
means you have to adjust the EV down.

~~~
pmjordan
Except all the maths here has only accounted for the top 10%. Those top 10%
are fairly unlikely to be sold off at scrap value.

~~~
SemanticFog
You'd be surprised. The ones that raise the most money also have the hardest
time getting over the preferred total. The purchaser will take care of the
employees it wants, but other common shareholders often end up out of luck.

------
fishtaco
This investment strategy probably doesn't have a ton of capacity though. I
could make a thousandfold annualized return on a dollar by reselling snacks
outside my apartment for ten days.

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zemaj
Are there any numbers on how many YC companies are now defunct? Would be
interesting to see how this compares to the anecdotal 9/10 startups fail in
the first year.

~~~
hugh3
There was a thread about this at some point. The answer was "a bunch", though
the numbers were complicated. Some had merged, others experienced "exits"
which were really just talent acquisitions and shut down all operations on
their product. Very few really "failed".

The 9/10 startups thing was always a myth, though, especially if you're
talking about startups which get to the stage of getting _any_ funding at all.
It's more like 1/2.

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rd108
"like any portfolio of startups ours has a pretty steep power law
distribution. If we can produce accurate estimates of the values of the top
10%, we'll have a sufficiently accurate estimate of the total value. "

No... this is incorrect. Power laws looks like this (imagine the "top 10%" in
green): <http://en.wikipedia.org/wiki/Power_law> so the median value, or even
showing a histogram of all values, would be WAY more informative. My hunch is
that the "22.4m" average valuation is way higher than most YC grads.

~~~
bdr
You've misunderstood the math. The $22.4M figure was reached by assuming the
bottom 90% of companies are worth $0. Therefore, it's strictly a _lower_ bound
on the mean valuation.

~~~
rd108
You're right.

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dcdork
Does it make sense to generalize about 200 startups based on 5 exits?

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Sukotto
Thank you for posting about this I find it fascinating.

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zyfo
Impressive.

What about the control group though? You know, the 50% that were deemed fit
for YC after the interview but lost at the coin toss backstage. How did those
compare?

~~~
pg
I don't understand. Do you mean startups we fund that don't do well, or
startups we don't fund?

~~~
gabrielroth
My understanding is that the person who asked that question wants to measure
the value YC is adding, separate from YC's ability to select promising teams.
Obviously there's no way to separate those things, so s/he suggested an absurd
experimental setup in which half of the accepted startups, chosen at random,
would be excluded from YC.

~~~
eru
Don't just exclude them. Replace them at random with normally rejected
companies.

