

Y Combinator’s Newest Start-Ups Riding High On Demo Day - rhartsock
http://blogs.wsj.com/venturecapital/2011/03/23/y-combinators-newest-start-ups-riding-high-on-demo-day/?mod=WSJBlog

======
ghshephard
"One investor who has spoken to companies in this Y Combinator group and who
didn’t want to be identified said he estimates that the pre-money valuations
on this batch will average $10 million."

I don't care how good a crop of candidates YC attracts - that type of pre-
money valuation can't be for any _particular_ startup, rationally supported in
just 90 days of work with a small team.

The following possibilities come to mind:

    
    
      A) The investor who was not named was pulling numbers
         out of their ass and couldn't back them up.
    
      B) The current crop has been working on their ideas for 
         a lot longer than 90 days
    
      C) We've reached a bubble in valuations.
    
      D) There is an expectation of at least one multi-billion
         dollar hit that will make up for the losses on the 
         other 40 or so misses. 
    
      E) I'm wrong, and the current batch of YC start-ups
         truly do deserve $10 Million pre-money valuations.

~~~
paul
Valuation is based on expected value. How much time they spent on the startup
is irrelevant. For example, if a startup has a 1% chance of being worth $1B,
then it's worth about $10M (very rough math since actual outcomes aren't quite
that binary).

Also, many companies are raising at lower valuations.

~~~
ghshephard
No arguments whatsoever. I think you are reformulating my "Option D" - there
is a small expectation of a few big hits that will make up for the many
losses, and the investors go in realizing that not every startup with a $10
Million valuation, has a high chance of being $10 Million or more.

Another way of saying this, is that these types of investments are clearly
_not_ for the conservative investor who can only afford to invest in one
company.

~~~
paul
Has anyone _ever_ said that startup investing is appropriate for conservative
investors who can only make one investment?

In fact, the only bold text on my blog post about startup investing says
exactly the opposite of that: [http://paulbuchheit.blogspot.com/2011/01/angel-
investing-my-...](http://paulbuchheit.blogspot.com/2011/01/angel-investing-my-
first-three-years.html)

------
rabble
Two things, one, a $10 Million valuation for an angel round is really high.
I'm suspecting that the real statement was something more like "one of the YC
companies even got a $10 Million pre-money valuation" rather than the average.

Second, Paul Buchheit is investing in some of the YC companies in addition to
his participation as a partner? Will that create signaling issues? I know he
knows the YC companies better than other startups, but if he doesn't invest,
it means he passed? Same thing happened with VC's doing angel rounds then if
they don't follow up, they're leaving the startup in the lurch?

