
How much do Y Combinator founders earn? - theduffman
http://80000hours.org/blog/341-how-much-do-y-combinator-founders-earn
======
sillysaurus3
_On average, founders from the first five years of Y Combinator are now worth
US$18 million after 5-9 years, giving past average earnings of US$2.5 million
per year_

 _The total earnings of all Y Combinator founders is around US$9 billion and
so the average founding team is worth US$14 million._

Why is the piece talking about averages, when wealth is distributed as a power
curve? Talking about average this-or-that gives you almost no insight about
the real state of affairs. Both sentences might be true, but not useful.

The YC homepage does a pretty good job of showing off the incredible value you
get by being a YC founder. Trying to quantize that value into dollars might
not be a good idea.

EDIT: To expand a little more, YC has to be an incredible value. They must
offer so much more value than a traditional employer in order to get most
people seriously considering whether to do it. YC's biggest competitor is the
cushy office job. "The office job" is undoubtedly responsible for removing the
vast majority of potential YC applicants, so YC must continue to be a way
better deal. I suspect YC's second biggest competitor is the lover. Falling in
love is pretty common, and you tend to lose perspective about the rest of your
life in comparison to what you have now.

So, it's really as simple as that: Being a part of YC is valuable because it
has to be.

~~~
paul
Exactly. There are other problems with the data as well, but the big problem
is that he's talking about averages in an industry defined by outliers.

You should start a startup if you think you have it in you to revolutionize an
industry, not because someone's spreadsheet says you will earn an average of
$X/year doing it. The median founder should expect to earn a lot of valuable
experience, and very few dollars.

~~~
RoboTeddy
If you're attempting to earn money to donate to effective charities, and
you're risk neutral, it might make sense to consider average rather than
likely outcomes.

~~~
BenjaminTodd
It's not just the donations. It seems likely startups produce lots of economic
value by developing new products, and the extent to which you do that is
somewhat correlated with how much money you earn. That's another reason to
consider the non-risk-adjusted average outcome.

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diego
"When it invests in its companies, Y Combinator values them at US$1.7 million,
of which each founding team owns $1.6 million. This implies that founders must
earn substantially more than $100,000 per year"

I have no idea how/why the author makes that leap.

~~~
jiggy2011
I thought YC used convertible notes?

~~~
bri3d
YC uses this, as of recently:

[http://ycombinator.com/safe/](http://ycombinator.com/safe/)

Previously they did use convertible notes, I believe.

------
orky56
The way the author is calculating "earnings per year" is by backward-looking
from a valuation, which obviously has many holes.

1) Valuation != Liquidity. Even if your company is worth millions and your
share is also worth millions, until you have exited you are not going to see
much or any of that. Even when you do exit, vesting schedules and taxes make
that number much different.

2) Earnings != Salary. If you make a certain amount at exit, that doesn't mean
you were being paid an annuity in prior years. As stated in the article, with
angel investment 50k salary and with VC 100k. You're still a founder making a
salary less than you would in industry, which this article should point out to
benchmark things a bit.

It's a tough question to answer and the author is taking a bold step to try
and tackle it. However, better methods can and should be used to paint a more
realistic picture of what founders earn in the moment rather than being
optimistic and backward looking.

~~~
BenjaminTodd
That's a good point - most of the compensation is in equity, which is non-
liquid, which makes it significantly less valuable than salary.

------
nutjob123
My takeaway, the pie chart makes it look like %50 of Y Combinator companies
from 05-09 were essentially failures. Either dying or selling for less than
$5M. On the upside there were a few home runs which essentially made up most
of the fund value. I would like to know how these results compare with those
of a traditional VC firm.

~~~
nedwin
In the latest episode of EconTalk Marc Andreesson frequently mentions that
half their investments fail. The half that succeed make up for the ones that
fail.

Check it out here, it is awesome:
[http://www.econtalk.org/archives/2014/05/marc_andreessen.htm...](http://www.econtalk.org/archives/2014/05/marc_andreessen.html)

------
yeukhon
Is it just me or do people feel confused after reading this article?

I thought this article was after people like Paul Graham, investors of Y
Combinator.

> if you can get into Y Combinator, how much will you earn? We

then

> Y Combinator recently increased their standard investment to US$120,000,
> valuing each company at US$1.7 million, of which each founding team owns
> $1.6 million10.

I personally would call people who came up with the idea founders. People who
invested the startup are investors (or managers of capital ventures).

Furthermore, earning !== net worth or valuation Until you sold the company or
until you start making big profit like Google does, the numbers present in the
article are just pure numbers.

The citations are bad. You called them references? Things like "~US$1.7
million / ~2.2 cofounders / ~7 years = ~104 million." are not even references;
they are in-line page note. You don't put that under references! The one that
requires references like "This is from AirBnB, Dropbox and a handful of
others." doesn't have proper citation.

The last thing is the font CSS style on the page. Seriously, don't go fancy. I
almost go blind trying to understand the article three times.

Seriously, I haven't rant so much lately but I really want to find out how
much they earn instead the article provides little useful information, is
confusing, not professionally written, and is published with horrible font
style.

~~~
kkotak
Yes, I felt the same. In many ways, I'm more interested in how the YC group is
organized and how they make money.

------
mwetzler
The piece starts out by very nicely warning us about the THREE HUGE OUTLIERS
but then, surprisingly, doesn't take them out of the remaining analysis.
(Well, they sort of do in the "founders that didn't win" part).

Would be useful & interesting to see the bulleted stats list in the first
paragraph with averages & medians (with and without the 3 big successes).

~~~
theduffman
Yes, unfortunately the data is most solid on the successes because their
valuations are public information whereas the figures are more shakey with the
smaller companies, and creating an estimate that subtracts the outliers is
pretty flimsy.

Our best guess is that 78% of the earnings are in the top three companies
gives a general idea of the kind of adjustment you'd have to make.

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kenrikm
Lies, damned lies, and statistics.. Talking about averages on data that looks
more like a hockey stick chart (even if you exclude the outliers like DropBox
and AirBnB) is not going to yield very accurate numbers.

~~~
scrafty
Did you read the whole article? The author acknowledges that point more than
once.

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tslathrow
You guys should organize. YC Founders Union. Obviously shortened to YCFU.

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coherentpony
The pie chart is really misleading. It'd be nice to see number of companies as
a function of operating income.

