

Y Combinator: Disneyland for Investors? - KMinshew
http://news.cnet.com/8301-33617_3-57406737-276/y-combinator-disneyland-for-investors/

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mceachen
Demo Days really do have this feel.

I was pitching a VC partner before the presentations, and he noticed three
people walking towards us: "check that out!"

Me: "Oh, yeah, Ron Conway! He spoke at one of our dinners, and we've talked
with him personally a couple times, he's a good guy."

"No. To his left."

Mr. Conway was flanked by Ashton Kutcher and Demi Moore. And no, it's not
movie magic, they really do look that good in person.

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patrickk
" _...and pay irrational amounts of money to experience._ "

" _Investors pay a shockingly high price to get into highly competitive
funding rounds, but they're happy that they got in at all._ "

Surely investors are getting a good deal despite these statements? I mean
they're going to pay more to invest in a company that's been through YC than
if they invested in the exact same founders prior to them being in a YC class,
but look at what they're getting in return:

\- Vetting by pg and co.

\- Plugged into an invaluable alumni network

\- Automatic investment from Yuri Milner (in most cases) meaning the company
has more runway with which to survive lean times

\- Media coverage

\- Massively reduced risk premium and due diligence due to the above factors

\- Etc.

So surely the higher price is still a price worth paying?

Edit: spacing

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ajross
The Milner point seems backwards: for an existing investor, cash is what they
already have, and the presence of an existing investor means that their
investment will be pre-diluted. If "runway" is all their startup needs, any
investor would be happy to provide it.

The others seem right though, and really they all just come down to "reduced
risk". The big problem for investors is that they have a hard time picking
winners. YC and its community have a better track record.

~~~
motti_s
Investors want you more when you need them less. When you're desperate, you
get a bad deal (if any). Hence having cash is always helpful.

~~~
ajross
Helpful to the _startup_ , not to the investor. My reply was to patrickk above
who listed Milner's investment as a draw for other investors. From the
investor's perspective a hungry startup is preferable. Thus startups that
_aren't_ hungry by virtue of someone else's investments are less desirable.

~~~
motti_s
The fact that a startup isn't desperate makes it more desirable -> it may get
to choose investors -> it ends up with top tier investors -> it is more likely
to succeed (good investors are more than a check book) -> hence it's a good
investment -> better for any given _investor_ in the round (as well as the
startup - it can and _should_ be a win-win)

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n72
This is completely unscientific, but once something gains this much hype I
just get the gut feeling that the value has disappeared for investors. If the
likes of Ashton Kutcher are there, the game's up, the secret's out - these
assets are no longer undervalued. If I'm an investor, it's time to pack up and
move on to find the next market inefficiency, cause I really doubt it's in YC
funded startups anymore.

~~~
ericd
Ashton Kutcher was a biochemical engineering major in college, and has
actually gotten fairly heavily into investing. If nothing else, he'd have far
more insight into press than most angel investors would.

~~~
n72
Yeah, I probably shouldn't have mentioned Ashton Kutcher by name. I merely
meant to illustrate a type of person. That is, once a thing becomes public,
well-known, trendy, etc that the game is up in terms of mining value from an
under valued asset.

~~~
ericd
Yeah, I figured that's what you were saying. I think it's probably not the
case, since that depends heavily on deal terms, and even the most
entrepreneur-friendly terms currently (such as those of Yuri Milner's Start
Fund) seem like they'll be strongly net positive in outcome. YC is taking the
cream of the crop, and it's probably not a bad bet to bet on the cream, even
if it seems relatively expensive, because startup outcomes are _extremely_
unevenly distributed.

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c2
Might be unrelated but I've noticed an awful lot of YC "hype" (press, news,
coverage) since the Sequoia investment.

I hope Sequoia is not being a negative influence to YC by dis-proportionally
"banging the drums" and ultimately being a distraction to the goal of building
and developing lasting and meaningful companies and businesses.

~~~
mlinsey
Sequoia certainly hasn't had that effect on YC companies. Nearly every founder
I've talked to on the subject has said that when they met with Sequoia, they
received good questions and advice about how to build a really big company.

There's a common cause for both the Sequoia LP investment and rising hype
about YC: both are because YC companies are doing better and better. It
certainly is true that hype, PR, and fundraising can be big distractions for
early startups, but all the YC partners go to great lengths to make founders
focus on the more important things.

~~~
c2
It's good to hear from YC founders that they don't see the negative impacts.

I can certainly understand why the hype machine is, at least in the short
term, valuable to both Sequoia and YC. It helps raise the profile of YC and
causes valuations to rise for all involved companies. Both Sequoia and YC are
in the business of making money after all.

But when you have a situation of "frenzied investors" and these "exclusive
limited events" designed somewhat to cause a situation of artificial scarcity,
the waters get a bit muddy regarding the motivation of connecting companies
with investors. It's the difference between having genuinely valuable
partnerships, and those quick liquidity events designed to make a quick buck.

The original mission of YC involved developing companies that build things
that people want. I hope the Sequoia influence doesn't change that.

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spitfire
That is an unfortunate analogy. I really don't want to see investors riding
entrepreneurs.

