
Y Combinator Gets The Sequoia Capital Seal Of Approval - vaksel
http://www.techcrunch.com/2009/03/16/y-combinator-gets-the-sequoia-capital-seal-of-approval/
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mattmaroon
Hmm, legal question here, since I don't know exactly how this deal is
arranged. Is this a fund in the traditional angel/vc model, or do they just
now own a chunk of Y Combinator? And if so, do they therefore own a small
chunk of past YC companies still in the portfolio?

If so, it would seem my startup is now partially owned by some of the many
angels and VCs who turned us down, which will really kill some of my revenge
fantasies :)

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chiffonade
The article states this is a third fund owned by Sequoia and managed by YC.
More than likely some of Sequoia's investors got intrigued and wanted to get
into the YC game, but didn't feel like taking their money elsewhere because
Sequoia has been good to them. Best of both worlds.

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mattmaroon
It was more of a joke than a serious question.

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ivankirigin
I really don't understand this. Why would YC want to manage a fund and
investors? Is it more likely to get Sequoia to invest down the road?

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ajju
* YC gets:

\- $2M more to invest in startups (more money can't hurt and they clearly
enjoy what they do)

\- Sequoia investing in YC makes YC that much more trustworthy in the eyes of
a lot of potential investees and potential acquirers of their startups. Also
YC's reach in terms of potential acquirers and potential round 2 investors
probably increases.

\- It gets YC startups almost all the advantages of having Sequoia as an
investor without the dilution of a large Sequoia investment (eg: opens a lot
of doors for the YC startups to get their products in the marketplace.)

* In return for $2M, Sequoia gets:

\- YC acting as a filter / very high quality pipeline for them

\- Early access to YC deals (though not exclusive)

\- Most likely, great returns on the $2M itself in the long term.

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pg
_It gets YC startups almost all the advantages of having Sequoia as an
investor without the dilution of a large Sequoia investment (eg: opens a lot
of doors for the YC startups to get their products in the marketplace.)_

I want to emphasize that this one isn't true. We're not claiming any such
advantage. Sequoia won't be a direct investor in these startups.

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ajju
Kudos for ensuring "truth-in-advertising" even when it's someone else (me)
doing the advertising for you :)

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aristus
Question for paul: your limiting factor is not money, but time, right? Are you
just going to say yes to more interviewees or will you interview more
startups? Will YC alums take a more active role between funding and demo day?

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pg
Because of the recession, money started to be the limiting factor. We didn't
feel like we could prudently expand when there might not be any more returns
for the next several years.

We are probably going to invite more startups to interviews, and we definitely
hope to accept a higher percentage of those we invite. And yes, we're going to
encourage YC alums to help the other startups. They already do a lot, but
we're going to set up more ways for this to happen.

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netcan
Is there an estimate of how long YC needs in order to become self sufficient?

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pg
It would be very hard to guess, because it all depends on accidents of
liquidity.

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netcan
Isn't that were numbers start to kick in?

60 per round @ 10 years is 1200 startups?

Actually, that brings up a completely different question: Can YC scale to the
point where you can't remember most of the names anymore?

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jacoblyles
The most important part of this for me is a 50% increase in the number of
startups funded. I approve of anything which increases our chances.

Of course, in the long term, this will mean that Y Combinator will be more
sustainable if it is drawing interest from outside investors.

I wouldn't be surprised if Sequoia is doing this just for the publicity, or
just to find out more about Y Combinator. $2 million might well be worth the
price for information about how Y Combinator is doing, since it is a very
popular but secretive fund.

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pclark
Enormous. Shows the YCombinator model is working, or in the future it'll be
working. (which it will)

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vaksel
I think this could be a way for Sequoia/Ron Conway to find good companies
ahead of other investors. This way, they'll know all about the current crop of
YC companies and will be able to spot the winners from day 1.

After all as investors, pg would probably have to report what companies he has
selected for the program

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pclark
surely if Sequoia or Ron Conway rang any YC startup _today_ the startup would
fall over themselves to meet?

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ajju
The problem is, Sequoia or Ron Conway need to have heard about the startup for
them to call it. By investing in this fund, they not only get to hear about it
before others but also get to monitor each as it grows, find out more about
the co.s than other investors, which would help them make a better decision on
whether to invest directly and at at what valuation.

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smallpaul
I love Robert Morris' crunchbase bio: "... He has published extensively on
wireless networks, distributed operating systems, and peer-to-peer
applications. In 1988 his discovery of buffer overflow first brought the
Internet to the attention of the general public."

I think we know that the "discovery" of a vulnerability is never enough to get
the general public interested...I didn't hear a peep in the MSM about the huge
Debian/SSL debacle.

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danielzarick
Everybody is over speculating the significance of this. This just means more
opportunity for each of us to seize. All of you can continue debating why this
is good or bad, but I am going to go finish my YC application.

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gcheong
Is this the first step towards a YC IPO?

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ajju
Venture capital funds (which is what YC is very very roughly) don't do IPOs
because a public company has to produce returns _every quarter_ with some
degree of regularity and VC returns are always very very skewed. I can bet YC
will never do an IPO.

More importantly, you typically do an IPO to raise money for your operations.
VC funds raise money from private investors. So it doesn't usually make sense
for VC funds to do an IPO.

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gcheong
It's not something they would rush into for the reasons you point to, but it's
not unheard of (e.g Harris and Harris), and if the goal of YC is to maximize
the number of companies they can fund then an IPO may make sense at some
point.

