

Investing in each others YC companies - ashleyreddy

Let me preface this by saying that this statement in no way reduces the level of effort 
I will put into my own startup and that I haven't been accepted into YC yet.<p>I was thinking of the idea of investing in each others startup's.  Basically exchanging 1/2-1 percent (total) equity with other startups you will meet, in exchange for cash/services or stock swap.  I wonder if the will be kosher with PG et al.  Thoughts?
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cubes
The stock swap scenario is a hedge. It allows founders to potentially realize
some upside even if their company does not succeed. I think this could be a
useful tool to help founders effectively mitigate some of the risk they take
on.

That said, there is the danger that allowing founders to hedge there risk in
this fashion would make them less motivated to make their own company succeed.

~~~
malandrew
On the other hand, you may end up with what they call a Kigyo Shudan, a type
of horizontally diversified business group found in Japan. Such a corporate
structure could be beneficial if there is a lot of synergy between the
participating companies, especially synergies where individual companies can
increase their value by strengthening business and technological links with
each other.

The Small Business Web is a group of companies that voluntary cooperate with
each other for the greater good. Involved equity exchanges between companies
should foster self-interested cooperation.

However, I do echo Cubes' sentiment that any equity exchanges should not
diversify founder risk so much that they rest on their laurels or focus on the
relationships with others to the detriment of their own startup.

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loganfrederick
First Round Capital does this with its portfolio companies, allowing founders
of these companies to share equity with other First Round founders.

[http://redeye.firstround.com/2010/01/sharing-and-
exchanging....](http://redeye.firstround.com/2010/01/sharing-and-
exchanging.html)

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camz
This would be huge in helping startups leverage skills and assets from each
other. Even people not chosen by y combinator could potentially still receive
a majority of the rewards and help that those who are accepted receive. This
could be a new step in startup funding/acceleration.

Ashley reddy is a fricken genius.

I would definitely participate in this endeavor. I'll be the first one to
offer something. I'm a tax accountant by trade during the day that has worked
at pwc and kpmg. I currently own my own firm. I'd be willing to help with tax
services and corporate planning.

During the night I'm working on a nonprofit startup for edu. The app will help
people discover occupations that suite their needs based on earnings,
location, cost, time and interest.

I don't think a 1-2 percent share is going to make anyone forget about their
own personal goals and projects. It's honestly more a gesture of good faith
and earnesty toward each other's help.

This could also lead to a whole new genertion of mashups that could
revolutionize something new.

Lol I sound like a hippy. But I'd be willing to even help gratis just to meet
some cool people from hn with similar interests.

~~~
malandrew
Actually, this isn't a particularly novel idea. It's just that it hasn't been
really applied to startups beyond FRC.

Read about keiretsus in "The Machine that Changed the World"

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praecipula
I think this is a great idea - exchanging money, I'm not so sure. If
everyone's trying to get funding, not a lot of cash to go around.

If, however, you worked out a shared-talent pool, that has a lot of potential.
For example, often times startups don't need operations or HR staff right
away, it's done by the founders. However, when it comes time to use more
talented staff, what if one startup employed the person, but the pool can
share their talent for an equity exchange? Seems like there are details to
work out, but might be a good opportunity both for startups and for staff who
would like to be in at the ground level, but there's not enough demand at any
one company.

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pclark
I don't get it. A venture capitalist invests in a spread of companies because
he isn't 100% sure which companies will win.

However, a founder is 100% sure that his company will succeed. If he isn't, he
is sure to fail.

So why would I do this? I'm going to win - I don't need a backup plan. (this
is how I see it, that is)

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ashleyreddy
Ok let me explain it this way. No one has the exact amount of money, talent,
time etc for their startup. You may have more of one and less of another. Say
you have some surplus money, wouldn't you want to invest a tiny amount in a
fellow Starter that had a promising idea. That wouldn't effect your level of
success one bit. I don't see YC as a competition in the sense that their can
be more than one winner.

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skowmunk
Its a great idea. It might even boost the already good cooperation that I
think exists amoung the start ups.

Somehow, the idea that having this cross equity holding is going to be damper
on one's motivation to build their own start-ups seems moot. Who wouldn't want
to make more money if their idea seems good enough?

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revorad
Why would you do that?

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logicalmind
I would assume the intent would be the diversification of risk/reward. Since
most startups don't make it to worthwhile profitability you are hedging your
bet on other startups.

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ashleyreddy
Yeah and it would be fun don't you think. Also someone else has done the work
of qualifing and bringing together promising startups.

