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YC Continuity (ycombinator.com)
316 points by dshankar on Oct 15, 2015 | hide | past | favorite | 70 comments

So this announcement got me thinking and while this is slightly off topic and it may seem like a dumb question but I'm going to ask it anyway because I'm curious: where does YC get the money to do everything it does (seed and later stage investment, research, running hacker news, employees, startup school, etc)?

I mean I know roughly how it works from the standpoint of taking investment money and funneling it into companies but unless I missed it I have yet to see them "cash out" on any existing investments so are they bringing in any money from those investments or is it just more and more funding to do further investments that powers everything?

We have had a number of exits, and two or three times we've sold some of our stock in our larger companies for cashflow for operations. Partners have also contributed money.

Going forward, we'll get some management fees from this fund that will contribute to operations.

We also practice what we preach to startups, and spend surprisingly little money each year--our all-in cost for 2015 is about equal to the salary of 2 GPs at many other firms.

Someone want to chime in and give us an idea of approximately how much the "salary of 2 GPs" is? Also, by "all-in cost" is he talking about all expenditures except for actual monies invested?

Just asked our CFO--she thinks we will be at about $8MM for 2015 not counting investments.

Impressive transparency. Thanks @sama.

So a General Partner at an average VC makes $4mm per year?

I'd argue that's not "average," that's probably a good GP at a top VC firm, but it's by no means unreasonable.

High end might be so high that even though it is more than median it still ends up being the mean.

$8mm is for 2015. Salary of 2 GPs is for 2014. Likely some increase from 2014 to 2015.

I think he means total cost to the firm - salary, benefits, insurance, equipment, expenses (VC's travel a lot), etc.

Yuuupppp!!! that sounds like what sama is implying. But sounds about right.

Sama, how does this commitment to fund companies for life, up to $300 million valuation combine with your own belief that current funding rounds might be bubbly: specifically does this not substantially raise the bar for applicant companies that you are not sure about, by eliciting in you the natural reasoning while you're thinking about YC applications: "Interesting idea. On the other hand this idea may suck. I'm not decided. But if it does suck they may still continue to raise rounds until the overvaluation climate is corrected, and we are committed to funnelling them money while they do. Then it will correct, and since the idea sucks we will lose money. So, we won't invest now, it's too big of a commitment. If they build the idea elsewhere and it turns out not to suck, we can reconsider then."

The direct effect of this is that "backtesting" this reasoning would have resulted in many of your biggest successes, simply not being funded at all. (Because they were too large gambles.)

Note: due to the provocative question I would have preferred to ask you by email, but I think it just gets routed away and you don't see my emails.

it doesn't effect our decision making. the best companies end up raising most of the money--we've looked at this in detail.

thanks, agreed on your second point.

That's amazing. Love that you practice what you preach with respect to keeping spend low. Have you shared more details about where your money goes?

Ah I had no idea. Thanks for the clarification!

Some YC companies have had big exits like Twitch.

Also, there is a secondary market for private stock. It's possible for YC to sell some of their position in the big successes that haven't yet IPO'ed.

In the early days, YC raised money from VCs to fund their seed investments. That ended because YC doesn't need the money anymore. This continuity fund might be different in that regard.

they have had exits. twitch sold to amazon. heroku sold to salesforce. parse sold to facebook. compose.io sold to ibm.


As early investors of AirBNB and Dropbox, YC is fairly well known across in the financial circles and they don't have any problem getting outside investments. In fact, I believe they have so much money coming in that they can afford all those new explorations (YC continuity, YC fellowships, YC Research, and so on).

To prove that they are very well known, suffice to say that the French news [0] spoke about them back in 2012.

[0] http://www.lemonde.fr/economie/article/2012/08/24/y-combinat... (In French, to summarize it says YC is basically a prestigious incubator with a great portfolio).

"Y Combinator has just closed $8.25 million new fund led by Sequoia Capital with Ron Conway, Paul Buchheit, Aydin Senkut, XG Ventures, and Geoff Ralston participating." -- TechCrunch, 2010.


In 2009, Sequoia invested 5-10 million in YC.

I would like to know too. I know asking is like slapping your generous uncle, who just loves to give you money, but the fountain seems unending?

It must be tied to this free money that only certain individuals can play with, and this stock market that isn't playing by the fundamentals?

Or the wealthy have more play money than I dreamed of?

I'm not knocking it, and would gladly accept funding. I just think it's going to end, and as Willie Brown echoed , 'What are we going to do with all these unemployed Tech workers?'

Then again maybe it won't, and rent for a one bedroom in San Francisco Bay Area will be $15,000/month in a few years?

I obviously don't know much about investing in tech. I just see a lot of money thrown around, and certain CEO's seem clueless about their product, or even if their tech product is better than what we currently have.

Maybe I will never know? Why should I? I'm not investing in these companies. It's not my money, or is it? I do know my investment income is tied to the interest rate. No, I can't afford to gamble, so my investment income relies on Janet Yellen raising the interest rate, and hoping inflation doesn't eat it up.

While I think its great to participate pro-rata in later rounds, it feels a lot like YC is backing into becoming yet-another-VC like Sequoia or any other firm in the valley, granted with their 'incubator arm'.

I'd be interested in hearing how being more like a regular VC firm helps YC be better at what it is currently.

This will just be a small part of what we do. There are now 15 partners on the early stage side and 1 on the late stage side.

Two thoughts:

1) In the same way YC was able to make the early-stage ecosystem better for founders, we think we can do the same for the late-stage ecosystem.

2) It's important that we can support companies at later stages in areas that other investors don't like to support.

It will be interesting to watch how it evolves, did you consider creating a new entity?

Having been through the process three times now (on the side of the startup, not the firm) its been interesting to evaluate the different focus and people who populate the later stage companies from the early stage companies. Clearly the questions and metrics are different, but I've found the engagement to be different too. Much more bankerish and less advisorish if that rings any bells at all.

I think YC changed the early stage game in a fundamental way, much better than Angels it has the whole network effect of both Angels and every company that has been through the program. I guess I'd like to challenge you to be more innovative as a late stage investor than announcement seemed to suggest.

How will you manage negative signaling?

i.e. YC leads a growth round for Company A, but not for Company B. Ergo, VCs think Company B isn't worth funding.

The main thing we're doing here is not making any discretionary bets on companies until they're far enough along to be valued off of an Excel model. At that stage, signaling matter much much less.

Is there a subtle conflict of interest with YC essentially benefiting from lower early round valuations, whereas before this was not the case, e.g. YC and startups were aligned on valuation

Makes sense. No reason why YC needs to recede over time and progressive funding rounds. Long tail early stage startups are the beachhead, this is the "big vision" -- vertically integrate the VC stack. Right now other VCs are benefiting from the value YC adds at the beginning of a company's life. YC's stake increases in value, but this lets YC keep betting on itself.

Good stuff.

Can you give an example of an area that late-stage investors don't support? Do you mean something like fusion research, which will obviously have payoffs >10-20 years down the line?

(Why don't current VCs invest in those areas, if they're potentially profitable? Just a lack of a long-term view / fund wind-down timelines?)

That is a good specific example :)

They don't because they have to give a return to PEs, I think most VCs have 5-6 year funding cycle.

That's why startups exist, right? Startups start as small, focused, nimble entities moving faster than old established things. But, eventually the small, focused, nimble startup becomes successful and itself grows into an oversized sprawling entity.

YC isn't immune to becoming too big for themselves. It just opens up room for a new "startup yc" where everybody can have a strong initial impact again (until the new one grows too big too, then the cycle starts again).

They had to do something, think about all the money they have left on the table by not making pro-rata investments in airbnb and dropbox. Not leading the rounds does seem to mitigate the signaling risk issue. imho it's a risky strategy if valuations get frothy. They may be making investments they might not be comfortable with to preserve their integrity.

Not just may, they definitely will be making investments they'd rather not because of signaling. They obviously think that's a worthwhile trade for the upside on the next Dropbox.

According to this article, YCombinator took the entire Series Seed round for AirBnB -- https://arenavc.com/2015/07/airbnb-my-1-billion-lesson/

well, if you think you are good at investing in startups and helping startups succeed, then artificially limiting the stage at which you are willing to do it seems suboptimal in the long run

Awesome! I'm a natural born cynic, but even I have to say that YC has reshaped the entrepreneurial financing ecosystem in the Valley. All these new funds falling all over themselves to be founder friendly, while the old legacy vultures slowly slip into irrelevance - this is the world that pg, sama and team have wrought. As an entrepreneur, thank you for existing.

Curious if in 5 years YC figures out a way to OpenIPO YC companies, solving the private/public market impedance mismatch which seems to be happening now.

Instead, I wonder if YC can formalize & self-regulate a secondary market as an intermediate step before IPOs. This is already happening, but with undesirable side effects.

Maybe I have misunderstood your comment, but my understanding is that any flaws that may exist in the market are relatively small problems relative to the issues arising from the increased regulatory requirements (Sarbanes Oxley, etc) for public companies.

Someday I'd love to see a decentralized equity exchange built on block chain technology. Maybe YC could pioneer this approach down the road.

Bitcoin was bad enough with multi-million dollar fortunes evaporating into thin air after people got hacked. Suggesting tying company ownership to such a thing makes me wonder if we're seeing Poe's Law in action.

The existing ways of selling equity to the public also has drawbacks, such as high transactional costs. And, yes, multi-million dollar fortunes have evaporated into thin air under our existing legal structures -- Eduardo Severin for example.

I agree this isn't something that is ready for primetime today - but it could be in the near future. Even multinational banks are now looking into using block chains for funds transfer.

Let's not pretend Saverin's situation is anything comparable to the ease of stealing someone's bitcoins. He also had legal recourse, which he used, successfully.

It's not easy to steal someone's bitcoins.

In fact, it's much easier to steal someone's credit card details which get transferred around and stored all over the place and are embossed on a piece of plastic you carry with you in your wallet.

We just happen to have a grossly expensive and unfair insurance scheme on top of it that indemnifies consumers against their own stupidity and carelessness. In the future, such a scheme, if so desired, could certainly be added on top of Bitcoin or other blockchain technologies as well.

Why does every thread on HN at the moment involve "X, but with Bitcoin"?

Bitcoin is the breakthrough technology of the 21st century so far. It's like moving from snail mail to emails in its power and cost-effectiveness relative to existing payment and remittance schemes.

Besides that, it's a beautiful solution to a 30-year-old unsolved problem in computer science (the byzantine general's problem).

+1. That's one of the things we hope to accomplish at Wefunder. The gap between public markets and private markets in terms of wealth creation and deal access is really big.

I wonder how long until YC goes upstream of fellowship/startup school: consolidated remote/mini internships for high school students, or some other "get involved with YC companies early" kind of thing.

Especially likely to happen once the first cohort of YC founders has kids of age 12-18.

Are those 12-18 year olds well served by something like a startup themed summer camp? If there are kids who are truly interested in it than so be it but I'd hate to see something like this turned into just another impressive extracurricular checkbox on college applications.

On a particular occasion, PG said that people are better when they have 10 years of experience in programming. He created a few workarounds so that people from one minority and suitable experience get favourable exposure, but to my knowledge he didn't come back on the "requirement". Does it do well to tie 12-18 years olds into a formatted scheme?

It's more common nowadays for an 18 year old to have 10 years of experience programming.

Certainly it's uncommon, but the set of all 18 year olds who've been programming for 10 years are a subset of those who'd benefit tremendously from a YC program for young adults. And YC has shown that even though money is a focus, it's not their primary focus.

Is there value in such a program? I think so. Even if the program serves as nothing more than a reminder to young people that there are those in the world who believe in them, it would be a win. Getting young people to consider "What are some strategies for me to change the world?" before "What type of job do I want?" might yield a better world.

Well, the way they're taking signals the opposite: more and more domain-specific expertise for tackling big problems, so would say that median age (aka training years plus relevant experience) is going to increase. That said, starting with kids can only do good for inspiration, evangelism and first steps. I can see happening both, YC partners and alumni are a pretty heterogenous bunch, other than smart.

Why not go earlier and just steal babies from parents, figure out which ones are Destined For Greatness, then throw away the rest? After all, you've either got it or you don't. (Imagine if you could genetically test people for Founder Greatness. But then you'd have to take them away from home at a young age so they don't see their mother sold into slavery. Otherwise they'll return 10 years later for revenge, fully succumbing to the dark side.)

At some point life experience has to happen outside of YC VC invest startup win exit pivot iterate mvp lean partner found excellence smartest-founders-under-8-years-old bubble land.

There's also the risk of "startup dynasty" — like how mark's sister became an associate parter at a VC firm and his other sister turned into a "self-made" social phenom of blandness-by-association. meritocracy for all, but meritocracy more for the friends and family of the already successful.

The previous firm policy of not making follow-on investments had two interesting side effects: signalling risk, and the nature of the relationship with the founders.

You've addressed signalling risk in another response, but I'm curious to hear your thinking about the impact this will have on your ability to have an authentic advisory relationship with founders.

Do you have any concerns that this could make founders dial back their level of authenticity with you? I think there's tremendous value in having founders who are comfortable being completely transparent about the concerns they have.

In the back of founders minds, there could now be a small voice saying "Should I discuss possible future issue X with YC? If we haven't come up with a good answer to X, it could impact the next round. We'd be better off dealing with X after our series C rather than after our series B." But in not having the conversation, tremendous value is lost - good advice might turn it into a non-issue.

> Capital -- especially long-term capital willing to invest outside of the current trends -- is an important ingredient in that mission.

Does anyone else read this and take away "[investors/VCs/other equity funds who don't group-think and blindly follow each other based on FOMO] are an important ingredient in that mission."

I just read it as "Accepting higher variance investments". Start-ups are already high variance, but going outside of existing trends pushes it even higher.

It would really be wonderful, if, when you announce some new person, you could at least provide a link to their linkedin or some other page telling me who the heck this person is.

Most of us are not that connected in SV that we know every name you do... so please provide context.


He is an amazing person. YC is fantastic at attracting talent

Thanks! -- I must have missed that completely.

Previous post on the pro rata thing seems to be https://blog.ycombinator.com/pro-rata -- AFAICT, the change there is that it's now <$300MM instead of <=$250MM.

I would just like to say that when PG announced he was handing over YC to sama I was a bit nervous. Not because I didn't have faith in sama, but because handing over the reins hardly ever goes according to how the departing CEO/President/founder says it will go.

I must say Sama...I am truly impressed. I honestly wasn't sure how much better YC could have become when PG stepped down, but looking back...just from the outside looking in...it seems to have gotten at least 5X better if not more.

So keep up the good work you (guys) do. I suspect though that it is also testament to the team you have around you as well.

PG used to say you were one of the smartest people he knows, but many people are smart. It is quite a different thing to be effective and you have been remarkably effective at doubling down and significantly improving the value that YC truly creates.

It is wonderful to witness, as much as watching Musk do his thing.

It will be interesting to see YC manage the tension of being founder-friendly at later stage companies. Statistically[0], the later stage the company, the likelier it is the founder isn't running the show.

Is founder ceo succession inherently less likely at YC startups due to YC selection process?

[0]: The Founder's Dilemmas, Wasserman, p.299

Does this affect YC nonprofits - will they be eligible for follow-on funding, as well?

sama, of 1,000 co's how many have exited to date?

Exit as in: cash or public stock readily convertible to cash

Know there is a timing issue, but would be interested in just total actual exits?

sama published some metrics recently...

most of this is publicly accessible; that said, YC may have sold their positions in some companies (unknown). Twitch, heroku, reddit, omgpop, others... YC may (or may not) still hold Dropbox, and many others.

what does full partnership entail? -- thanks, newbie me

These comments I've reproduced below make me wonder again at what point will YC have their hands in to many pots and risk straying from the original formula which has worked so well. There is of course a need to evolve, change and add products. However in a small organization you also have to be able to manage all of that without having existing or new employees (or management) choke on the added complexity. Sama only has so many hours in a day. Even if there are more partners there is still glue that holds everything together. People at the top.

sama: "In the same way YC was able to make the early-stage ecosystem better for founders, we think we can do the same for the late-stage ecosystem."

rdl: "Curious if in 5 years YC figures out a way to OpenIPO YC companies, solving the private/public market impedance mismatch which seems to be happening now."

dshankar: "Instead, I wonder if YC can formalize & self-regulate a secondary market as an intermediate step before IPOs. "

rdl: "I wonder how long until YC goes upstream of fellowship/startup school: consolidated remote/mini internships for high school students, or some other "get involved with YC companies early" kind of thing."

Many things going on. No way of knowing all of this could work out fine. Just to me, from my observation of business over many years (not specific to startups) I say "DWR" [1]

[1] Danger Will Robinson.

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