(My understanding is that YC specifically targets opportunities that have hundred-million- to billion-dollar potential, so perhaps my underlying assumption is wrong here.)
Does this mean YC is hedging their bets, or are they amenable to funding "low" potential companies now? That would seem to jive with their recent public statements about wanting to expand, since not all viable businesses see huge exits.
Very true. Today was the 7th demo day I went to with my fund partners. For each batch, we try to reverse engineer the startup list as much as possible, and we usually figure out 2/3 or 3/4 of the list before demo day. Every single time so far, when I review the list of startups before demo day and check out their websites, I think "meh, seems like this batch is a little weaker." Then I go to demo day, see the full picture on each company, and consistently feel like the current batch is the strongest one yet. It's hard to really understand a company's progress and its potential from its website, or even worse, a one- or two-line elevator pitch.
This is the answer I was looking for, one that explains your driving intentions. I'm nothing like a venture capitalist or investor, so I appreciate that I may not have any kind of good read on these companies' potentials.
All the best to each of them and to you.
Let's discuss more important things now?
FYI, DanG already detached a similar comment: https://news.ycombinator.com/item?id=12341452
Is that a choice of the writer, or was it something YC companies were coordinated to focus on?
Americans spend tens of billions of dollars per year on sofas, more than they spend on mattresses. The market is tremendously big and there seems to be a gap between Ikea and $2k West Elm sofas. That's what Burrow is going after.
To get a billion dollars of that market, they need to move 1e6 of their sofas--and that's assuming pure profit. How many sofas can they make a day?
The math suggests this is not a growth industry.
I've seen several small businesses whose only function is to pick things up from Ikea and deliver. If people are comfortable buying sofas online, it will apply to a range of home furnishing items. Furniture stores have been selling "rooms" for years for this very reason.
Aside from brand and customer relationships, if the delivery infrastructure for furniture is different than other items, that will provide a moat.
But is furniture a high margin business? Ikea's numbers suggest it is with gross margins over 40% in 2011 and 2012.http://www.ikea.com/ms/en_JP/pdf/yearly_summary/ys_welcome_i...
Can someone give a good summary of why that company made it to a big exit? What strategic moves did they make that made them succeed where countless others fail? Software doesn't automatically eat the world, after all. Why now? Why these companies? What specifically is the right plan?
That said, the market between sofas and razor blades is very different. I don't buy a new sofa every month. Companies don't leverage R&D and advertising the way that Proctor and Gamble did to move sofas.
The Dollar Shave Club Explanation here is optimistic at best.
At list if we look at IKEA(maybe the closest to compare to P&G) - they do have R&D(every year a new lineup, optimizing manufacturing and supply chain), and at least when they grew they did alot of advertising - and they still do some, but maybe they need less because of their strong brand an that they are considered monopolistic locally in places they reach.
But don't take the Dollar Shave Club literally, the point is more the lack of capability of companies(and their ecosystem) to move ahead, because they are deeply integrated/dependent in the past with it's old assumptions.
But now a lot of the old assumptions might be broken : no local monopolies(and monopolies over large areas are much much harder to create), no limit to product variety, much more customization becomes possible, targeting highly focused niches becomes possible, software may enable AI interior designer service for free, the supply chain looks very different for that, etc.
Maybe that's Burrow's future.
I'm no expert though I thought Twitter made no since because of facebook
As others have pointed out, YC (and VCs in general) have definitely expanded outside of pure software companies and a number of them have done well (see Dollar Shave Club). I think it remains very hard to classify companies as lacking in huge potential from the start—originally, I was very skeptical that DSC would ever be worth a billion.
I suspect that it's still a requirement for YC founders to be interested in aggressive growth. It's still for startups after all—I don't think anyone would get in if they admitted their sole goal was to reach <$1m/yr in profit.
To your point, I wonder if there is some sort of calculus within YC: Company A has 1% potential of a $10B exit, Company B has 50% potential of $100MM/year ... what do we do? Cold logic says we invest in Company A over Company B (not that this is zero-sum), but they can only make so many investments and the real numbers are much smaller than one-percent. Whereas, a series of conservative investments keeps them solvent long-term, while the bigger exits slow boil.
> To your point, I wonder if there is some sort of calculus within YC: Company A has 1% potential of a $10B exit, Company B has 50% potential of $100MM/year ... what do we do?
These days, I think the answer is increasingly: both. YC is in the enviable position of fantastic deal flow and also being able to scale up their operation (classes have been getting much bigger).
Of course, they definitely still are going to miss out on some great companies. But I suspect those cases are increasingly ones of YC not recognizing the potential, not cases of passing on companies with only $100MM/year potential.
For example, Burrow just sells a single couch right now. It's apparently a really nice couch with a great buying experience, but it's just a couch. Probably not a billion-dollar business.
If I had to guess, though, they pitched a much large vision to YC. They probably talked about a whole suite of barely-luxury furniture. They want to take over the market for 20-30 somethings who have outgrown Ikea but don't want to go through the relatively crappy experience of normal furniture buying. That could be a billion-dollar business.
The market potential is there to build a billion dollar business selling couches, as crazy as that sounds.
You're right on about the market they are going after: those who have graduated from Ikea but don't want to pay West Elm $2k for a couch.
There's a question on the app that asks (I'm paraphrasing) "what do you know about your market that others don't?".
Answer: What appears to be a lifestyle sized market to the casual onlooker is actually big business
Very hard at the seed stage to tell the difference between a business that will turn out to be a $3M a year business and one that will be a $80M a year business growing at %30 a year. That latter might easily sell for over $1B. ( After all $80M in profit is only a 13X multiple to reach $1B, and growing at %30/year means that's a cheap.)
I hate the term "lifestyle business", it comes from redefining "startup" to be a very specific narrowly defined form of startup of the kind that is popular in silicon valley in the past decade.
 - https://gigaom.com/2014/08/07/making-fun-of-silicon-valley-i...
Dollar Shave Club had a $1B exit. Is YC willing to fund the former?
Casper could have been founded 30 years ago. But would NEA and Norwest have invested in 1986 in a version of Casper that used late-night TV ads and a 1-800 number? My guess is probably not. So what does it mean that they do now? Does this mean that the current fashion in VC is shifting away from technology innovation? If so, does this mean that pure technology ventures may soon find it hard to find funding?
Tesla also started with high end cars even though the master plan was much ambitious.
My Grandpa's daily routine starts by getting out of the house. After a couple weeks being stuck in the house it was really starting to get to him.
He doesn't really like asking people for favors, so, he resorted to calling up the local cab company and having the cab take him to the bank, grocery store, and his 2nd bank.
Feels like Go Go Grandparent could exist for many other things besides rides, like placing an order for groceries or submitting a prescription.
How is a headset less heavy than a screen on a seat? On top of that, good luck for the hostess when trying to serve you a drink or dinner and you are fully absorbed somewhere else.
I'd be interested to try inflight VR. It could be really good, or it could just be a one-way ticket to airsickness.
What I'd really love would be a feature that lets me see the scenery currently around me, as if I were flying in the air without the plane. You could just use Google Maps data at first, but if someday they installed a few cameras on the exterior...
Wouldn't that make you sick by itself though ? :)
A thin layer of encryption over cloud storages is a clever idea! And this is exactly how tech entrepreneurship should be - even if the project would fail due to non-technical reasons, the technology being developed could be reused and sold.
"Lifestyle startup" meme is crap.
From the article
I have often thought about this myself. There are som really interesting problems to tackle (like drone clustering and continued surveillance and tracking of intruders using a series of drones (as they run out of energy)
Their challenge is going to be legislative more than anything else but things are working in their direction.
I'm not sure putting the cameras on drones changes the psychology that leads to this effect.
Does anybody knows how does it work ? And is there a free 10ms in the VR latency budget ?
I think a simple solution for two people using the same desktop and configuration with low-latency is a powerful alternative. I could see all kinds of users wanting that combo of convenience and effectiveness for $0.45/hr [assuming no hidden fees]. Potential for lots of growth.
Also, does the user on Simbi pay ... taxes right now? It would be interesting if they don't and Simbi becomes big, cause IRS is really the one government agency you won't ever fight and win.
Oh well, good for them - they executed
1 : https://en.wikipedia.org/wiki/Local_exchange_trading_system
It's a slightly different model from LETS since time is the currency and different tasks are, therefore, all valued the same. I was the one to install and maintain the software behind it (called Cyclos, project.cyclos.org).
I'm glad someone can turn that into a business, people really love to get help from others and/or offer their own services. Although my feeling is that there's considerable churn in both supply and demand.
But I wonder how they plan to extract a part of the value that is traded on this market. It's not really possible to take fees.
Does anyone know definitively but doesn't react native have issues with performance on android ?
Sometimes you might have to spend some time wrangling your code to get the performance results you want, but that's usually the case in building software.
Check out https://play.google.com/store/apps/details?id=st.li.listapp . It is built with Exponent/React Native and has pretty great performance. Got featured in the Play Store.
Just curious, is that image of a bridge in India?
You mean menstrual cups, that are worth like 20 bucks and you can keep for more than a year ?
> ...they don’t like the fact that you have to rinse and reuse a menstrual cup. Plus, they’re difficult to insert and remove.
I guess that's how Flex is different from a menstrual cup. Not being a woman, I can't say how important those things are. I'd guess that they're not worth the extra $20/month, but maybe they are.
I can't think of a startup that started in the last 3 years that has really "made it." Snapchat is 5 years old, Lyft 4, Uber 6, Airbnb 7+, Reddit 10+.
If you disagree, please find the 5 year old hn thread where people say that snapchat is the next big thing.
I've worked closely with M&A teams for Fortune 50 and watched these kinds of acquisitions time and time again, and more often than not - they go sour.
To your own point - yes, GM was probably panicking that they were 'behind' in self-driving cars, and needed to pay to 'catch up', however, we'll have to wait to see how well they are able to integrate this tiny technology team which had very few actual customers into the GM empire on an operational basis.
Given the scope and scale of GM and the auto-industry, and that 'self driving cars' are 100% going to happen ... if GM is able to make the IP work in any reasonable way, it will likely be a worthwhile investment.
As to 'leap-frogging' - given that BMW, Mercedes and so many others already have self-driving cars in the field, I'm not so sure that is a fair characterization.
That said, the track record of large companies buying their way into markets by picking up small, unestablished technology companies is not good.
It's amazing what a couple acquisitions and hot product offerings can do.
But they have taken what I consider to be the wrong approach, and seem to be missing a tidal wave of disruption. They are aiming for a where the puck is going to be in a year, not where it's going to be in 5 years (the first one is a lot easier than the second)
Plus going thru YC and getting on that SV ... path ... has its own costs and risks. Taking VC starts a clock and limits your options and in some ways, opportunity, to what the VC can see. For example how much revenue you have in a year has a huge impact with whether you can raise revenue a year from now. If you really have a better view of the market and future and technology than VCs and Accelerator Mentors (and you should, after all, because you're an expert in this area- and if you aren't you will be in 6 months) those limitations are not to your advantage.
In my experience in an accelerator so many of the companies were still trying to figure things out. They didn't know things well enough to confidently know the difference between the good and bad advice they were getting from the mentors. (mentors even giving good advice can be wrong, simply because their expertise isn't what you're doing-- if it were, the market you're attacking would already be taken.)
In the case of the competitor to what I'm starting, I can see how they have made some bad choices already (just from the TechCrunch article, haven't even clicked thru to their site) because they are already practicing the cargo cult dance, building paper maché airplanes hoping for VC money to rain down from the sky. That's fine, they may win that way, but I still like my chances.
If you read these articles every demo day and watch the YC and TechStars startups, eventually you get to where you can tell which ones have something and which ones don't (though of course there are some outliers.)
None of these companies have it made, so don't lose heart.
Or, maybe clarify what "practicing the cargo cult dance and building paper mache airplanes" means?
Edit: I didn't provide much context. He is Paul Buchheit, a (the?) managing partner at YC Core.
I also enjoyed reading this interview: http://www.bizjournals.com/sanjose/blog/techflash/2016/03/y-...
I call it buying more lottery tickets and it's not a sound investment strategy.
I wouldn't be here without that community, and a lot of successful founders feel the same way.
It is definitely a 'lottery ticket' strategy and it is definitely worth expanding.
If YC can establish itself as 'the place you do seed funding' in America, and can get kind of a monopoly on deal-flow ... then they should invest in anything and everything that even makes sense.
I'd argue the program is too big now to offer any really special value on an individual basis, it's a 'filter' with 'access'.
Like getting into Harvard is maybe more important than anything you actually do there. The H-bomb is what opens doors, just like the YC-bomb.
I personally think that YC companies are on average decent, but most of them are not particularly interesting. Nor do I buy that most of them could reach a $100M+ market.
That said, most of the 'successes' will be acquisitions by big companies paying often massive multiples for future earnings and 'strategic value' and the projects will go nowhere once absorbed.
You're right that most have difficulty getting to $100M but frankly that is most of them. That's how the power law works. Investors who don't make money in VC spend all their time trying to avoid making mistakes. The best investors make sure they don't miss the billion dollar startups.
Your last statement is factually incorrect as well. Most of the YC portfolio value is from large standalone businesses on track for IPO. There are exits that are large and notable through acquisition but if you read PG's writings and talk to YC partners, acquisition is never encouraged. At other places that's the only chance they stand at returning their funds even 2X. Harsh but true.
However - my last statement is correct.
Most YC businesses will NOT IPO, not even close. Most of the 'success stories' from YC will come from acquisitions, you can hardly deny this.
Sure - most of the valuation may derive from YC businesses that (eventually) do an IPO, but they are very small in number, so I think it would be disingenuous to use an $80B valuation, which is derived from a tiny number of companies (mostly one: AirBnB) - to describe 'successful YC companies'.
Also, to be fair, as far as I am aware, in the entire history of YC, none of their companies have done an IPO. So, there's that.
..isn't that the whole point of venture capital? Investing in a bunch of companies with high risk but high potential of return and having a tiny number of successes pay for the losses?