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Ask PG: Why not take YC public like Berkshire Hathaway?
45 points by citizenkeys on May 23, 2012 | hide | past | web | favorite | 26 comments
Why not take Y Combinator public like Warren Buffet's Berkshire Hathaway? If you did, everybody could invest in the next big tech hits indirectly. Also, by investing in YC everybody could enjoy the diversified risk versus investing in much more volatile individual companies.

Have you considered taking Y Combinator public? If not, what are the compelling reasons to avoid that course of action?

Every major "alternative investment manager" that has gone public in the past few years is well below its IPO price:

  Blackstone (BX): -65%
  Fortress (FIG):  -90%
  Apollo (APO):    -35%
  Och-Ziff (OZM):  -75%
Think about it for a second. These are some of the most successful traders in the world; they aren't going to undervalue their own company.

Likewise, the only reason a firm should go public is if (1) they need capital, (2) they want a "currency" for acquisitions, or (3) they fell the firm is so overvalued by the public that it makes sense to sell shares. The first scenario is likely false for YC, the second wouldn't make sense either, and the third is exactly what we have above.

Here's my response when a similar question to this one was asked last month:


I imagine that the regulatory overhead is enough of a reason not to go public. But more importantly instead of asking "why not" I think the real question "why go public".

Sure it would be nice if we could all invest in YC (read: make $$$ off pg) and take some of the risk of YC's hands. But I don't think YC is frightened by the risky/volatile environment. YC's business model and prowess seems to be identifying which risky investments to make in a volatile market. Don't forget less risk means lower returns. I have no idea what YC's bank statements look like but I doubt that lack of capital is the most pressing business challenge.

Has PG ever compared BRK to YC? BRK seems to invest in companies at a completely different stage than YC.

> "Question from audience: What keeps you guys up at night? What do you fear most?

> Paul Graham: I fear that something will come along that causes me personally to have to do a lot more work.


This aside, in the vast, vast majority of cases there aren't any benefits for the company for being public in the US any more; just tons more work and requirements. YC as it exists today would be impossible were it a public company.

What is the advantage of YC going public? I doubt they will have any trouble raising more money if they need it.

indeed, the focus of this post seems to be "why not?" when it should be "why?"

related, about a month ago: http://news.ycombinator.com/item?id=3893783

This's a great thread. Under the new startup investment laws that come into effect January 1st, are you going to be allowed to use something like Kickster to raise an investment fund? That would be seriously interesting.

Thanks for the link. I think pg's first response is exactly the answer to this question.

pg's response doesn't exactly answer the question. crowdfunding start-ups would involve all investors dealing with all the start-ups. by investing in YC, YC would manage the portfolio of companies on behalf of shareholders.

the reason for YC to take investors would be to inject new capital that could be invested in more start-ups. imagine semi-annual YC batches of 1000 or more new companies. or seed rounds of 1 million or more per start-up, which is actually becoming increasingly common already.

Since being public is obscenely well-known to be a pain in the neck (even before the Facebook debacle), the OP is obliged to make a much stronger case for "Why?".

YC is essentially a small, early-stage VC firm, focused on the tech and software market where very early seed investments can make a tangible difference.

I can't think of a single public company that operates according to that model. That doesn't mean that it's wrong, just that most early stage VC firms are small partnerships which gain no advantages through raising capital in the public markets.

(In fact, the greater scrutiny and publicity that publicly traded companies face is more likely to be a serious downside that VC and PE firms want to avoid.)

Why would PG and YC ever let us mess up a good thing? There's zero incentive for him to let us participate in his success.

The incentive to go public is for companies who could use additional funding to grow. VC isn't short cash.

Does Y Combinator ever invest in the follow-on rounds of companies that have gone through its program? If not, why not? It would seem a logical easy place to own an even greater share of their most promising companies...

One of the reasons that Y Combinator do not do follow on rounds because, it looks bad if they don't invest in every single one of their investment in the next round.

I'm sure there are probably others but ^ is alone is a very good reason not to participate in follow on rounds.

However, some of the YC partners are also angels and have made some investments in some of the YC companies in follow on rounds e.g. Priceonomics[1] & Crowdtilt[2]

There are others YC companies which the partners have also made investments in, I'm just highlighting two of them.

[1] http://techcrunch.com/2012/05/04/priceonomics-seed-round/

[2] http://techcrunch.com/2012/05/17/kickstarter-for-groups-and-...

Presumably for similar reasons as outlined here: http://cdixon.org/2009/08/14/the-problem-with-taking-seed-mo...

Its pretty simple. Because they don't need to. They're doing incredibly well without tons of scrutiny for every decision that they make. The question should be phrased the other way around: why would YC go public?

GSV Capital is doing something similar - http://gsvcap.com/about/


What publicly traded companies compete in the same space as YC?

Internet Capital Group went public during the last bubble when B2B and incubators were all the rage.


As an investor I would stay away from VC funds that went public. I'd want partners to have a lot of their personal capital tied up in the fund, not cashing out in an IPO.

Hercules Technology Growth Capital (http://www.htgc.com/) is listed and based in Palo Alto. But the entire listed VC and PE market is undervalued, they all trade at substantial discounts to the value of their underlying portfolio companies (but on the other hand how do you/they measure this?).

GSV Capital (GSVC) is the closest thing to a public YC. But they aren't. They invest in later stage venture backed companies. I'm not aware of any other public venture funds, which aren't really comparable to YC, being that it does early stage deals exclusively.

once YC is public, mutual funds could buy it and then we could invest in those mutual funds to really diversify our exposure.

Taking this to the logical extreme: in the "YC goes public" scenario, go ahead and just invest in a truly market-wide index fund. The problem with this direction is that as you diversify away your exposure to downside, you also diversify away your exposure to upside. Because you get a smaller slice of YC's returns/growth and a larger slice of a bunch of other, presumably worse performing, businesses.

The only reason anybody cares about Berkshire Hathaway is because it's Warren Buffet's company and that guy is a fucking genius. You can learn practically everything you need to know about the stock market simply by watching him and his company work.

I like how this question comes in the wake of the recent Facebook IPO shenanigans.

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