Trying new things is just how you're supposed to build a company, at least when you care for the long term rather than next quarter.
If PG is smart enough he wouldn't give a Damn to those response. If he is not, he is not worth 'sucking up to'
There is nothing wrong in questioning this change.
To me this is a clear indication of YC has passed its peak. If you are funding people who are going to fight over 80K after their dream company fails, there is something seriously wrong in kind of people that are being funded by the program.
How to interview a VC:
And besides, the real value from these investments isn't the money, it is the mindshare you get with the VCs. This will help make that mindshare greater.
VC's are used to writing huge checks and providing value after a company has solved product-market fit. This asks them to write a tiny check and provide very early expertise they generally don't provide.
Also, Andreessen Horowitz added Chris Dixon (a very well known angel investor) as a general partner, so I think this speaks to their intentions of being able to help companies at an earlier stage.
I guess there is no change, since the advantage YC sees in multi founders is probably only for the time interval before these disputes, at which point they are already doomed. But what I may be missing: could amicable breakup ever help a company avoid the dead pool?
Another thing I find missing from the discussion: is this move also meant to push new founders to profitability faster? PG seems to be mentioning it more lately (,  etc.).
 Honest question- I hope it does not spark another single vs. multi founder debate.
 The best solution is not to need money. http://news.ycombinator.com/item?id=4067297
 The best thing to measure the growth rate of is revenue. http://www.paulgraham.com/growth.html
In another comment, you mention founders scrapping over the carcass of their failed startups; what is it exactly they're fighting over? Surely the money has run out and anything left should be returned to investors in good faith? Are they fighting over Cinema Displays, Aeron chairs, etc, and by reducing the amount of the note you're reducing the amount of accoutrements these fledgling startups accumulate, and thus can fight over in the event of failure?
I assume he's talking about cases where the founders fall out well before the money has run out.
Previously, when there was little (money or IP) left, they'd just go their separate ways and start something new.
But with money still in the bank, founders may believe the company still has some value and a future, and will fight to assume control of it.
So yeah, YC can really be that stressful.
Surely, we can respect the complexity of founder relationships, and yes, at times their tenuousness - and not trivialize them as matters that can be solved by making it easier for a VC to write-off the investment. It just feels like an aspirin for a different problem...
Basically, if you take 60 startups, give each $80k and put the $4.2 million (60 * $70k) in the bank. When that batch of YC startups gets to $20k left in the bank on average, figure out which ones show promise and which ones should be deadpooled. Assuming a 2/3 deadpool rate, that leaves 20 startups to divide the $4.2k among, or approximately $210k in convertible debt per startup to reach the next milestone.
This is more inline with your essay about the future of funding, in which you speculate that funding will become more continuous.
I would say that they were definitely valuable to us, if for no other reason than to get a chance to talk with investors before there was anything really at stake. The way investor meetings go is something that's hard to explain and something you just have to experience. This gave our class the opportunity to get a little used to how investors think and the way they interact with potential investments. While that may seem to be somewhat intangible, it's hard for me to estimate how much that initial experience helped ease us into doing it "for real" later.
(The alternative I would've given that hypothetical VC would've been to pay somebody with professional business mediation or even personal counseling experience to specialize in the part of the problem they were finding painful. This option is admittedly less open to the average VC because they would have to solve the Design Paradox well enough to identify a good mediator/counselor. I have a rant about groups not explicitly recursing on their most important obstacles and trying to solve them on an ad-hoc basis instead focusing strongly enough to start a subproject that can invoke specialization and a person whose explicit responsibility is to solve that problem, but it probably doesn't belong here.)
Plus we're human, and we don't want to spend all our time mediating disputes. It's very boring.
I don't think outsourcing dispute mediation would work. There's too much context, and founders seem to want to make their case to us personally.
The reason I find that ambiguous is that for YC, mediating disputes between failing startups is not as important as the main obstacle they are trying to solve, which is the RoI problem. So, they could indeed outsource the mediation/counseling problem to someone else, and even if someone else didn't do as good a job as they themselves did because they didn't identify a good enough mediator - well, making sure that a failing startup separates fairly is not that big a deal anyway.
I'm curious what it might do to valuations. Now the startups have 12 months of runway instead of 18-24 months depending on the number of founders. This means that at demo day, investors know they could potentially squeeze startups a bit more because the runway is shorter. Hopefully the sheer competition will mitigate VC propensity to keep telling investors, "Hey come back next month with updated numbers" until the startup is willing to take money at any valuation.
When you come to the end of that runway, you need to make a hard decision.
Also, when you change plans, you can look for new investment in the new idea. The assumption is that if you can't get follow on funding for your current idea, then it really is in your interest to come to the end of that runway sooner so you can be forced to make that hard decision and focus your efforts elsewhere.
We could order components just to try them out, without worrying that we were spending money on what may potentially turn out to be an unusable or unnecessary part. We could answer a lot of questions about what was possible using test setups rather than assumptions based on scraps of information collected from various sources.
80k probably would not have provided both R&D funds and some runway.
EDIT: I mean 'runway' in the sense of money for salaries, excluding R&D and other costs which could possibly be seen as ongoing costs of operation too.
"Notably missing from the investor group: Ron Conway’s SV Angel. Y Combinator founder Paul Graham said in an interview that this new format didn’t make sense for Conway and David Lee’s fund size."
In very few cases will $80k vs. $150k make a difference before Demo Day, except for (IMO) hardware, certain other businesses with specific prepayments (maybe a licensing deal like "exclusive 12mo license for Kinect tech for pharmaceutical industry"), etc. But really hardware is the only obvious case.
While not nearly as bad as fundraising itself, I would also caution people not to underestimate how much work a successful kickstarter is. A lot of work is required, and is continued to be required long after it has finished.
That said, I think I'd still want to have a bigger bank doing hardware. If you kickstart or take pre-delivery payment for something at ~cost, and you need to respin a few times, you may become the next Wakemake. Being able to just take your $50k reserve fund and buy all new parts or pay for an expedited mold or something could make a big difference early on.
I wish I had enough silicon-valley-version-of-Wasta to raise a $2-5mm microfund. Being able to finance hardware projects or other obviously capital-intensive YC projects on START terms with an extra $100-200k early on would be a pretty decent investment. It would still be a much more algorithmic decision than "which teams do I think will win", which probably wouldn't work as well. The ideal LP for this would be Jeff Bezos and maybe a few other guys who made bank off hardware or retail.
You'd almost be a bank, vs. an investor -- you would be investing based on a specific credible expenditure. Do it as debt + warrant coverage, or secure against revenue. Just be easy about it -- it should take 5 minutes to make a decision, and you should be adding hardware/distribution/retail/logistics clue to the process to help the founders.
YC hardware companies (and, honestly, all startup hardware companies) kind of sucked before the $150k START in W11.
The "prevailing wages" for an engineering position (the minimum salary the company can pay an engineer on a H1B visa) in CA are about $75K. This means that there is almost no leeway even if only one of the founders needs an H1B: this funding alone would not cover it.
YC is very aware and supportive of immigrant entrepreneurs though, so I am sure they are already thinking about this.
Two mitigating facts:
- It is prudent to have enough money in the bank to pay the H1B employee for a year, but this is not a requirement before filing for an H1B, especially if you can show that there are other ways the company can continue to pay the employee. Most significantly: revenue :)
- The H1B is not the only route available to non-resident entrepreneurs: the O1 visa is another option, although the requirements are more stringent.
I have had to cross a few of these bridges myself, so if I can be of help to anyone reading this, please email me: hnusername@domainINprofile.com
What screws people is when they have high fixed expenses -- like a founder who has a kid in college, a mortgage in another expensive city, non-working spouse, expensive medical insurance or medical costs, etc., or some combination of these. It's not hard to need $5-10k/mo to cover upper-middle-class fixed expenses, especially if you have to run it through payroll and thus ~50% total taxes, and then add living in the Bay Area for the summer on top of that.
That is why a lot of startup founders do it when they're young, not because being 22 is inherently better for doing a startup than 44.
I also think that having the entire tech community concentrated in the Bay Area is a bad thing. It leads to mental inbreeding and a narrow perspective.
Bay Area inbreeding partially works because (a) young companies don't have to spend as much on relocation, (b) availability of public transportation makes living and working in different cities plausible.
That's why I'm saying that a push by YC combined with Google Fiber could be that initiative. Like I said, there is already interest in the startup community in KC because of Google Fiber. For example, someone started a "startup house" in the first fiberhood to get hooked up, and is now renting it out to startup founders. He's got a lot of reservations already.
As for moving their families, I don't think that's a big concern. There are a ton of young, single potential founders who would have no problem moving halfway across the country.
> Bay Area inbreeding partially works because (a) young companies don't have to spend as much on relocation
These costs can be much lower in the Midwest. Finding an apartment is not the multi-month ordeal it can be in SF, for example.
> (b) availability of public transportation makes living and working in different cities plausible.
There's no need for public transportation in KC. Gas is cheap, taxes are low, and parking space is plentiful. Just get a car. In fact, I'd prefer not to take public transportation if the train stations need to be cleaned by Hazmat crews, as they do in SF, with BART.
Traditionally the tech industry has been centered on suburban Silicon Valley, not San Francisco proper. But more and more educated young people want to live in real cities with culture, diversity, mass transportation, and walkability, which is they they live in San Francisco. There are other places with some or all of those benefits--New York, Chicago, Seattle, Portland, London, Berlin, Vancouver, BC--but Kansas City has close to none of them.
In addition, the San Francisco Bay Area has the Sand Hill Road VC's, tons of angels, a large talent pool, two world-class CS departments at Berkeley and Stanford pumping more talent in every summer, and lots of other technology companies in town to collaborate with. It even has lots of suburbs if you really want that. Kansas City has Google Fiber. Not even Y Combinator would tip that balance.
$4k gets you anywhere in the world, and maybe half the western world is reachable with $1k or less. You're not going to spend a substantial portion of $80k on flights unless you go home and back every weekend.
It's not the end of the world, and the typical YC company will be resilient enough to survive whatever.
However it does add up fast (40k easily), it's not something you can avoid, like say buy a less shiny laptop, and reduces your runway in a meaningful way.
If you are worried about the number of times you can enter on a visa waiver, don't - I have entered the USA 50+ times on a waiver and the guys at immigration ask me how I am going and wave me on each time.
This was even more fun before they closed 'The Mexican Loophole', where you could drop out to Mexico for the weekend and get a new visa on the way in. I had a lot of fun weekends in Mexico before they shut that down. You now need to leave the North American continent (they included Central America when people started flying to Belize to get new US entry visa's)
Most international YC companies end up moving to the US, and they sort out visa issues after demo day as it takes too much time during YC.
Sadly, my country is not in the list, so I have to pay up.
The list of countries that you can get a waiver from is a lot longer now than it was when I started doing it. The USA realized that they depends on business tourism/migration, so they have been steadily expanding that list of countries and the scope of the waiver program.
So make sure you check back regularly.
I know of two people who did something like that and it went wrong. If you are not lucky you get the "wrong" immigration officer and then you won't get into the US anytime soon.
Immigration costs close to $10-15K if it's a real move. Without a US credit history, you're going to have to put down a lot of deposits just to get basic things done like getting a credit card.
Quite the investor lineup; I think they had their choice of anyone in the world to be honest.
I like reading PG's stuff because these sort of decisions are counterintuitive, but very fun academic/didactic examples.
YC has common shares (and a small minority at that) while the start fund is arguably even worse off with a convertible note.
so, if the founders decided to, they could just pay out the rest of the money as a bonus. immoral? yes. illegal? i don't think so.
Thought I'd doubt it would be litigated, unless the founders are particularly stupid in addition to being immoral.
I guess investors of the type investing in start fund tend to think of it more as a gamble that only converts to anything if the company raises and don't care much about recovering relatively small bits and pieces in the even the company fails.
Or are you referring to cases where at least one founder wants to continue?
> it sometimes caused messy disputes in the unsuccessful ones.
I can't imagine a dispute that would occur at 150k but not at 80, except maybe of the cut-and-run variety, but the same could be said of any dollar amounts - you need to know when to cut your losses.
(and, virtually anyone who can get into YC is passing on a $10-15k/mo income opportunity by just getting a job somewhere. Fighting for 1-2 mo of wages makes less sense than fighting for 6-12. The dispute would happen anyway, but it's not worth fighting if there's only a small balance left.)
1) Maintains the prestige of a team being selected.
2) Keeps investment level at previous level.
3) Spend quality time with each team.
Perhaps for capital intensive startups that ought to be funded, there can be a separate arrangement.
This shows why YC is YC.. it constantly innovates and is not afraid to change things up as needed.
I can't decipher the level of exaggeration. If your company has "no idea", maybe that's where the blame should lie, rather than on having too much money.
"no idea" doesn't literally mean we had "no idea", we had plenty of ideas. We just hadn't settled on one yet.
1. Demo Day was a unique non-linearity. Being especially good by that date would make you overvalued (now I realize that's a dumb thing to aim for, rather you should aim to be of genuine high value).
2. Spending all 170k by Demo Day would be the optimal way to achieve this outcome. It's pretty hard to spend 170k in three months with no idea, in fact it's a job in and of itself to figure out how to spend that much.
I did manage to recoup all the losses by airbnb'ng out the house and finding other yc co's for the interns, but still it was a waste of at least one month and created an aura of bad feelings that doomed the company for good.
Edit: NOT Mark Cuban.
80k might not be enough and "doing more with less" can just as often lead to failure. Case in point is the recent post about the lean startup that only provided the minimum viable product (MVP), but failed to really provide what was needed. If pressure is put on startups to provide a product faster for less, then less of a product will be provided. Granted, YC will provide more support and try not to let such things happen.
I think the funding should be decided on a case-by-case basis instead. Possibly more funding could be given to those with a better idea that have greater need through some sort of point system, and either provide a range of funding from 40-120k without requiring more from the VC's, or provide 80-150k if the VC's are able.
1. You have idea, a plan to validate it and a plan to execute upon different outcomes and different startups require different financing. I am just wondering if YC has clear matrices which shows there is a same optimum financing for early stage startups in all the domains (healthcare, edu, consumer web, etc.) I am just curious about this!!!
But then I read the following: " it sometimes caused messy disputes in the unsuccessful ones. Switching from $150k to $80k may not completely eliminate such problems, but it will make them at most half as bad."
2. The entire funding decision and amount is changed based on negative thought of a dispute among the founders. I believe this is fundamentally wrong and is against the entrepreneurial spirit. I wouldn't feel good as a person and an entrepreneur if my investor would come up with this. It basically means you don't know what you are doing and I am going to protect you against yourself!!!
3. Although a 70K difference is a small number, but it will have a huge impact on your startup:
- validating your idea and pivoting: the startups will show a tenancy towards low hanging fruit instead of seeking for the bigger picture solution
- Shorter runway impacts your flexibility and thus deal negotiations for the next rounds considering a 3-6 months funding period.
- Am just wondering how this will impact valuations of companies in post YC. I would think the valuations would go down.
What are your thoughts on this?
As for (2), potential investors say a lot of things that just make you feel terrible. The best response is to dig into them and try to figure out if there is any truth in the criticism, make any adjustments you can, and keep pushing ahead.
Not sure what metrics YC collects on each of its cohorts, but if "Cycle Length" and "Total Cycles" are two of them (i.e. end-to-end time through build-measure-learn loop), then it would be valuable to see if January's teams deviate, in a meaningful way, from the established average and mean.
Hypothetically, you'd think that "Cycle Length" would decrease as less cash in hand forces teams without product-market fit to tap into higher gear (or sustain that same high level of output), rather than spend valuable attention wondering about how to get a piece of the "carcass" should things crash and burn. Total cycles would then move up and to the right, as teams get a few more in near the end of their runway.
That said, there are at least two additional potentialities.
1. "Cycle Length" and "Total Cycles" are already running along their respective natural asymptotes.
Consequence(s): A. Awesomely cool discovery re: limits of productivity! B. The number of founders able to remain highly productive while simultaneously squabbling (and providing PG w/ massive headaches) decreases.
2. The "Starting Date" for raising an additional round of financing shifts to the left (i.e. becomes earlier). With less cash in the bank, and hence a shorter runway, the average starting date for teams w/o product-market fit to begin seriously committing time to fundraising shifts "earlier".
Consequence(s): A. If more time fundraising = less time building, then the average total output of a team, in the 12 months post-YC, could decrease.
Mitigation: Personal access to the best VCs in the world could mean that the length of a "Funding Cycle" (i.e. total time spent raising a round) decreases, thus offsetting consequence 2a.
It'd be great if these numbers were something YC actually collected. If there's a science to building companies, you could certainly glean great insight from those digits.
I'm probably completely wrong but guessing Sam Wyly was perhaps one of the major reasons?
Require founders to choose and sign on to prior to receiving any of the $150K (or maybe prior to acceptance to YC).
That's one good person's salary for a year. One.
This is a seed investment to help you prove your idea, or a bit of a boost for a business with profits too low to get impact from reinvestment.
But when you're starting a startup, you don't take a salary of that size. You live cheaply and take only the minimum that you need as you commit yourself to building your company. It's not a life for everyone, but it is the startup life.
That's the difference between "smart money" where investor(s) contribute more than cash into startups and "dumb money" where investor do not.
Great move YC!
Which would mean they would have their pick of ideas since everyone would try YC first.
Because categorization is important for organization, how about having startup brackets?
Maybe $80k is enough for some ridiuclous $2 iPhone game or some startup for making a website for adding a single puny feature to an existing social network and having 15 minutes of fame.
But $80k is nowhere near enough money to create an Enterprise solutions startup. I laugh at your $80k and the hubdreds of flight-by-night, gimmicky, bullshit, small businesses that you will burn your money on.
It takes at least $5 million over 5 years to startup a serious business that has any chance in hell of becoming a real billion dollar company. That is the future.
$80k ... it's insulting to people with real ezperience, real ideas, real businesses and real explosive growth potential. You will never fund the next Apple, Microsoft, Google, Oracle, NVIDIA, etc ... You're just going to fund a whole lot of infantile business projects and a whole lot of fail.
Apple was selling hobbiest boards, Microsoft the license to DOS.
You don't have to build a whole company, just find a market and become sustainable.
Airbnb ... again, it's just a small business at best.
If I could seed my startup idea with $80k I would bankroll the damn thing myself using my own savings, instead of selling my company down the river on a convertible note for a paltry sum. Yes, I have $80k to blow because I have real experience making real money. No, 80k does not come anywhere close to the investment needed to seed a real business.