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Comment by jrudolph | Hacker News Reader

Is it just me or does anyone else think that many of the startups from Day 1 and Day 2 are well beyond the "seed" stage that YC claims to target? I get that YC is a perfect program to prepare a company for raising significant investment, so it makes perfect sense for the startups to join even at a later stage. Also derisks YCs investment on the standard terms (i.e. 7% of a later-stage company for 120k$ is a better deal than 7% for 120k$ at an entirely unproven company).

Example: Ohmygreen claims it's a logistics company (which implies CapEx unless they rent, which eats margins) and already has 800k MRR. Doesn't quite fit my definition of "seed" stage.

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Hey guys, I founded ohmygreen and here are my reasons for attending: 1) community of other high quality founders which leads to helpful friendships and discoveries of new ways of thought 2) yc is a forcing function, e.g., experimentation with new business models, focus on growth, etc 3) it makes everything easier (hiring, fundraising, etc) => every little edge helps 4) long term investment: who knows, I might start another company with someone I met at yc or invest in yc companies 5) additional customers we might not have had access to (easy to reach out to any yc company) 6) while we're not quite seed stage, we bootstrapped a couple years and I wanted to scale things faster in order to bring healthy and blissful living to more people

We were at a stage where yc wasn't necessary but a very helpful catalyst. I hope this is helpful, happy to answer more.

I think it's clear why you joined YC as it can be very beneficial to any company. The comment is questioning whether YC still remains to be a company focusing on the seed stage of investment. Nowadays it appears that a lot companies that go in have a business already in place and a significant amount of traction. This contrasts with YC's earlier companies in which many of them had only an idea or a prototype with no traction. Whether or not this is true I'm unsure of, but it definitely seems to be the overall perception of what YC has become.

I agree that there is a trend to accept some more later stage companies. While there are a few post seed companies, there are many in the batch that just started their company right before yc or a few months before, so that is still a theme. With a 100 companies every batch it is easier to have many more diverse companies represented.

I think it is a no brainer given your reasoning but I think it is fair to say you would have done it without the cash investment. I think this is just a testament to how far yc has come from an incubator taking 7% and giving 20k (or was it even less?) to some unknown hacker types with a paper napkin prototype.

YC is more of a "business club" than an incubator from some points of view, I don't blame either side and is probably the reason they are diversifying with various programs to ensure they aren't missing out on the unknown hacker with a paper napkin prototype.

I can say that it wasn't an easy decision, I had to mull it over a few times and talk to various advisors, alumni, and friends about it. In the end it was very worth it!

This is a good question, and, as a YC founder presenting today, I can give an answer.

"Seed" has shifted. In the early days of YC, you came in with an idea and tried to build something people want. Note that it is called "Demo Day", because you would literally demo your product.

Today, it's just so much easier to start a company. You can try out an idea in a weekend, so the 3-month program of YC is focused on growth. As you said, they are preparing companies to raise seed capital, and the bar for that has risen considerably.

Surely you're exaggerating.

You can create a toy program or even a very basic (most likely web-based application) that solves some problem in a weekend, but there really are very few lucrative companies or ideas that can be accurately "tried out" in a single weekend.

If these companies are "seed" stage companies, then I'd argue it isn't that any bar has been raised, but that "seed" has come to mean something entirely different.

Any company that has $800k MRR is (well) past seed-stage.

Yes I have the same question too. The $120k for 7% is meant for seed stage startups where $120k is a Big Deal.

If you already have $800k revenue each month, what is the math behind giving up 7% of your company, permanently, for $120k?

You get the YC stamp of approval, which makes selling, recruiting, fundraising (everything, really) much easier. It's like asking why a genius would go to Harvard, when he can just teach himself everything.

exactly. a real genius wouldn't go to harvard. real geniuses don't need "stamps" of approval. fake geniuses do, and not to shit on Y Combinator startups, but these days they aren't that ground breaking. Though now there are more hardware startups, in terms of "app startups," every batch looks the same. The tech isn't that different from what was being done 3-4 years ago. Web app with a panel for a given industry, perhaps a marketplace. Rinse and repeat. That said, it is totally refreshing to see every industry appified, but coding-wise the vast majority aren't pushing the envelope. Let's just not pretend Y Combinator is at the cusp of application innovation like it was several years ago. Another way of putting it is: Y Combinator is more about "businesses" these day than technology.

What are you talking about? Real geniuses go to Harvard all the time (or to other elite educational institutions).

Y Combinator has always been about business. That's the point of a startup: to build a successful business, not to build useless technology that no one wants.

Not sure your logic is correct here. Real geniuses go to Harvard all the time and they like stamps of approval just like anyone else. Why would a genius not want a stamp of approval? Why would a good company not want a stamp of approval? Leonardo Dicaprio doesn't NEED an academy award but he wants one. Albert Einstein doesn't need to publicize his theorems for the world to gush over how smart he is, but he does it anyway. Genius chess players don't NEED to win competitions, but they want to for the recognition.

I believe that the purpose of YC is to start new businesses. Starting a new business that successfully penetrates an existing market or creates a new market is extremely difficult. The new business brings something unique to the market. In YC's case that is usually technology. For example, if a company creates a website that brings new efficiencies to a market by applying the latest open source technology, that's a great boon to society and absolutely should be funded by YC, even if it isn't "cutting edge" in your definition.

hey thanks for the answer. I get what you mean, but the math still does not make sense.

For example, if you made $100 million MRR, then a "stamp of approval" for 7% is probably too much right.

I guess what I mean is, yes stamp of approval, alumni network etc. is great value, but at some point you kind of have to look at the math and say "well where do you draw the line". With 800k MRR already and growing, does it really make sense to give up 7% for stamp of approval

7% is a ton of equity, especially for a company that's already doing 800k MRR. You can do a lot with 7% equity of a company that has 800k MRR

What can you do with 7% that you would be better than getting into YC? The better valuation terms alone would be worth the 7%. Alumni network is priceless. Hiring becomes easier. Talent becomes greater.

Ya you're right I didn't do the exact math so I don't know what the numbers are.

For 7% of a 800k MRR fast-growing rocket, you can probably get multiple really veteran execs from your industry (healthy snacks in this case), each bringing on their own industry connections (e.g. to wholefoods etc).

800k MRR is 9.6million ARR, so even if you don't grow monthly, that's a lot of money. With that ARR you can probably raise much more than 120k with 7%. Every dollar counts in a startup

Maybe they did the math and it looks to be worth it. Or maybe when they joined YC they had $0 MRR and YC helped them get to 800k by graduation day. I can only guess with limited info from Techcrunch so my guess may not be accurate!

To extend your Harvard example, yes the genius needs a stamp of approval from Harvard totally agree it's the best there is

But if the genius already founded and is running a growing business at $800k MRR, then maybe she shouldn't pay the 7% entrance fee to get Harvard stamp of approval right

Stamp of approval is great. All I'm asking is, where is the line when cost/benefit makes sense. Can't be infinity right

If you are in the business of supplying startups with healthy snacks and a sales person came along and said hey I can bring you 620 new accounts for 7% would you take that deal? Now consider they sweeten the pot and say I'll also give you $120,000 up front; on top of that I bring connections to money guys; also connections to 1,000s of people who have already been where you are trying to go that are notoriously helpful; and I have a track record of touching things that turn to gold and while there are no guarantees the second you make this deal I guarantee you will get media coverage and every opportunity to succeed.

I know personally asked to forego the Fellowship financial investment for a credit to Gigster to develop apps for my beta, of course that was ignored, but a deal I am sure any non-technical person would make any day of the week if they were serious about success.

In YC language a "startup" is not a business at the start of it's life, but rather a business that is focused on rapid, extraordinary growth. If you have $800k mrr but an intent and a plan to get to $800million mrr, you're running a startup. To that end, if giving 7% equity away to people who can aid you in making your business scale quickly to where you want to be, then it's a good idea to bring them onboard.

pg wrote about it a few years ago: http://www.paulgraham.com/growth.html

What you are saying basically, is that someone needs to disrupt YC itself. And this is true. Someone should host a "Day After Demo Day" and allow anyone who wanted to run the race without paying the entry fee to pitch to any interested VCs. I suspect it would be interesting (and it wouldn't kill YC, although it would change it).

YC then has a financial incentive to help you succeed.

For them real value may not be the money, they may wanted the advice that comes at a price of 7%.

> $800,000 monthly recurring revenue, too. Ohmygreen does 700 deliveries every month, but at its core, it’s a logistics company,

> Snacks ($21 per month per person)

Its totally possible that the major chunk of their revenue comes from just Amazon. Hence they want to expand to small companies (also known as scaling problem) hence YC would be a good fit. Twitch, YC etc etc can now order from them.

I think he's only making the point that it's relatively easy to bash out something that looks like a product, do a release on several online forums and have a 'startup'. It's quite something different to have built a business, that is now ready for hyper-growth; and that's probably where YC can help a great deal.

I think seed stage is more loosely defined. Or can you only raise seed capital when you are 2 people hacking in a room on a web app?

Risk appetite is diminishing. The shit storm is just over the horizon.

Too soon. They are doing YC fellowship for a riskier profile.

I'm wondering the exact same thing. And also, I am wondering if all these companies that are clearly later than seed stage get the exact same offer of 7% for 120k. Is there somewhere in YC terms that says that is the only deal they offer to new companies, or are we to assume they potentially are recieving more diversified deals?

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