I've always believed there's room for a YC-like company to do slightly bigger investments. Instead of $17k for 2 founders, it would be $80k for 2 founders. That way they could attract people with higher cost of living/high paying jobs (who would hopefully tend to be more successful due to more experience/connections/stability)
Plus the startups themselves don't need that as much; there are already lots of investors ready to give the next $100k to startups we seed.
Most people won't do #1 and #2 makes failure much more likely. If some of these people are significantly more likely to succeed (my theory) it would make sense to invest more on one of these.
As I pointed out in another thread, you can titrate the amount of startupness you want by the age of the company you join.
This economic situation is really a kind of hybrid of full-salary and apprenticeship, where you're partially compensated in startup experience. I'm doing it now so I can learn the ropes of an early-stage startup while paying off my student loans. But long term I suspect your EV is better as a founder or cash-compensated so long as you properly invest your cash compensation.
<only-marginally-realistic rant>
Even better is to be one of those VP's who come in during Series C at an already-successful company and somehow make a market-salary and get 10%+ in equity. You know, the fuckers in suits who come in and do nothing.
</only-marginally-realistic rant>
The startups presenting at Workatastartup range from established companies 5 years old to startups from the most recent YC cycle that are currently run by single founders and are looking for people to be de facto cofounders, in every sense including equity.
As to your point about joining a post-YC company, employees #1-#5 are generally defacto cofounders and are often given similar equity. I'm not disputing that. I'm talking more about (roughly) employees #6 -> #30. At that point you have a product vision, but no concrete product. Since the major work of a startup is discovering the details of what to build, a majority of the work isn't done yet, and the real risk hasn't been mediated. However, a majority of the equity has already been passed around.
The risk and reward are certainly correlated. To say for certain you'd need a rather complex economic analysis that factors in opportunity costs to really say what the monetary sweet-spot is on the founder<->enterprise-employee spectrum. My suspicion is that the startup talent market isn't very efficient; As an industry we haven't really found a good way to judge technical skill other than working alongside someone for months. This hurdle means all the good jobs come via social connections. All the good positions are taken by the founder's network, and all the great devs already have a good gig.
I don't think this is true, at least not for consumer internet startups. If you can't build a concrete product in this space with 5 people, you probably can't build one at all.
I think this is true of the hiring market in general. "You made $80k at your last job as a senior developer? Super. Alright, we have to ask: FizzBuzz. Can you do it?"
shudder
What's the harm in asking if it's a quick and simple discriminator?
Perhaps you're using it in a metaphorical sense. But I've never seen anyone else use it that way.
And those people wouldn't be willing to go all out killing themselves like the start-up myth around YC funded companies seems to more or less ask for. That's self selecting to some extent because one of the demands YC makes (drop everything and move here for 3 months) only applies to young or at a minimum fairly unattached people willing to take a fairly large risk in return for a shot at a potentially larger success.
Founders with 'lives' are a lot less likely to take that plunge, even an 80K investment would not be enough to provide the required security for a team of four to get to the break even point, after all that depends not on the size of the investment as much as to how long it will take you to get to 'ramen profitable' and that point is a lot further in to the future than you'd be with 3 or 4 'cheap' people.
The problem is to get monthly income to become greater than monthly expenses, and to get people that would require more payment during the launch phase the whole picture becomes terribly unattractive as long as there are plenty of young guns willing to try it for a lesser take home pay.
Their chances of success are better, they are less demanding and they probably have more energy (even if less experience).
You are in direct competition with them and I don't think that from an investors point of view there is an incentive to change the formula if it already works. The chances of those larger investments tanking is just as large or larger as it is with the small ones.
And a nice side bonus is that younger people are less set in their ways and more likely to listen to good advice.
A mortgage and family are a handicap in something that requires high levels of uncertainty and huge amounts of time. It seems you'd want to bias selection towards those who would take the plunge despite that handicap rather than offering a work around with a 6 month expiration date.
But not risking your savings, on the other hand - if you aren't willing to risk your savings, being a startup founder might not be for you. :)
I thought the limit on YC was you -- that the partners didn't have enough attention to distribute to any more startups (or more tablespace to sit them all at for weekly dinners :)
How are you planning to expand sideways without drastically reducing your (non-monetary) contribution? Wouldn't this just make YC less valuable on it's own merits? You'd retain the brand value, but that would diminish pretty quickly if the startups you funded started getting crappier. If you did diminish your responsibilities, and the startup quality didn't go down, what would that say about the value of your higher-bandwidth contributions before?
http://ycombinator.com/party.html
Till recently the two main bottlenecks in YC were my time and the size of our space. Which is why we recently hired Harj and expanded the orange room by a third. I'm not sure what the next bottleneck will turn out to be.
As I said in another comment on this thread, we approach scaling YC the same way we approach scaling software. You can never predict what the bottleneck will be till you hit it, so you just fix them as you hit them. If we did eventually hit a bottleneck that we couldn't fix, in the sense that if we continued to expand, the startups we funded would start to do worse, we'd stop expanding. But we clearly haven't hit such a bottleneck yet, and my experience of scaling stuff makes me cautious about predicting exactly where it might occur.
I think you could afford to increase that rate significantly -- if anything, it's too low! Do you have a better metric to gauge your expansion by?
How much of that tranche of un-profitable and un-funded startups has historically been just in continual stealth ramen mode, and how much is actual failure? It'd be really interesting if you could put up some anonymized statistics about the 207 startups from the perspective of the founders. I'd visualize it as a series of images for each quarter, with a grid of venn diagrams of none/dead/acquired/funded/profitable for each YC round up to that point. Put it in a slideshow so you can scrub back and forth in history. Would also work in table form with YC rounds on one axis and time (or time since YC) on the other. I know you're rightly hesitant to talk about YC startups that didn't do well, but I'm not really interested in them specifically, just the collective attrition/success rates over time.
The reality is that if you want/need PG's time you can get at any point during YC.
That's one of those surprising emergent properties that I think will be of increasing import as the trend continues upwards and also has an effect of distributing the load on the YC founders.
The answer, of course, is "they'd do it if it was an unusually good startup with TONS of traction." Of course, if you're in that boat fundraising isn't a problem, is it?
Batting averages do not vary considerably based on the size of the investment, and having 'graybeards' on board is no guarantee for success, at best it is neutral.
The only real case I could make for investing in a company with older people with a lot of responsibilities (distractions!) is that they have a lot more to lose.
There are a number of questions that need answering before you can get someone to take a bigger risk.
20 start-ups at 20K = 400K invested, 20 shots at a payout of a million or more.
5 start-ups at 80K = 400K invested, 5 shots at a payout of a million or more.
The chances of any one of those 5 being successful are not nearly 4 times as high as any one of the 20, and you'd have to cross that hurdle for it to make sense for a VC to drop their working model in favour of your unproven one.
In my opinion, when it comes to seed capital, the amount is the lesser factor in determining success, so I would figure that the chances of success are exactly equal for each of the five as they are for each of the twenty. So it is the other method that has a 4x higher chance of success!
The current YC investment size was an estimate based on their own experience raising angel money for Viaweb. It's not some magical number arrived at through hard analysis. It's essentially a guess.
There's no way to know if it's the right number or not. YC can't know who isn't applying. I suspect they're losing out on a large number of the most promising candidates.
They have a very large pool of applicants to choose from even with the small amounts the invest. I think if they decided that they needed to increase the size of the talent pool to get enough quality groups, they would look into ways (such as increasing the investment amount). As it is, they don't seem to need to, so why would they?
$20k is a useful amount, it will get some work done. $80k is not that much more useful but it is 4 times as much.
$10k is probably still too low.
You optimize the number, and around $20K there is an optimum for the target audience that YC tries to reach, and it makes sure that you don't get a bunch of gold-diggers that see the investment itself as a success.
Who isn't applying? The YC process is -- survive 3 months on ~$20k. Survive 3-4 more months as you raise more money or get to profitability. Presumably you have savings or friends/family you can borrow from. How about a HELOC?
Honestly, if you can't find some way for 2 people to survive on $20k for 6ish months, you're probably either a pretty lousy life-hacker or you've had some bad luck. Either way, you're a bad bet compared to the alternatives.
But, again, if your startup is badass compared to YC applicants, fundraising shouldn't be a problem.
I'm also having trouble understanding what 2 people would do with that much money in only 6 months. I would argue that the 'stability' factor would make them less likely to work as hard as the other companies who are highly motivated to pay their bills in that time period.
EDIT: as a corollary, I'm thrilled I didn't pay off my student loans earlier. They average about 4.5% - that's the cheapest loan you can get anywhere. Treat it like a business loan and use whatever you save to live off of when you're working on your startup :).
It's kind of sad that startups are a game for people who have a long personal runway (combination of savings and cheap lifestyle, usually), but that's the reality.
No investor is going to be excited to see their money put to work by paying down student loan bills, though at a certain level you can often swing a 50-70k salary. As I understand it, get big revenue or a big Series B round, and you can generally lobby successfully for a non-insulting salary.
If you have less than a million in the bank, I think the question needs to be framed as "How much do I need to survive" and NOT "What did I make at my last job". If the founders aren't trying to dig deep here, then I'd wonder about their motivations (unless revenue was taking off). Lack of runway kills startups.
But your salary needs are a reflection of your commitment. i.e. if 3 founders raise $500k, $50k salaries give them a ~15k/month burn rate fully loaded, approximately. $100k salaries give them a $30k/month burn rate fully loaded. The difference is the ability to hire two solid ppl.
Which do you choose? Is your lifestyle more important than 2 hires? Alternatively, if you don't need to hire any more, how much runway do you shave by making $100k across 3 founders?
Investors also want interests to be aligned. Low pay early on means that you're motivated every day for growth (because revenue or a larger investment round means a raise). They'd certainly rather see their money invested in growth than in founder lifestyles.
Of course, every situation/investor/founder is different... But yeah, expect to take a big pay cut.
There are no IPOs these days so at a typical .5-1% the best outcome for a hired engineer is for the company to get acquired in < 2 years, make about $300K and get a job at the acquiring company that pays 2x they would make if they just went to work there in the first place. Kids who go to Stanford and MIT seem to have this figured out and are expecting to be paid market rates. Your market rate may vary.
The worst places I've worked are the ones where the founders conned all the staff into working for $50-$70K by using extremely optimistic outcomes for demonstrating how much their options might be worth in the future. Which is like 70% of all startups in Silicon Valley.
The other aspect is that UK student loans are probably much smaller for the majority of people.
The rate seems like a good commitment filter as is.
In my experience... everyone can get their expenses lean. Just depends on what you're willing to give up. For those with families that's a bit harder.