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Comment by justinzollars | Hacker News Reader

Please don't become a typical VC. I love YC for what it does so well

I'm not sure why a pessimistic comment is at the top of practically every HackerNews article, but in this specific case, what data do you have to support YC becoming a "typical VC." What have they done in the past that has been typical? They have re-imagined the startup industry. Not in the way airlines say "we've re-imagined economy travel," I'm saying turned the startup world on it's head. With that said, YC having $1BB to incubate and then further grow companies sounds like a great fuckin idea. With an enormous fund that spans market caps, they'll be able to fund even more moonshot ideas, which is even more exciting when you're talking about companies that have double bottom lines.

Raising a billion dollars for a fund might be considered 'typical VC', or not, depending on one's perspective. Certainly the financial scale at which YC operates has changed over recent years. Practically speaking it is no longer ~$17k for ~7% to get through three months before demo day. While I believe that YC played a role in changing the economics of startups, the economics of startups have started looking more and more like "big money" investing...particularly as the idea of "startup" has morphed as the term has been adopted in popular culture and pension funds and insurance companies have gotten into the act.

At some point it will make sense to start thinking about YC as a staid financial institution (whether or not that point is today, is another question) rather than some plucky newcomer. The amount of money an organization has affects its operation. It's impossible to spend $1 billion carefully deliberating $20,000 decisions one at a time...and carefully deliberated $20,000 decisions one at a time was what made YC successful...and how and why it changed the startup landscape.

and carefully deliberated $20,000 decisions one at a time was what made YC successful...and how and why it changed the startup landscape.

Not really. If YC had invested $20k in every startup that applied, they'd still have caught Airbnb and Dropbox, and would be quite successful.

Counter-intuitively, their success was pg's essays plus HN, which stuffed their funnel with high quality applicants.

> Counter-intuitively, their success was pg's essays plus HN, which stuffed their funnel with high quality applicants.

Yup, but there's at least one more: YC took applicants from anywhere provided that they could get to the YC site. VCs want to fund only founders with offices the VCs can easily drive to, and that is very limiting. YC has been able to fund founders from Silicon Valley, NYC, Boston, DC, all points between, and many points outside the US. Biggie difference in size of good stuff entering the funnel.

The VCs have some rigid ways of doing business. The best of the VCs had good returns, but on average the VC returns have not been good. Some of this rigidity seems to be enforced by the LPs. But in general the rigidity has seriously hurt the VCs.

One of the perceived benefits of YC is the alumni network. In so far as this perception is meaningful, funding every application would reduce the signal to noise within it...perhaps so far as to make it no more useful than Hacker News.

If YC had invested $20k in every startup that applied, they'd still have caught Airbnb and Dropbox, and would be quite successful.

Some quick googling shows YC acceptance rate at ~3% let's call it 5%.

So that means 20x the capital expenditure in investments, that's going to put a damper on returns(provided the company picking prowess for a round was somewhere not to distant from optimal). Even if profitability could be theoretically maintained with these shifted numbers, it really couldn't.

The value proposition of YC is the exclusivity and the individual attention the partners can give the companies. With the exclusivity entirely gone and partner attention massively diminished YC would obviously not be YC as we know it.

It would not be anything as we know it. An institution that invests in everyone that applies? wtf is that? it doesn't exist. The closest thing might be the sub-prime mortgage bubble and we saw how that worked out.

How would they distinguish the applicants that applied without this counterfactual from the ones who would do so in droves when they realized there was guaranteed money to be had?

You are reading this too seriously and with many assumptions. "Please don't become X. I loved you as Y." is simply a statement of Wish and Preference. There is nothing in that comment this new effort by YC should/will fail, only that they prefer a different YC than one that could become a typical VC.

I think the value that YC provides has to do more with its people and ethos than it's platform. Although they were the first incubator, I don't think it's the incubator model that makes them who they are (as we've seen many other competitors with the same model pop up) but rather it's the people and ethos that its founders engrained into the system that makes Y Combinator what it is. For that reason, I'm inclined to believe that the more of the traditional fundraising process Y Combinator moves into, the better it is for the overall ecosystem.

What in your view, distinguishes a typical VC from YC?

Maximizing return to investors.

The application process, number of deals they do and the community across YC companies which is not so great in the typical VC firms.

What I got from reading Paul Graham's own writing on the genesis of YC, was that his key insight was that VC's should be funding more companies, and earlier, and giving founder's much more control.

The other key innovation was funding in batches, in classes. This created a close-knit ad hoc community with shared goals, and one in which teams whose ideas were not finding traction could join teams whose ideas were.

Paul Graham's own writing and advice is not really followed by YC though.

As an easy example, look at his recent post about naming your startup, versus the names of the companies allowed through in a recent round of seed funding.

http://www.paulgraham.com/name.html

https://techcrunch.com/2016/08/22/y-combinator-demo-day-summ...

Are the batches really that tight still? Seems nice just as a way to structure the curriculum, but is it more than that?

I'd say this is pretty awesome: https://blog.ycombinator.com/research

I don't think it's common for a VC to hand out free money. The best part is that with the data they get from these experiments, combined with the vast experience of starting and growing companies, they'll likely be able to find business models that are successful financially while simultaneously achieving the goals of what they are researching.

I'm no rocket surgeon, but off the top of my head, they could determine the personal financial implications of not having to worry about keeping a head over your kids' head and food on the table. If you give someone a basic income, what do they do with it? does someone use time to become more marketable and be able to earn more in the long-run instead of have to focus on a minimum wage job to feed their kids? Maybe there's a business model in using yourself as collateral. I've seen personal examples of this happening - high net worth individuals that meet exceptional people and give them a basic income so that they can focus on big ideas, not affording rent. Maybe through the data YC is collecting, they'll be able to find a scalable form of that.

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