Updates from YC
blog.ycombinator.com
blog.ycombinator.com
A question for people more savvy about VC than me. What's your ballpark estimate on YC's bottom line? They put $150K at least into each company, right? So that's $285M right there? But some of those are non-profits, in which case they only put $100K into the company. And then they get 7% of each company, which would theoretically be $10.5B? $150B * 0.07 = $10.5B (just removing non-profits from the equation). But accounting for dilution, it would probably be less than 7% ownership? In other words, I guess we'd need an estimate of how much YC actually owns in its overall portfolio.
Forgive me if my numbers are wildly off or naive. VC isn't my domain.
The 7% ownership also allows YC Continuity to be more attractive to later stage companies. If YC already has a 7% stake, then it only needs to invest an additional post-money 13% in order to raise its ownership to 20%. A new firm coming to the cap table would want to invest 20% post-money. So, if the company doesn't need 20% capital, then YC Continuity has a significant advantage.
Paper gains are notoriously easy to stretch.
My point was that GAAP is probably the best we're going to do because of the consistency problems.
The moment you start applying special rules or caveats per company you stop being able to compare companies properly as an investor, at which point the measure becomes useless as a talking point as well as being useless for tax calculations.
My original post was framed against tax because it doesn't really make a difference. If the new method is good enough for comparison between companies it's good enough to replace GAAP - unless it's not.
Like with YC they are US based and if they sell their dropbox stake they'll be taxed but more tax avoiding companies might say have held the dropbox stake through a Cayman Islands trust or some such and try avoiding it. I'd vote for something like for multinationals they do accounts as if all their multinational bits were in one country and then allocate the earnings to different countries in proportion to the sales there. So if Microsoft had a lot of Windows sales in Germany say they'd pay tax on the profits there rather than saying they were all generated at a DVD stamping plant in Ireland for example.
The main thing investors want are some measures that are reasonably forward looking, with the caveat that some of those forward-looking measures will of course be inaccurate when the future comes.
Taxes, on the other hand, should be mostly past looking, taking into account events that are fully settled and guaranteed.
If, as an investor, you're only examining trailing metrics, you're going to be a pretty horrible investor.
Unrealized gains on private, illiquid investments are neither earnings, nor cash flow.
https://www.iasplus.com/en/standards/ifrs/ifrs9
If I recall correctly, this prevents shenanigans where you over-represent the book value of assets that have lost value.
Thus, YCs GAAP ownership numbers would be nebulous. They probably use funding round valuations as the proxy, and that's commonplace for VC funds.
Clearly, Sam Altman and Michael Seibel are the most influential and impactful people that drive YC forward. Sam's on the way out, and I wouldn't be surprised if Michael also leaves in 1-2 years. Is YC going to be able to innovate without them?
Furthermore, I would suggest that YC is becoming more risk-averse as it grows (as any organization does). Will that mean worse decision making?
Another point is that the average age of YC partners is growing. Will that hinder them to spot and understand new trends, and pick the right companies?
Now, this is an outside-view analysis. I've spoken to a few YC partners (as part of office hours or at events), but never went through YC myself. I know quite a few people who did, and they seem always most impressed with Sam and Michael.
Edit: Typos
I'll still be involved (and will ensure we continue to take risks and grow!), and obviously Michael is amazing.
Rather than become more risk averse, I've actually seen us take increasingly large risks in the five years since I've joined. A few examples: investing in a greater number of sectors, investing in new markets, investing in different stages, advising thousands of companies (startup school), challenging the norms of fundraising (series A program)...The list keeps going.
I'm not saying YC is guilty of this generally, but I do see it sometimes. E.g. I think pursuing the artificial kidney thing is kind of a cop out compared to getting states to change their laws so that people are opted into organ donation by default, since if the former fails you can just say it was because the technology isn't here yet whereas with the latter it concretely shows that you just weren't able to get it done.
However, number of sectors, number of companies and challenging the norms of fundraising is not what I mean by risk. I meant rather investing in companies where 99.99% of all other VCs would pass. And I'm not saying that you're NOT doing that, I'm just saying that theoratically that could become an issue and I'm worried about that (because I want YC to be successful!)
Or, to put it in another way: It's not clear to me if in YC's case bigger = better. Maybe there's an optimum somewhere?
As for the comments about the partner ages, I don't think that's true because they keep brining on partners. Also, I'd say they had the opposite problem before: to many young partners who were only enamored with new stuff and not interested in "boring old things".
As to the risk averseness, that one I agree with you on. I get the impression that they have so much data now that they rely more on the data than on intuition which of course probably gives them better consistent smaller returns but might mean they are missing out on the next AirBnB or Dropbox.
Not to say YC isn’t a big, impressive brand that draws talent, just that it’s still orders of magnitude from the top of the Ivy League.
It's just that people who attend college or are interested in college is a much bigger group than entrepreneur.
The concept of a university is fairly universal (pun intended) and surely Harvard or Oxford are considered the “best” at least in terms of name recognition.
https://en.m.wikipedia.org/wiki/List_of_universities_in_Yeme...
Harvard also isn't as well known as Coca Cola (not even remotely close in fact). That lower recognition doesn't mean that Harvard isn't a brand that represents eg a very high standard in its field.
https://www.forbes.com/sites/jacquelynsmith/2012/03/14/the-w...
YC Startup School shows the opposite
I don't mean to say you personally, but perhaps cynicism is an easy trap that a lot of the industry falls into.
Always felt like there was plenty of potential office space relatively close to BART but maybe that's wrong.
Square just took the building Uber was building out, all 356,000 sqft. This is going to make them the largest tech company in Oakland.
And some company named Marqeta just put their name on a building...no idea how long they have been here but they now have enough money to have their name on both sides.
Its slow but its definitely changing.
And you think those companies will forfeit their offices in the city/SV?
Maybe you can kindly migrate back to where you came from?
maybe Republicans can teach them something, by, for example, the coastal city of......Knoxville, TN.
:-D
An improvement in the way living in an ancient car is an improvement over sleeping in small pox blankets.
But blaming an employee for living where he works is misguided, they're not the ones asking outrageous prices.
Tons of small shops, including consulting, freelancing, etc, in Oakland. Companies with people who need to go to SF on a semi-regular basis and who work best in person but don't need to be in SF.
If I had to guess, I'd say race and class conflict. I wasn't used to how heavily divided a culture could geographically be, and it seemed to me that Oakland was far more heavily multi-ethnic and financially poorer than the rest of the area.
Before the hate poors in:
- Yes, Canada still has a racism problem. But I don't know of any areas around me that are strongly of one ethnicity versus another. The major exception being "Indian" reserves, which is a whole other topic.
- Yes, it's ridiculous for me to comment after only one visit. But that's how strong the difference seemed to be. Every cab and uber driver I had was from Oakland.
- SF was beautiful and I don't mean any disparagement. You're all wonderful people and I love you.
"Really starting to enjoy Oakland—have you been to Drake's?" is the new climbing, hiking, etc.
Poor is. The Bay Area is one of the least racist places I've lived in in my life, but it's also one of the most classist. There's still a big class stigma based on where you live. (Though sometimes gentrification flips this on its head - the Mission and EPA used to be poor, crime-ridden areas, but now they're rich, crime-ridden areas.) It's very strange - I think that people who are used to the race & class social systems of much of the rest of North America don't really know what to make about the Bay Area, because in some ways we've busted out of those social systems and just replaced them with other ones which are...weird.
The rich get crime-ridden places, too? Sounds less classist than most places.
The reason I say it's classist is that because you have both millionaires and people who are dead broke in the same space, people have invented a lot of subtle social signaling cues to understand just who they are dealing with. Like when my wife & I go house hunting, every realtor asks "Where do you work?", and we answer "Los Altos" and "from home", and then my wife says afterwards "I think they meant which company do you work at?" Or the time I met a black dude on Muni who had a bet with his girlfriend that he could identify techies by sight, because he asked me "Excuse me. Are you a techie?" and then got it right (apparently it was the Columbia fleece that gave it away, which is odd to me because it cost me < $20 off Amazon). Or the realtor who first took me around when I moved out here, showed me a kindy dumpy midtown Palo Alto apartment, then said "It's got a Palo Alto zip. That's important to some people."
Undoubtedly this happens in the rest of the U.S, but it's different in the Bay Area, precisely because wealthy and poor live in such constrained spaces. Many of the social signals of wealth in the rest of the U.S. don't apply here because they're stupid - if you park your Lambo in the Mission, it will get taken for a joyride, if you wear an Armani handbag it will get lifted from your car, and there's no room for your gated community outside of Atherton. Our billionaires are too busy coding, raising capital, rollerblading, and kiteboarding to worry about things like their wardrobe or car. You get startup founders who own companies worth tens of millions and yet use a 5-year-old iPhone with a cracked screen.
It's incredible that this could ever be considered "normal". And all in the name of political correctness, no less.
The car thing, though, everyone in SF who street parks has had their window shattered and car scavenged...
It seems like the East side of the Mission (Folsom & Van Ness) is significantly less safe than the west side (Valencia & Guerrero) - I'll walk down Valencia and feel perfectly safe, while I'm always looking around me between Mission & Folsom.
"It's got a Palo Alto zip. That's important to some people."
Berkeley is the really underrated place, IMO. Somehow they went from being the city with the whacko leftist government as a negative outlier, to actually being relatively sane as a city in the area. Emeryville is the only really good government in the are, though.
Being near BART is fine, but not if your employees are coming from SF. Then they still need to pay SF salaries to make up for cost of living.
Living in Oakland can be less compelling due to the housing stock. Oakland has many single family homes, which I personally feel is a good thing, but less compelling for many workers.
(We can, of course, debate whether the kinds of workers who aren't in the life-stage to want/need a single family home are the right kinds of workers to go after, but that's a separate conversation.)
The commute over the bridges is terrible, so with the bulk of investment capital and experienced engineers living on the peninsula (and oftentimes more down by Palo Alto & Menlo Park than in SF), it remains difficult to scale East Bay companies. Unless you're someone like Elon Musk where you can just invest $100M of your own capital and need more semi-skilled manufacturing workers than skilled software engineers. Fremont/Milpitas is coming up as a bedroom community for mid-career engineers though (because if you work at Facebook it's just across the Dumbarton, while if you work at Google/Apple you can take 237 and avoid the bridges), so that may increase the engineering supply along the East Bay BART corridor.
The East Bay really hurts from BART & Caltrain being two separate systems; it's easily BART accessible, but much of the peninsula's population only has Caltrain access, so you need a very time-consuming transfer to get there without dealing with the bridge traffic.
It will also be possible to commute from SJ or Santa Clara to Oakland via BART, which may marginally improve recruiting there.
It would be fantastic if Caltrain or somebody rebuilt the burnt-out rail bridge next to the Dumbarton, but that’s wishful thinking. It would be useful to integrate ACE, Caltrain, and Amtrak.
Fremont has a lot of potential if Caltrain were to reopen the old Dumbarton railroad:
https://www.mercurynews.com/2017/08/14/proposed-dumbarton-ra...
Facebook has offered to contribute but so far the Bay Area urbanist movements have been disappointingly silent about this.
The reverse commute (peninsula to east bay in the morning, east bay to peninsula in the evening) is perfectly fine, as long as you don't have to take 880 anywhere. If you can avoid 880, that reverse commute can be serene and almost surreal (as you whiz past gridlock coming in the other direction every day).
There are a bunch of industrial parks right over the bridge in Newark that seem like great places for a new small company.
- BART is an extremely filthy and dangerous transit system by any 1st world standard, and I say this as a lifelong transit rider.
- Oakland, Berkeley, & Richmond govs/regs are business unfriendly & tech hostile. It's a traditionally poor working class area undergoing massive housing displacement & the political class is all old money or non-profit types.
This is hysteria. I have many coworkers who ride BART on a daily basis for 15+ years and not a single reported incident from any of them, other than stinky homeless people that very rarely ride during peak hours.
Have you personally taken BART on a consistent enough basis? I took it two days a week for a significant length of time and calling it filthy is not hysteria at all.
https://www.sfchronicle.com/bayarea/article/BART-s-approval-...
slightly depends on your entry/exit stations but I would regularly see crack/heroin use, defecation, deranged meth heads screaming and/or picking fights. I doubt I am alone in this.
Ridership has increased 22% over the past decade, however violent crime has increased 75% over the same period.
I've taken public transit all my life and I'm scared every time I take the bart :/
Kind of makes you wonder why the existing folks are hostile...
Please let's make smarter choices about where to move businesses to, given numerous options. Oakland definitely should not be one of them.
Violent crime is twice higher in Oakland, but property crime is about the same: 5,983 per 100,000 in Oakland [1]; 5,715 in SF [2] (6,168 according to [3]).
[1] https://www.areavibes.com/oakland-ca/crime/
[2] https://sfgov.org/scorecards/public-safety/violent-crime-rat...
Poverty is always touted as the source of crime in communities, but businesses moving from SF to Oakland wouldn't be employing Joe/Jolene poor person. If anything, doing so would just rehash the standard complaint about gentrification and alienation of current residents.
population of Chicago: 2.716 million (2017) population of Oakland: 425,195 (2017)
It's an interesting discussion because the city is huge and has many good and bad parts. West Oakland along Broadway is basically SF west. Go east of Lake Merritt and things get bad pretty quickly.
Because it's rare, when an SF person does come out here to visit, I feel really loved. :)
Coming from abroad, part of the YC experience was, besides the program itself, renting a house in a residential area of Palo Alto where our team of 4 lived and worked. We didn’t have a car and the nearest bars & restaurants were at a 20 minutes bike ride. This set up felt like a retreat, and really pushed us to 100% focus on our startup. Basically the only things I did for 4 months is working, exercising in the surrounding parks and eating homemade food.
Had YC been located in SF it would have been a totally different experience. It’s a vibrant and exciting city specially for new comers.
However, I understand YC’s rationale: most local founders live in SF and the 1h commute is painful, the current building is not easily accessible, and doesn’t scale to bigger and bigger batches, etc.
On the one hand, this is a huge loss for YC. Sam's energy and vision helped herald in YC v2.0. His leadership will be sorely missed.
On the other hand, I'll sleep better at night knowing he's dedicating himself fully to AI safety and the work of OpenAI. There's no one I'd rather have leading the effort to ensure AI development doesn't lead to a dark future.
Thiel leans away
Will be interesting to see the winning move
Staying in the Bay Area longer than other acceleration programs which decentralized (& often diluted their network and quality) earlier was wise. That said, from the outside it seems like sticking to the Bay Area is no longer optimal.
Startup School and YC China are mentioned but I think by now there must be enough YC alumni all over the world to facilitate local communities/office hours and investment activity (while keeping the quality).
For example I like how Lambda School is expanding globally much faster. I know the two are difficult to compare and it is not a straight forward decision to make.
Would love to learn if you have some thoughts on this.
China is one such area, and places like NYC or Boston could also work (YC used to be in Boston before PG & JL had kids). Those don't help much with the cost-of-living issue, though.
If there are enough quality founders and enough quality investors, it seems reasonable that YC could provide value to a new region by filtering for quality and facilitating new connections within the network
I'm a bit surprised as this shift now as it was positioned as thought out before, but the reality is the center of new tech startups is now very much SF.
"Speaking of San Francisco, we are considering moving YC to the city and are currently looking for space. The center of gravity for new startups has clearly shifted over the past five years, and although we love our space in Mountain View, we are rethinking whether the logistical tradeoff is worth it, especially given how difficult the commute has become. We also want to be closer to our Bay Area alumni, who disproportionately live and work in San Francisco."
Telecommuting works just fine for me when it comes to designing, prototyping, and testing actual physical products with companies around the world, from LEDs to solar panels to remotely-controlled hydroponics facilities - why can't you do the same with your primarily software and speaking stuff?
I thought YC had an office in the city?
That would be an interesting metric that evaluates Sam Altman's performance at YC.
I got the grant :-)