Conclusions from analyzing Y Combinator’s investing history
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A company like Scale AI can get Airbnb and OpenAI to play with their service, then throw their logos on a deck and go sell it to Liberty Mutual.
What I'm trying to say is Scale AI is pretty much the only company offering a solution for an absolutely hair-on-fire problem for self-driving car companies - the introduction was unnecessary (and many of their customers are Argo, Waymo, Zoox, and other companies not affiliated with Y Combinator). Assuming the self-driving bubble deflates (it will) then Scale AI will suddenly find itself a commodity business as labeling images is not so hard that it can't be easily copied. It will be a race to the bottom. Unless there is another sudden surge of demand for labeling lidar point clouds.
I just used them as an example because they were the first recent YC company that came to mind that's working on enterprise tools and has a landing page full of logos.
Regarding your overall point of YC having a network effect - not only is it true, it's part of their thesis for scaling up YC as much as possible. YC made a big push when Sam Altman became president (he's now heading up OpenAI) to try to grow YC as much as possible. This was about 5 years ago. The real question is how will the network effects weather the storm of a recession, which is untested (YC really started right around the last recession). Are they inside their own echo chamber? Are they actually supporting self-sustaining businesses? Will the network become big enough that it can sustain many of its businesses?
I'm curious to see how the tech startup scene shakes out with the next recession. Let's just say I'm not considered an optimist.
On the website they have testimonials from founders and CEOs who vouch for their product. 5/6 of them were founders from their YC batch.
At some point you have to wonder if the reviews are genuine or just a case of founders helping founder friends.
It's a hair loss product. Of course they are not genuine.
> Used by 90% of USA
Uh huh.
But if you shift left, right, up or down enough you leave a power vacuum, and your observation has me wondering if someone will step in to fill the space YC is 'vacating' (less focused on)
Medical research is funded in as numerous of ways that everything else is, while also being subsidized by the government
What I'm saying is that their moral contribution to society, as a startup accelerator, is minimal.
Indeed, I believe this is true of virtually all the Silicon Valley.
[Edit: Fixed typo.]
Enterprise software should make businesses more efficient, and productive. And we have that now. I can run a business that employs people from anywhere, using Quickbooks (accounting & billing), Rippling (HR/payroll/IT), Brex (charge card) etc. I built a simple website earlier this year on Squarespace (far better than handcoding it myself, or using old editing software). I can collect payments from anywhere using Stripe and Paypal. If I was running an ecommerce site, I'd probably be using Shopify and that related world of plugins.
Productivity growth is one of the biggest challenges of our time, and software lets us do that, without harming the environment. YC is a great addition to capitalism and societal development.
Productivity growth is a myth of the money-centric attitude that I'm criticizing; I don't see how it could confute my point.
https://blogs.sciencemag.org/pipeline/archives/2018/07/17/th...
Bad management but great idea.
Erm no. Cancer Research has been booming in investment for at least the past 15 years. I will let you ponder on this:
> "Oncology is the area with the largest proportion of clinical development spending with 40% of total pipeline expenditure, with close to 20% market share of pharma sales in 2024"
https://www.evaluate.com/sites/default/files/media/download-...
Also, some of the biggest M&A in Pharma in the recent years have been about Cancer Research and Treatments. A few examples:
- Shire taking over Baxalta.
- BMS taking over Celgene
- Roche taking over Genentech
- Abbvie taking over Pharmacyclics
And there's more coming...
The alternatives are businesses owned by the other stakeholders - workers, consumers, or community/state. Or some mix of the above, there are problems with each individually.
I think this conveniently ignores the YC companies working in more meaningful spaces (e.g., healthcare, renewables, etc).
That said, you have a point. Ultimately, it appears the deciding factor for YC funding is growth potential, which is by no means guaranteed to align with the public good (assuming some reasonable consensus about what that is).
For that matter, though, you could level the same criticism against the broader economic model YC operates within. Anyone arguing either distributes resources with unbeatable efficiency probably has an impoverished definition of "efficient" or an axe to grind, whether they're aware of it or not.
I don’t know how much YC invests per year, but back of envelope seems like $75-200m.
Or not even 1% of the NIH budget.
Having worked with both YC and NIH processes, I would say the former is 100x more capital efficient, and if NIH were to give YC 1% of its budget to distribute, you would see blockbuster returns. As it is NIH wastes billions a year on overhead of its application processes alone.
However there is zero overlap between the top biotech VCs and top tech VCs (including YC) so awareness of biotech is low outside of the industry
People get to do what they want with their money so long as they don't hurt others, I think you're simply against capitalism, I fail to see how this is a YC thing.
Donations have no ROI...
YC's 7% is a pretty heavy take if I already have a few million in self-funding. Is this negotiable?
I think an exit for what I'm pursuing is very high if we can grow fast enough. (Possibly become the incumbent.) It's a new market and absolutely trounces an existing one.
Yes, that's clear just from the fact that you're asking this question.
> YC's 7% is a pretty heavy take
This is a FAQ and here is the stock answer: if you think that participating in YC will increase the value of your company by more than 7% than it would otherwise be, then it's a win. Otherwise not. That is true regardless of the circumstances.
If what you say is true then you should have investors beating down your door whether or not you're in YC.
"(...) if you think that participating in YC will increase the value (...)" is exactly half of what the commentor was asking (indirectly): is the value of YC worth 7%? That one's nuanced -- echelon, feel free to hit me up via email if you want to discuss (see profile). The other half of the question (is there any wiggle room?) is almost universally "no" to my knowledge.
Echelon also already stated that they have investors -- self-investment, but still.
There is no universal answer to that question. For some companies the answer is clearly "yes", for others it is clearly "no", and for some it's a tough call. But there is absolutely no way anyone could give a more specific answer without knowing a whole lot more about what's going on.
That is not something that should have to be explained to you unless you are a totally clueless noob. That is not a value judgement. There is nothing wrong with being a clueless noob. Everyone starts out that way. Echelon even came right out and said that he (she?) had "little business experience".
But I'm not convinced that Echelon was really being sincere about this because he (she?) then went on to strongly imply that his company was so bad-ass that YC should be willing to seriously consider changing their standard terms for the privilege of being allowed in. Echelon is almost certainly wrong about this [1]. So "I have little business experience" sounded to me like a humblebrag.
My answer was intended to convey the following message: Yes, Echelon, your lack of business experience was evident even before you told us, and though you don't seem to have fully taken this on board, it is a serious threat to your success. You are almost certainly not as bad-ass as you seem to think you are. Not yet.
Maybe I should have spelled all that out originally, but I was in a hurry.
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[1] Since I am passing judgement on Echelon's odds of success on very little data, I feel I should give you some of my bona-fides: I have been a principal (founder or co-founder) in six startups and invested in about 20 others. Just this year I am closing out an investment fund that I managed which had an IRR of 70%. I've seen success, and I've seen failure, and while there is obviously no reliable way to make these predictions, there are a few warning signs that manifest very early that have in my experience proven to be very good predictors of failure, and signaling that you think you're bad-ass when you pretty clearly aren't is one of them.
Say your company value was $100. After it increases by 7%, it is $107. But now you own 93% of it, which is about $99.5.
So you need to increase it in value by about 8% to be worth it.
IMHO, 7% to learn good business sense is very cheap from guys who have seen it all.
> Is this negotiable?
From my understanding, it is not, but if you get an offer to join, you can try always try and negotiate.
> I think an exit for what I'm pursuing is very high if we can grow fast enough. (Possibly become the incumbent.) It's a new market and absolutely trounces an existing one.
While you might believe this and it very well could be true, these words are uttered by too many startups/founders, so the words don't exactly carry weight. Disruption, taking over, etc etc. These words used to mean something closer to 2010. Today it's largely noise and words pale in comparison to track record and strong numbers.
> I have capital, but little business experience.
Where does this capital come from? Self? Self funding is always cool to keep 100% control, but taking on investors also helps get strong advice, ideally from industry leaders, while opening doors. Keeps one from a dangerous, self ruining, echo chamber - which by your own admission, sounds like this could happen.
Sounds like you are motivated. How much of the research would you be doing yourself? How much do you anticipate needing to spend? If you have both capital and motivation, then consider moving somewhere cheap and investing your own time to maintain complete ownership. You can get all the hand-wavey advice online, YC videos, books, etc.
My only advice would be don't discount the importance of marketing. "Build it and they will come" doesn't work. If possible, get a few committed or LOI (potential) customers and some small income guarantee first.
All of it. That's what evenings and weekends have been for awhile now.
> How much do you anticipate needing to spend?
Equipment is going to be a huge expenditure. The software and the configuration adds all the value.
I'll try to self-fund as long as I can, but if/when it catches on, I don't want to be caught off guard without funding while the big players step in.
At some point this is going to have to grow fast to stay ahead. If I'm at all right about the market.
I suppose I'd better meet some people now that I can start conversations with when I need to.
As a hardware startup currently spending big on manufacturing equipment, I feel your pain. I've seen a few hardware startups use alternative approaches to this space, which depending upon your target business model may be viable.
One option is, if you are selling hardware with your own software and configuration, the hardware manufacturer may gift/loan/discount development hardware to you to facilitate your development work.
Another option is leasing or timeshare of the equipment.
Finally, vendor financing may allow you to defer payment for 12-24 months without the overhead of seeking external capital.
Outside of the above methods, at a business process level having a rapid and well documented pipeline for per-unit assembly that does not necessitate pre-purchase can help to defer per-unit costs (shift from pre-fab to post-purchase fab) without greatly blowing out lead time from the customer perspective.
That is, instead of negotiating down the take, what help could they give you that would make it worth that 7% to you? What would be worth the opportunity cost?
Consumers are already spending monthly subscriptions on spotify, uber, netflix, games and countless others... consumers also expect much more out of a free app these...
B2B enterprise software is also a massively competitive market but businesses have a business-case to pay for things, making them a more lucrative investment IMHO.
I love my data science work, but I see immense untapped opportunities in more traditional fields.
Since when YC asks recommendation letters in its applications?
Which is probably why YC is so homogenous.
Secondly, is YC even that homogenous? It may be skewed towards enterprise software, but they do invest in a far wider range of startups than any other VC. And the ethnical and gender diversity is not that bad either, all things considered.
Beta of Dow Jones is .98 to the S&P 500. [1]
To your original point, 30 large firms are generally plenty to capture the market factor, regardless of weighting. For one thing, market-weighted indices are dominated by their top names (the top 30 names in the S&P 500 constitute over 40% of the index presently). More importantly, summing quickly suppresses uncorrelated variance, and there's a point after which adding additional names does very little. (I think there's a phase transition, actually – see Lello et al's recent report on polygenic risk scores, which use LASSO regression...[1])