What could you do with $41 Million?
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That's just me, obviously, and I can't generalize to everyone out there. But I have a pretty good feeling that plenty of others would fall into the same traps.
$41M is way too much for an early-stage startup for most people -- unless we're talking about a category with extremely high capital barriers to entry, like biotech or energy.
$41M to scale up an existing and growing business? Definitely. $41M to start up a business? No, thanks.
That says it all. Instead of pumping it all into one company, diversify.
If you invest in 40 different companies, more than one is bound to come out on top. 40 x $150k = $6 million
http://techcrunch.com/2011/01/28/yuri-milner-sv-angel-offer-... http://www.crunchbase.com/financial-organization/start-fund
You're exactly right, investing isn't going to make those companies succeed as you said, doesn't increase your chance of getting a return at all. There's a ton of dynamics at work.
What we do know is that the YC team has a process that works. I'm not going to say they have a "formula," since that would imply that they take the same approach with every class and company. I imagine it's something they work to improve each time and adapt uniquely with each situation.
The recent bulk investment in YC companies rides on the YC team's decision making process, based on a good track record. Granted, you're likely to see a better return with investment in 40 YC companies over 40 that have been randomly picked.
"I think, at the end of the year, if you picked your team right, you'd have a pretty good shot at a profitable business. And if it fails? Well, good news, you can do it all over again. 40 times. And still have $5 million left"
As someone who has bootstrapped a company to profitability, you're definitely right about people the most important ingredient.
I think Color definitely took a lot of money, but the goal is to get the app installed on every phone possible - and that will take a lot of advertising money.
These companies are not comparable, and cut from entirely different DNA and if you try to compare them, you just sound bizarre.
And like I said, you'd still have 5 million left, enough to give seed funding to every Y Combinator launch since 2005. If you're looking for Google-sized returns, that's where I'd start.