Is Y Combinator worth it?
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YC : takes 7% for 125K and then let's say you raise $1m at $12m post money. Total diluted 15%.
Non YC : If you want to raise $1m for same 15% dilution - your post money would be $6.5m.
So these are pure numbers[1]
With YC, I guess Founders' gain a network, bay area connections etc
[1] : https://docs.google.com/spreadsheets/d/1kxOBF0CPhcktmgFvAZtY...
It's a natural process, and there is no such thing as not being biased (as it is a bias in itself), but the signaling of being part of YC is definitely huge, especially first time, and for outside of the Bay.
Investors are people too.
Angel list had a page where one could find out the valuation based on various filters. Unable to find that now. However, many YC companies fail to raise in demo day! And there are non-yc companies who 've gone to raise $3m-$5m in seed alone with just a deck. The latter had the advantage of proven track records etc. Also, the higer valuations at seed stage can come back to hurt in Series-A.
We raised our seed round, in the middle of Texas... there is a lot of capital out there and a lot of amazing investors. The world is much larger than SV.
Not a judging question - I understand the value of a good investor's due diligence and backing in improving the odds of sane leadership. But it's interesting to think how that can impact a successful, self-funded copmany's access to talent.
They also get the opportunity to take outside money from a position of far greater power for things like paying out strategic early employees vs.v keeping the lights on. I've been involved with 2 companies that took private equity instead of IPOs because of the operational changes that a public listing entails. It takes longer to grow to this point, but the deals were substantially easier and quicker.
But as a candidate I’d be cautious about taking a job at a self funded startup. They’re probably cash constrained so the base salary might not be as much. And if there is equity, I would want management beholden to people expecting 10x growth.
As an engineer, this does hit the paycheck directly - if they go hire more devs to speed product features to market while at the same time increasing sales and marketing... it can change from a bootstrapped model with no end to the runway into a situation where you do have a runway, and it is counted in months, not years. Instead of steady pay with plenty of time to deliver new product, I'm being pushed to deliver quickly, and if we fail, we're unemployed.
And yes, we probably get lower salaries for that model because we are taking less risk. But steady, lower stress work is desired by some of us, and a small bootstrapped group delivers it better than a VC.
Of course there's always the other outcome where both of these are just jobs and you are not invested beyond that. Then there's no real difference beyond the economics.
A Founder is playing 1, only one bet. I would rather go with the Founder that can build a strong business with revenue.
Like, for some reason, I criticized and looked down on a company for having a convertible debt round instead of a "real Series" where they sold equity.
Or I criticized a company for not having X, Y, Z investors closing rounds.
The reality is that I found myself in situations, as an employee, where I had to actually explain myself to founders about my thoughts on why revenues were important. That particular startup failed to sell more equity in the necessary time period and closed up shop.
In more broader circumstances, the dilution and liquidity preferences are more harmful to founders and employees.
And as a founder, I specifically do non-dilutive things, such as doling out %'s of specific revenue streams or % of products created. Obtaining the same support and sometimes capital or things booked as unearned income, while keeping much more control or total control and upside.
VC money means "we throw money at you until we no longer don't" or "we throw money at you because we're in hostile market takeover through price dumping".
If you are a gambler, VC equity is best. If you want to maximise your expected returns, equity in a bootstrapped company is better IMHO.
VCs have their risks spread across multiple investments, where you will only be able to work for a limited number of companies before burnout or ageism hits you (if you don’t win a D10 die roll). Also VCs get liquidation preferences. Finally, when younger we undervalue money in our wallet and the value of our own time: $200k at 20 (if invested) is often worth a lot more to you than $x at middle age; and as you get older you tend to start valuing your vacation time very highly!
Work through the numbers for your time investment (time is your pot because we all only have x years) using the Kelly Criterion[1] and you will be surprised to see what drops out as the optimal strategy. I would be interested to see a Monte Carlo simulation of outcomes where we can choose different strategies.
Edit: many people seem to be chasing money and joining the cult of startup to achieve high status. If you care about status, there are far more optimal paths than chasing a big equity payout. One thing I notice as I get older is that money is a very poor proxy for status, and that you tend to find your peer group earns about the same regardless of earnings, so chasing $ for status is loser’s race. Disclaimer: I just want to not work if I don’t have to and to be able to spend my time on my own goals. That requires enough $ for a nice house, some fun, and a comfortable retirement - and it appears I have got that via being a cofounder of a bootstrapped company.
Edit 2: The IRS would have the stats on actual returns for startup employees over the whole sample population. That would be fascinating to know!
edit: This is explicitly about employees at these companies rather than founders.
People joining or founding a startup business also tend to extremely overestimate their ability to pick a winner. You have to be smarter or luckier than a VC.
The point of a bootstrapped business is to be making enough money within a short period to know you can pay fair wages. Derisking. If a business isn’t paying wages and doesn’t take VC money, then it shouldn’t be called bootstrapped, it is still a startup (with sweat equity and opportunity costs instead of VC).
Also it has been my experience that successful bootstrapped businesses are usually started by people that have worked in an industry, then founded a new business starting with the best people they had worked with. That is a good strategy. Edit: https://hbr.org/2018/07/research-the-average-age-of-a-succes...
In my experience in Christchurch New Zealand, watching founders and first employees for startups that have taken VC cash, the expected return on equity is very low for them.
I see massive winners’ bias in most thinking and media.
Getting in to YC validates something that an individual cannot easily determine: what are my own chances of winning the startup lottery? If YC picks you, that is a strong signal that you have the right skills. The signal is extremely noisy though (fail after accepted, succeed although rejected). Edit: anecdotally I saw a young founder with what I thought was a good bootstrap opportunity in NZ get accepted into YC where he promptly crashed due to lack of knowledge of the US market and culture.
Yes. Absolutely. If you're going to pay me in equity, I am an investor. If you can't paint a picture of goals, timelines and a sense of what an exit looks like - I'm not joining you.
If you're paying my comp in cash, then you can do whatever you want. But know that the cash comp will have to be very high to convince me - probably too high for a bootstrapped startup.
YC will get you access to great investors, help you get better terms, think through business decisions, offer a great network, etc, but to be honest many of those things can be had through other accelerators/incubators/investors/schools/programs.
What’s truly unique about YC is the mindset and environment you’re in during your time there. If you’re open to embracing the experience, it’s absolutely worth it. Having a tight-knit group of fellow founders to push and encourage you through a hyper intense 3 month period leads you to accomplishing some amazing things. Things that you may not have thought were possible or pulled off otherwise. Of course you get a crash course in entrepreneurship and a great network, but I’d argue you also learn a ton about yourself, about leading, about how to truly focus on the right problem, and what you’re capable of.
Absolutely worth it. Always happy to chat with people if they’re uncertain.
By not talking to investors, you could grow well more than 7%, so it was worth giving up 7%.
Of course, YC has a LOT of other value but that was quite possibly the biggest one.
Unfortunately with the number of companies in recent batches I feel like that value is no longer captured, not all companies are chased after by investors at Demo Day, and the other value YC used to provide, i.e. individual attention given to companies, is also much less than it used to be.
IMO it's still a great program but 7% is too much for what is offered today.
https://techcrunch.com/2020/06/26/yc-to-cut-the-size-of-its-...
You have to keep an open mind coming in though — they may challenge your very understanding of your company’s existence.
Focus, focus, focus on the right metric, and find PMF before you scale.
S20 participant here, so fresh from the program.
Even in the Bay you can do it all by yourself, but it's much more complicated route filled with negative experiences. At least that's my experience. The way we were treated by highly celebrated investors was hard to swallow. Anytime I spoke to a YC alumni friend they have striking, opposite experience.
With companies mostly operating remotely, I think the value is now dropping, but is far from non-existent, especially for new founders. It's like a university degree. You can have equal or larger knowledge if you put the work into it.
Essentially YC is a guard dog for the Bay Area. If you want to get in, then there is no better organization to help you out, keep the deals clean and founder abuse low.
Ever had that investor write up a pedantic missive about your startup to mock their own investment?
Hostile investors are real and awful. Shielding startups from toxic money is a thing.
- they asked me to pay for attendance in their seminar that will teach me how to raise money before they consider investing
- I got stood up for a meeting with no word from the person. He followed up two weeks later that they are not interested. 3 years later we met at an event thrown by one of our investors and this person, after listening to me talking about the company, approached me for an investment opportunity
- I got introduced to a guy that never responded. I got reintroduced to him 4 times! on his own request, but he never replied. When we finally closed our first round he sent a note to our lead investor that he is very interested to be introduced to the company. Guess what. We never heard from him
- I was "forced" to explain our technology in an extreme detail (we use proprietary algorithms) after which I was told that this doesn't make any sense because he knows better and I'm wrong. I wrote the code
- I was asked to fly in for a meeting to NYC which should've been a final handshake after weeks of talking. They said that without meeting in person they can't close the deal. As I was sitting in their lobby, an assistant explained to me that he is busy today, lets reschedule for a date two weeks out
- a fund spent 9 months on due diligence, covering every single cranny and nook of the company. Gave us a term sheet, pushed for a closing and then refused to sign their own papers. We owed hundreds of thousands in legal fees and almost closed the shop. I wrote about it a bit here [0]
This is just a selection of them. There were many more. This was the time it was suggested to me to apply for YC to get better treatment. Unfortunately YC passed and I never tried again.
Things changed quite significantly when we turned profit and started generating tens of millions of dollars [1]. But the path was quite painful.
[0] https://turek.co/2017/12/from-near-bankruptcy-to-profitabili...
[1] https://mobile.twitter.com/synopsi/status/120772243209145548...
I'm kind of surprised they didn't string you out for a while longer, then offer to buy the entire operation when you were forced to fold.
Have seen that done before - on purpose - by a place that knew the value of the operation and figured they could get the whole thing cheaply that way. And did so successfully. :(
However my hurt ego got in place and I refused to take any calls and I blocked all their emails.
Who knows what would’ve happened if I didn’t.
The only negative thing to them I know of is that one of the top US law firms dropped them because of this. They felt that this was very disgraceful behavior and sent us both a note that they need to protect their reputation with founders and they will no more work with them.
We should have more of these stories. I've seen it all. I've worked with co-founders that couldn't tell we were getting the run around when it was plainly obvious to me.
I've worked with other startups in advisory roles seeing the same things from all their leads.
[0] https://medium.com/sparking-conversation/how-raising-a-2-m-s...
The comments are saying similar things to what I experience in America, where there is a need to prove unnecessary things, and also no acceptance of mediocrity. Every black person has to be Obama. Whereas I see others are getting the benefit of the doubt.
This isn't really news in the black community, people who almost universally realize that their experience is going to be challenged and invalidated with an infinite series of excuses and sometimes plain gaslighting so they just stop talking about it as it falls on deaf ears. About the need to be better by a mythically high standard, JFK said the same thing 60 years ago, so I too am deeply skeptically about people that suddenly want to listen. For how long will they really want to have this conversation this time?
For me, the primary validation about America's quirks is my experience outside of America. In other markets, primarily my experience lies in Commonwealth and European markets, I've just been accepted as a competent person taking initiative. Ironically, it is because of my metadata of being American and additionally my existence in Tech / Silicon Valley that helps. But it is a glimpse of the refreshing experience that Ivy League white males seem to describe having the rest of their lives in America. The experience that makes them have an unfaltering marriage to the US infrastructure and stability, which is completely foreign to me, while I retain access to an America that can function as a tool for me to obtain access to capital.
What I observed in US that the country really takes an advantage of "poor" people (This is not meant to be derogatory. It supposed to mean people without immediate means. I'm not trying to make a statement about how they got to where they are). And because minorities generally are at the bottom of wealth, this tend to fuel the racism even more.
I always thought that a strong safety net system would ease the situation and allow for the most vulnerable groups to gain some footing which would be better for everyone. But I found over the years that the system racism is so powerful and so deeply integrated in the society that there is no way they will let it happen.
I never figured out any solution to this problem which frustrates me immensely.
Towards black Americans, European xenophobia doesn't translate into microaggressions intertwined with poverty, like being suspected of stealing while in any shop or being mistaken as working there because that context doesn’t exist. Where that sentiment exists, it seems reserved for another group like Romanians or Romanian minorities.
Towards anybody, there is no possibility of the police being called on you while strolling through any random neighborhood and no possibility of that escalating into danger if they were. There is no need to rationalize perpetual danger with “but look at the violent crime stats, LE has to assume everyone that looks like that has a dangerous weapon”, and the lack of collective punishment absolves almost all of the strife. More likely you’ll wind up in a society where everyone ignores each other by default anyway and that’s great, leaving only the endearing things to experience.
I attribute this to gun ownership. Police in most of Europe don't worry about anyone caring a gun, so their physical reactions are much less severe.
>“but look at the violent crime stats, LE has to assume everyone that looks like that has a dangerous weapon” After Hitler used very detailed census data to single out certain groups, Europe is very sensitive about collecting them. I remember a debate in Slovakia a decade or so ago, where they were talking about guessing a race and people were strongly against it (never passed).
>More likely you’ll wind up in a society where everyone ignores each other by default anyway and that’s great, leaving only the endearing things to experience. Interestingly enough, I never felt this way while living in Europe. People are still engaged and quite caring but also keep their distance.
Europe is far from perfect, but there are parts I miss greatly.
I partner with the “local goyim” to get into the rooms I want in every country I’m in, in the United States that is a white man with an ivy league degree.
I don't know if I got the idea from anti-semitic drivel or accurate Jewish business ideas, but I’ve had a lot of success with this approach.
If you want to fight for inclusivity, do that with your non-profit or shelve the idea until you have a path of lesser resistance, such as with your cofounder that matches the predispositions of people.
I’m not advocating for this to be how the world should work, but dealing with inclusivity in Korea, for example, is going to be distracting business priority when you know the answer is to get a Korean person on your team page and get a white male in the advertisement or interview. It is a mistake to treat America differently and act surprised at the results.
Just because some people need to see me write it: I completely understand this is a barrier of entry that does not scale to service a broad population of founders. I’ve had a lot of success with this approach.
I actually was told early on by one of the top VCs to find Stanford grad co-founder and they will invest with no problem. It's just not who I am, regardless how much harder it made it for us (and me of course).
I don’t feel like I have the privilege to care about that.
Or, I don’t feel like that is compatible with making money and focusing on the project’s mission.
Save the inclusivity for the non-profit or your own angel investing in the future.
This is one of many analogies I use to describe Accelerators/Incubators/Startup Camps. YC is no different. What they have though is a long history of building successful (and not so successful) companies. You can do it elsewhere. You can go through a program locally or something and you may end up just fine. Business, like all things, is a risk. Your first test as a leader is mitigating the risk of “How do I start?” which is a big one.
I’ve tried a few times to start. Still looking for my pit chief.
While reading the article, it struck me how fast-paced YC was, and how that is not at all like how I want to develop my software. I'm all about low pressure organic development of my business.
But man, what I'd give to be a fly on the wall at that YC dinner with the founder of Lithium...
But, again, I like working on kit cars...
Do you mean crew chief? That's what they're called in NASCAR.
I think they are called race engineers in F1.
Specifically what’s kept you from starting?
There’s a whole community of people who can help you. Start by starting.
In case it’s helpful; some resources: http://go.drod.io/startups
We spent too much time coding behind closed doors in previous startups.
Actually, it's more like "do I need a trainer?" If you already have a routine and it's working for you, then no. But if you've never exercised or exercise and are getting nowhere, then it's a huge boost to learn how to do things right and achieve your goals faster (with a high but worth-it price).
My main feedback from YC SUS was that there should be a second course. The first semester is about everything around the product: ideation, corp formation, staffing up, etc. But there shuld be a dedicated semester just on product design. Perhaps modeled on the Stanford D.School product design course. With a library of case studies from past YC companies. As well as a practical component, akin to the YC SUS Design Sprints.
Product in this sense isn't just about say "creating a new podcast". It's a deep dive into "how was the iPod born". And how that in turn gave rise to the entire podcast industry ;)
As someone working on a platform co-op I've experienced a lot of blank stares and confusion when describing the open source aspects of my system's design and the benefits it gives to the users. Not having the normal latches in to capturing the user's revenue streams seems counter to what would be expected by the mentors in YC. Anyone know how this plays out?
Y Combinator is worth it.
But, it depends more on you than Y Combinator.
Isn't that true for pretty much everything in life?
Yes, but this is to be contrasted with it not being worth it and that being independent of you. There are many accelerators which would fall into this category.
What's this about?
Founder doesn't want to give up 50-60% of company by their series A, so because they gave YC 7% they must either convince the lead investors to take a smaller percentage, or convince YC or seed investors to drop their pro rata rights.
Of course, you could argue that the company wouldn't have seed or series A investment had they not joined YC, so in that sense it's a nice problem to have.
Every founder and every company is different. If you are a first time founder and your network is limited then these programs open a network you could never penetrate on your own.
For seasoned founders these programs help to connect you with resources as if you had additional team members meaning (if you took advantage of it in the right way) you could easily scale your business quickly.
If you are a founder who is sensitive to your early valuation then an accelerator may not make sense.
Every founder needs to sit down and collect as much input as they can to make the most informative decision to help grow their business.
Didn't they themselves said they couldn't deliver their value remotely a couple of years back?
I'm curious if there are people who've done YC in both remote and non-remote format. Would be interesting to hear their comparisons.
I found YC to be extremely valuable for all the reasons I shared.
A side story: After I sold my last company in 2013, I met a guy (who worked at the acquiring company) that had big startup ambitions. We were on a bike ride one day (probably around 2015) and I told him I was going to apply to YC the following year to do a startup. He scoffed, and said the same things as you above — “YC is for young founders w/o experience.” He said he, too, was going to do a startup, but not apply to YC.
Fast forward five years. Armory is growing very fast. My buddy is unemployed after spending $350k of his own money attempting his startup.
Was YC the difference? Impossible to say. But I know my story is true, and I’m thankful for the intense focus YC provided — even for a startup veteran like me, with a successful exit, who didn’t necessarily think he needed it.
Moving to CA kills it for me, if it has more small centers like other incubators I might give it a try locally.
$125K for 7% is a lot, for companies think that's a good deal, normally means that company has limited chance to succeed in the first place.
Still the location requirement is the one many can't afford,especially those who got married and/or have kids, had industrial experience and probably more likely to fly.
Plus, CA's booming time might be over, COVID-19 speeds up the trend.
Or they believe that the YC brand will raise their value more than 7% which is quiet possible.
Looks good to me .
> YC has a "standard deal" where they take a 7% stake in your company. YC also gets pro-rata rights in future funding rounds.
2 legitimate hits (stripe, dropbox)
? WTFs? (Cruise, Ginkobioworks,Flexport,Rappi,Brex)
? losers (AirBNB,Doordash,Coinbase,Instacart,Gusto, Reddit)
I started writing this list up but can't bring myself to finish it because it's so bad.
On the one hand, yes you should apply because people with money will give you some of it. On the other hand, they're not going to help you be successful; you have to do that yourself. YC doesn't seem to have any special insight into how to make your company successful. And they don't seem to be able to pick winners any better than anyone else.
I'd suggest going in with bright lines that you don't want to cross. Let YC tell you what they are willing to give you money for, and don't budge from your principles.
All of those are very successful in my eyes.
Out of the 49 companies in the S11 batch, 10 exited, 17 are "dead", and 22 have no status.
Most of the companies from the W16 batch have no status listed.
[0]: https://yclist.com/
In our case, YC was super valuable. We've never been more focused than when going through the program. They make available so many resources you're desperate to grow and try things so you can get as much as possible out of the program.
Even though it has been a while since we were in the bay area for the program, we are still seeing many benefits by the huge and growing network of YC companies.
I can't speak for our co-founders but if we could go back in time, we would absolutely take part in the program again.
Isn't early employee equity compensation more a case of "if the founders make a lot of money from this, I deserve a fraction of that too" rather than being an IOU in place of compensation?
Sustainable businesses can buy the labor they need with present cash flows and don’t need to sell people on the possibility of future ones.
- most people who were around early enough for their grant to begin expiring by now moved on, so the standard termination clause already kicked in.
- some of those who have left did exercise, and understood the risk they took by doing so.
- those who are still here and are approaching that expiration have plenty of leverage to renegotiate.
not all companies in YC are unicorns, and they don't have to be. we are positioned very well, despite taking some time to get there.
PagerDuty isn't listed as exited, despite IPO-ing last year.
Edit: And Flexport isn't listed at all (Should be W14, IIRC)
For S11, 21 companies are still active, with 5 (GoCardless, Segment, Zeus, Vidyard, and Sift) in the "YC Top 100" (valued at $150mm or more). At least one (Segment) is valued at $1bn+.