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Comment by rexreed | Hacker News Reader

Is it really that much easier for a "typical" startup to raise money now than before? And by typical, I mean a non-Silicon Valley based startup with founders that no one has heard of before and that do not have good connections with VCs operating in a mediocre market with a decent, but not ground-breaking offering. Not a hype-driven, silicon-valley based startup in a "hot" market led by superstar founders or founders with deep networks?

It would seem that all this "easy money" is simply flowing to the places where it has always flowed before, but in larger quantities. The same big money chasing a small number of deals, just with deeper pockets and more gusto to participate in an auction if need be.

Honestly, has it really gotten any easier for the typical startup?

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In my anecdotal only experience it has gotten easier for founding teams who are from central casting - known schools / former employers, tech-first business ideas that VCs can understand, other stereotypes around what it means to look like and especially talk like the pattern of a successful founder.

There's just more money sloshing around and these funds have to deploy it somewhere.

Imho the outsized benefit to being from central casting is probably a sign of the end times for western civilization etc but that's the pattern I've seen from scattered anecdotes.

If you reach the threshold required to get into YC, then your location and experience won't matter (and with the size of the batches getting larger and larger, you could argue that it is in fact getting easier to raise money now than before).

If something about your seed-stage startup is stopping you from getting into YC, then I would ask myself if I might be doing something wrong. This is coming from someone who went through YC with one startup and also got rejected in another instance. While YC does make mistakes, in my case they were spot on.

Please know that I am not discouraging you from pursuing whatever it is that you're working on - every early-stage founder has a special place in my heart. Just realize that your time on this planet is limited, and there truly is so much opportunity out there. Spend your time wisely.

Just because someone could get into YC doesn’t mean they want to.

That means the signal isn’t there, even though the company is just as good as one that did enter YC.

Technically, that's a correct statement. Even if you could get into YC, nobody is forcing you to take the YC tail winds, and instead you're free to throw yourself into the head winds.

Plenty of great teams skip YC. It’s kinda known for pumping out low quality startups anyway. Most YC companies are not Dropbox.

> Plenty of great teams skip YC.

That was never up for debate. The real question is would those great teams have raised at better terms and from higher quality investors if they went through YC (obviously also accounting for the 7% YC tax)? From what I can tell by looking at the YC valuations, the answer is a no with one caveat: if they had a previous exit, their previous investors will give them a sweet deal with or without YC.

> It’s kinda known for pumping out low quality startups anyway. Most YC companies are not Dropbox.

It would be nice to see how you arrived at this conclusion. The YC portfolio is valued at over $300B [0], so I would say the investment community certainly disagrees with you (with or without Dropbox). In fact, that 300B figure was published before Stripe and Coinbase announced their IPO pricing, which has now likely added another $50B or so to the bottom line.

[0] https://www.ycombinator.com/

Just like every other VC, YC's successes are a small fraction of the investments they make. You can scroll through HN every day and see tons of YC startups no one has ever heard of/will hear of looking for engineers, launching...

> It would be nice to see how you arrived at this conclusion.

Demo days.

If a great team is skipping YC, it's safe to assume they know what they are doing.

> Just like every other VC, YC's successes are a small fraction of the investments they make.

You said "just like every other VC." So, if it's a global phenomenon that's true in every segment of the VC landscape, why bring it up as an argument against YC? This entire thread is about venture capital, so I doubt you're trying to make a point about bootstrapping or something along those lines.

I think what you're trying to say is that getting into YC is not a guarantee for success, but nobody ever claimed that. The odds are stacked against you either way, but the YC cohort's odds are way better than those of comparable startups that either didn't get admitted or never even applied to YC. If you want to debate this point, then let's see a substantive argument. Here's mine: YC's estimated IRR is 155% [0] (and this is an outdated number that doesn't include the recent IPOs). In comparison, the top ‘quartile’ of funds since Web 1.0 have returned about 20% IRR [1].

> Demo days.

I can't really do much with this response, but thank you nonetheless.

For everyone else, if you're contemplating applying to YC, I would refer you to one of the many discussions on HN where people presented actual math on when YC pays off and when it doesn't. For example, in this thread [2], the top comment links to a spreadsheet [3] that says if you want to raise $1m without YC, you should be able to get a seed valuation of $6.5m or higher, otherwise it's less dilutive to go through YC. Naturally, if you want to raise a higher amount, the threshold gets higher (eg: for $3m, the crossover valuation is $9m). Not to mention other value-added benefits, such as access to the Series A program, thousands of potential customers, etc.

[0] https://www.quora.com/What-is-Y-Combinators-IRR-or-estimated...

[1] https://www.quora.com/What-is-the-average-IRR-achieved-by-ve...

[2] https://news.ycombinator.com/item?id=24616649

[3] https://docs.google.com/spreadsheets/d/1kxOBF0CPhcktmgFvAZtY...

All your metric says is that YC has had some very large successes. It says nothing about how likely a given startup is to succeed. Just because YC can get their hands on some good deals, it doesn't mean that most YC startups aren't crap that flame out. You have cause and effect reversed.

If you can get into YC then you can raise from any number of firms on equal footing.

Would you be willing to bet that S20 won't exceed an IRR of 20%?

Edit: for context, the comment I responded to was originally linking to the S20 batch and implied that the companies are weak.

I would bet that 75% of those companies will be out of business in five years.

Sure, I'll take that bet, as long as we can bring it back to your original premise, which is that S20 sucks and that smart founders are better off skipping YC. For that point to be validated, we need to establish that a comparable cohort of non-YC companies will fare less well. So here's my proposal:

We take all companies indexed on AngelList and isolate for those started in 2021. Then we separate them into YC and non-YC cohorts. In January of 2026, we will see which cohort has a higher rate of shut downs.

Deal?

That would be extremely interesting, and yeah I'd put $100 into that bet.

I am in. Here's my email: https://bit.ly/3bCwlYs. Please confirm once you have it.

We need a platform for this, not an email address. Sort of like fantasy sports, only for VC.

Raising money from YC is the same as any from any VC: you need traction or to be part of the VC’s network. If you don’t already have a bunch of users or know a bunch of VCs, you won’t be raising money.

> you need traction

Let's compare the experience of YC vs non-YC.

YC: you submit an application with about 30 inputs. One of them has to deal with traction, and it's clearly a very important one. If that's not looking good, you have 29 ways to make up for it. It's not easy, but every batch has startups that had 0 traction when they were admitted, so clearly it's possible. At the end of the day, you're guaranteed that a group of people will read your application and will discuss it internally.

Non-YC: to make an apples-to-apples comparison, I'll assume you have no prior relationship with the VC you're trying to reach. So you'll need an intro, which is nothing else but someone else taking on the burden of vouching for you. So someone at some point needs to believe that you're onto something. But if you don't know anyone, how do you get to that point, especially if you have no traction? Good luck with cold emails in that case!

> If you don’t already ... know a bunch of VCs, you won’t be raising money.

True for VCs, not true for YC. Just look at all the startups from India and Africa that got into YC and are killing it. You think they were super well-connected with the YC network when they applied?

If you have traction, YC or any other VC will invest in you.

If you have great relationships with VCs, YC or any other VC will invest in you.

You seem to be trying to make the case that YC offers some sort of unique lift to that of other firms and I don't agree, they gate on the same criteria as everyone else.

YC allows you to fill out an extensive application and then they guarantee you that they will read it several times across several people. Compared to what you get from VCs, that's a unique lift.

If you have traction, any VC will take a meeting with you.

So you're saying that the threshold to getting into a fairly exclusive club (getting VC funded) is to get into an even more exclusive club (getting into YC).

I find it comical that the VC community thinks it is diverisifying its entrepreneurship base by backing the same network of people that moved from San Francisco to Austin or New York.

The truth of the matter is that capital might indeed be abundant, but it is going into much the same places it always has. The concentration of wealth and opportunity continues unabated.

I challenge VCs with all this extra money sloshing around to rethink the path to sustainable entrepreneurship. If this was the late 1800s, the money would all be flowing into steel mills in Pittsburgh and the emerging oil barons and tycoons in those cities that are very much ignored today.

Yes and no. There is more money available generally and that availability is more geographically distributed than it used to be. However, people that know how to raise money tend to be concentrated in areas where that is cultural knowledge. Most of the advice you read online on how to raise money from VCs is misleading at best to the naive outsider. The hard part is learning the mechanics of a real VC funding at various stages, and how that varies across funding stages. If you have that knowledge, it doesn’t matter too much where you are or how connected, you can make it work.

There is an unreal amount of capital sloshing around right now, that part is true, but there is a hurdle in knowing how to raise it and that knowledge is not evenly distributed even if you otherwise have a solid startup. I learned how to do this the hard way. There is a “fish don’t notice the water” aspect to it.

(Currently raising a large Series B outside of the west coast.)

So what advice / sources of information do you give to those naive startups that don't know the mechanics of fundraising and would like to learn how to do it right? And not be mislead by those other less useful sources of information online?

The story and narrative is everything. It isn’t a business plan competition, no one cares about the business plan. They want to feel like they are participating in something potentially legendary. And maybe they are. There is artistry to it, you are a performer.

This is how investment decisions are made. Few investors care about your three year financial projections. You still need to seriously know your stuff, but that is not enough ipso facto. The first cut will be your ability to spin an engrossing narrative.

I can go deep into the financials but no one asks me to if the story is exceptional.

So, you're basically running a private kickstarter scam?

Heh, no, I work in deep tech. The mistake most people make (and I used to make) is talking about the tech. Being "deep tech" you would think this is the central point but it really isn't. There needs to be a compelling narrative around why what you are doing (technically) is important but the technical details just need to check some boxes. In essence, you are painting a visceral but credible picture of the world that will exist if you are successful.

Storytelling is a critical part of fundraising. You can generate wildly different outcomes from the same set of facts.

Ok - I'll bite. Let's dig deeper.

Imagine you have a good story. But you have no connections. And you're in a region with a dearth of VCs. So you can't just randomly walk into (or email) a VC to get any sort of reception.

Without access to a side door, which is how the VCs currently connect with their chosen few, and with the front door basically bolted shut (very few VCs take inbound cold emails or respond to contact forms), it is impossible to just tell your amazing story to a receptive VC.

This is the issue. It's not that people don't know how to handle VC conversations. It's that they can't even get that conversation started. The VCs continue to turn to their existing networks, pools, or preferred mode of "discovering" startups. This results in the same few getting the attention.

Tell me how you solve the introduction problem.

I agree. The "story" VCs care about the most is: do other VCs want to invest in this?

That's the narrative people who raise large rounds are spinning. It has nothing to do with the tech, product... only how desirable it is to other VCs. The only way you craft that narrative is to be close to many VCs and pitch them all at the same time to create FOMO. Only those with strong existing connections make this happen.

Yes, if you built something that millions of people use the VCs will take a bet on your sure thing. That's super rare though. Most funding is going to their friends as it always has.

You don't have to sell the VC initially, just to people that a VC will listen to. It is a bootstrapping process.

Ok let's keep digging deeper. Imagine you're a startup with a great story in Nashville, TN. Or perhaps Columbus, OH. Or Riga, Latvia. Or Bogota, Colombia. The specifics don't matter, but the fact that these are in VC "back waters" is the main issue.

Who are the VCs listening to in Nashville, Columbus, Latvia, and Bogota? Or if they aren't listening regionally, then where and who are they listening to?

My understanding is that VCs, like most people, are fundamentally lazy. They won't go out of their way to listen to people they aren't already listening to. This means the same networks, inbound deal feeds, and communities.

You are correct. More money is flowing to the same type of people. It’s still incredibly difficult to raise money If you’re not an existing part of the VC network.

Are your parents potential LPs? Have a $5M seed! No? Sorry we couldn’t get to conviction.

There have been some rule changes in recent years allowing non-accredited investors to invest in startups more easily, and platforms such as SeedInvest have sprung up which facilitate this, so this is at least one new pathway, although I don’t know how much easier it is necessarily, if at all.

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