“Y Combinator is not worth it”
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Towards the end of this new thread, he seems to be promoting a waitlist for his own accelerator, so it does seem like this was a big PR push for him.
Based on my twitter feed reactions it seems to have worked out quite well for him. No better way to get eyeballs than to court controversy.
But in this criticism he brushes off the benefit of being associated with yc. Is it just that it's no longer true that companies competing with yc darlings are shunned by other VC?
I think that would also help quell fears that fingers are placed on the scale in favor of YC companies.
I'm a bit confused—how'd you arrive at that from what I wrote at https://news.ycombinator.com/item?id=30070287? That was the false allegation, but the whole point is that it didn't happen.
I'm happy to answer any questions about that case, any other case, or HN in general, but I don't recall that thread containing any point at which moderators intervened in that way.
Specifically:
> The software downweights any story that has been on the front page for more than 15 hours, unless we specifically tell it not to (which we might do if the community was particularly enjoying it)
and
> ...but then moderators will notice it and push it below the front page.
Since this is a kind of editorial action from the moderation staff, it would be interesting to see how this is applied.
As for why we don't publish a moderation log of every change we make, there are a number of reasons for that, but one is that I fear it would actually not be good for fostering trust. The reason is that it would provide a lot more scope for a tiny minority of litigious users (not to mention opportunistic self-promoters) to lob accusations that we would then have to either answer or leave unanswered. That's a Hobson's choice, because not answering is not an option—absence of an answer would be taken as "confession! see? they can't even answer!" and allow this concocted sort of scandal to burn unchecked. But answering isn't much better, because it takes a huge amount of time and energy.
For example, the story about HN that appeared at https://news.ycombinator.com/item?id=30066969 was completely false. But just writing up a suitable demonstration of that, as well as answering users' many legitimate questions that arose, literally took me the entire day. Pseudo-scandals like this are cheap to stir up and costly to refute. This makes us vulnerable to a kind of DoS attack, not because we're doing anything that isn't defensible to the community—our most important practice is never, ever to do that, and when we do screw up, to admit the mistake and fix it—but rather because time and energy are so limited. It would be easy to peg us at 100% just dealing with this alone, and that's not even considering the soul-destroying impact on morale.
That would be a bad trade. It would prioritize the demands of a small minority of low-trust users, some of whom (alas!) are determined for whatever reason not to believe a thing we say, while neglecting the interests of the vast majority of the community here, who aren't interested in such drama and just want HN to be a good site to read. It would starve us of resources to make the site better and please the community as a whole.
It's true that I don't know for sure that this would be the outcome of publishing a complete moderation log, but I don't see how we could run the experiment in a low-risk way. If there were a way to take such a step, see whether the fears came true and reverse the decision if so, then I might be up for it. There's an optimistic scenario in which it would make the community happier, enable people to answer their own questions, and free up more time to invest in HN goodness. I just feel like I know enough about internet dynamics not to find that scenario very likely, and it doesn't seem like a reversible thing to try.
That doesn't mean we don't care about transparency—we do! But over the years, we've struck a workable balance in a different way: by being happy to answer questions about specific cases, and about HN in general. We try always to do that, and we always tell the truth when asked (partly because it feels better, and partly it would be dumb not to, since the good faith of the community is literally the only value that HN has). That balance has worked well over the years, although it does mean that I spend a lot of my day answering the same classes of question over and over again. That's probably just baked into the job though.
The reason this approach to transparency works is that the community knows us, we've been fortunate to build up trust with most users over the years, and we try our best never to jeopardize that trust. When we answer questions, most people are willing to provisionally believe we're answering in good faith, subject to making up their own minds based on available evidence. That's all we need for this to work. Meanwhile, low-trust (and/or hostile) users aren't about to trust us even if we did publish everything—they'd just dig new trenches around "well, but you could be falsifying the log".
If anyone has a question that I haven't answered here, take a look at these past explanations: https://hn.algolia.com/?dateRange=all&page=0&prefix=true&que.... If your question still isn't answered, I'd like to hear it and will do my best to answer.
I can appreciate the asymmetry in the effort necessary to create allegations vs refute them. That makes sense. Thanks for taking the time to reply.
For what it's worth, I think you and the team have done a great job fostering a community that results in (mostly) thoughtful, respectful discussion. I appreciate the work you do to that end.
"YC are some of the kindest, most egalitarian people in SV. They've treated me well even after my company they invested in closed down. They give people a shot who wouldn't otherwise have one. If I were an investor who just handed this guy money at 250x revenue, I'd be nervous."
Every time I see things like this, I look back at an email Trevor Blackwell sent me about a month after we closed down our company. YC was above 100 companies/batch at that point, and he wasn't one of the partners assigned to our company. He took time out to tell us he thought we were special and hoped we would try again at some point. That vote of confidence got me through one of the darkest periods of my life. Garry, Michael, Harj and Geoff have been equally kind. Maybe YC has changed since then, but I doubt it.
Taking 10-14% is huge, sure. I agree. For some people there would be no 10-14% to worry about without an opportunity like this in the first place.
It’s about trade offs. To some people this will be totally acceptable. If it’s not to you, there’s no social contract that you have to go through YC. In fact, he more or less explains this in the tweets. If you have other options, great, use them.
He seems fairly biased against YC for a handful of reasons.
I’m not cheering for YC or anything. I just don’t perceive awful or corrupt motives. Of course they’re a business trying to profit from investing in startups. Of course they want ownership for what they put into the company. It all seems very transparent and easy to follow.
That's the investor side of the equation, which if you believe this thread is his main complaint -- that it's too investor friendly.
But I also get to see the founder side of the equation. Since I'm writing such small checks, a lot of my value to the company is offering help at the early stage, often with architecture review or product reviews, and sometimes even interviewing engineering candidates for them. Because of the close relationship, sometimes I end up becoming friends with the founders I invest in. Which lets me see how YC helps them as founders.
Need help connecting with someone at company X? There's almost always another YC founder who can make the intro. Need more money? YC has got VCs on speed dial for you. Need media coverage? There are journalists from highly respected outlets asking YC for good stories every day. Even basic stuff, like, "I need an accountant" or "I need a lawyer who can handle this special type of law" can be much easier solved with a quick intro from YC.
Getting into YC just makes everything else about doing a startup so much easier. It doesn't make it easy, because startups are never easy. But it takes away a lot of the low level friction.
The emotive nature of this thread probably speaks for itself. But for any startup considering issuing equity to anyone - YC or otherwise - there is a simple formula you can use that Paul Graham came up with:
1/(1 - n)
He also put it way better than I can in his essay "Equity Equation":
"You should give up n% of your company if what you trade it for improves your average outcome enough that the (100 - n)% you have left is worth more than the whole company was before." [1]
I think it is sensible to judge advice and the substance of an argument on its merits, taking into account any industry expertise or relevant biases, rather than exclude it because someone was an investor at the time.
At the end of they day you’re only going to raise so much in your next round and half a million is a lot of space taken up by one investor (who is already motivated to help you if you only do 7%.) I have a couple batchmates who opted out of doing YC again because the equity was too high and that was pre-additional 375k SAFE.
On the other hand it is 500k less that you have to raise to close a round and 500k you have if you can’t raise or want to wait to raise.
So he doesn’t not have a point. It depends a lot on the company. But to his accusation that YC only cares about the top 10 companies, I think this additional money—which is optional!— disproportionately helps the not-top ten.
Should you be even trying to calculate outcome?
Profit isn’t a universal virtue, so that’s out. Beyond that I’m curious.
At the end of the day, everything is just a deal you can either agree to or walk away from.
I get the point of this Twitter thread is to basically say just that, that YC is a bad deal, but so are lots of things in the world. The idea that you should always be looking for the best deal hardly needs to be stated.
Is there a marketplace for investors in the world where startups can basically find the best offer, or auction themselves?
What an immensely privileged position to be in. And what an unjust system it must be for this to be possible, for fiefholders to play patrons in this way.
There are some valid points, people might not be aware of but overall the YC deal still seems better than most alternatives. I think he is discounting how hard it is at that early stage, that first capital needs to come from somewhere. Also YC founders seem to be disproportionately have softer landings if they don't go supersonic Unicorn IPO. Maybe you don't stand out in the top 10 of your batch and instead get aqui-hired and only make 800k/yr.
…and there it is.
It’s hard to take this seriously given the pitch to compete against YC at the bottom.
He gives quite a rant, but doesnt mention a specific deal. The Backend link and the Miami incubators dont specify amounts.
14% is high - but that implies that your post-YC was not great.
The previous 7% deal is also still available.
Overall - he make the usual points, nothing new.
I was in an incubator program, and there were two serious problems with it, which if you join YC are potential problems too:
Problem 1. The belief by founders that they could get good advice from others. This is a dangerous attitude to have programmed into yourself, because when starting a business you must stand on your own feet and trust your own opinions. Listening to others is fine, but it is to easy to cripple yourself by believing in the advice of successful people, and listening to the wrong advice. You need to make your own mistakes. That tightrope is an essential skill as an owner, and I don’t know how it is taught, especially to neophytes. I saw other founders learn to doubt themselves because they were not subject experts in so many areas of their business, and that doubt was damaging to them and their businesses. Yes Listen; yes respect the advice of others; no do not take advice without being careful to validate it for your businesses’ needs. I did also see some founders ignore excellent advice, but at least their businesses died honest deaths without interference!
Problem 2. Incubators push businesses to get funded. The push is probably mostly organically due to the atmosphere of competition between founders, plus the expectation that it is just what you do, but also the incubator chiefs push for it. I saw many other companies take money to grow, and then lose control and end up with no meaningful return for their efforts. The problem with all investors I have seen in my country is that they push companies in queer directions, because VC tends to be ego driven: VC investors in New Zealand have strong opinions and they often kill companies. We bootstrapped, which has limited the size of the businesss, but bootstrapping de-risked our returns and we have comfortable lifestyles (albeit without the potential for superyachts and blow).
I agree that giving away 1[0-9]% to YC is a lot, but getting $500k of distraction free money is a mighty big carrot. https://randle.substack.com/p/playing-different-games (scroll down to meme of VC with knife behind back, and read below) talks about the benefits of Tiger Global’s hands-off approach to founders where they don’t take board seats. “[Tiger Global] lacks the potential downside that comes from a new highly-involved investor who ends up being more of a drag than a help, or even worse ends up being actively malignant to the board and business.“.
One benefit of YC that is not mentioned is bargaining power: if you are using a growth funding model, and you are successful enough to get to the later stages, I would hope that having YC on your side would give you fantastic leverage. Maybe YC’s ownership is not large, but it is enough that they will will avoid the vultures. Also the VCs know that screwing over YC is a high risk manoeuvre because it affects the VC’s other investments or potential for investments - if you are a successful startup without backing then your business could easily become another lonely victim.
One thing I am unsure about is the rules for YC dilution: I think that YC is undiluted at your first round, which is not in alignment with founders. I presume after the first round that YC dilution matches founder dilution. Another aspect is that YC shares are preferential, while founders and options are common shares. So YC incentives can be mismatched with founders. The only thing keeping YC honest is the internal integrity of the YC business, and YC’s care for their own reputation for integrity (not shafting founders).
This is very similar to every platform (like App Store) trying to win over workers by making them believe they can become rich on their platform, which of course is a statistical lie.
The idea, if I understand it, is that if you work out everyone will be so rich it won't matter what percentage they own, you'll still be incredibly rich.
If it doesn't work, as it usually doesn't, well, you can't give away 10% of 0, so who cares?
It's not just VCs playing the lottery, it's the founders also.
I'm not saying I support it or think it's a good or healthy thing, but... isn't this the bargain people are willingly making?
I supposed a more nuanced question would be -- has YC made any essentially good businesses? Like "something GOOD that literally would be very difficult to make without tons of extra dollars?" I strongly doubt it, but maybe?
For every novel idea company, there seem to be a dozen variations of market analytics (no, your Customer Data tracking platform is not unique) or niche infrastructure management (solving complexity created for the sake of complexity vs simply avoiding... Where have we ended up) companies. They're obviously looking for the decacorn type companies but so many seem to be best case scenario of acquireihires. If you ignore flashy tech and buzzwords, it has never been easier to build the software. What keeps getting harder is getting material visibility in the marketplace due to the huge influx of niche participants and small avenue of promotional channels.