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Comment by acecreamu | Hacker News Reader

Happy to honestly answer any brutal questions you have!

Do you think YC would make sense for a company that doesn't intend to raise money beyond the YC investment?

I have an idea for a b2c product I want to build that has a few paths to revenue (and a possible b2b offshoot), as well as acquisition by FAANG (or FAANG-adjacent). Is there something about taking investment from YC that prevents me from turning around and selling it for $2M after building it out a bit more?

Alternately, as a solo founder, if I got to a point of $10K MRR I'd be happy to just keep doing what I'm doing, but I guess I'd have an obligation to continue trying to grow?

edit: to clarify, I'd be using the $125K 7% part of the investment without necessarily dipping into the additional $375K in this situation. But maybe I'm not understanding how the MFN provision works

Any investor would hate this idea, it's a terrible deal for them, and YC are smart enough to get it out of you. The whole business of VC is to sell later at the higher price. If they give you money at val of 5M+ and you sell for 2M - they are in loss.

It's not val of 5M though? It's ~1.7M IIUC. 7% for 125K, an additional 375K can be invested though, with additional equity attached. Is that not right?

edit: Investors are also expecting to take a loss on many of the investments. 2M is one exit option, which still gives them +17% return on investment

I know that's not the standard type of exit YC are looking for, and I'm open to growing a bit more, but not as interested in taking additional investments. Final exit could end up being 10M for all I know.

I just think this growth at all costs attitude needs to change a bit with the current economy. I'd be happy to take $80K for a 7% investment also, but they have a standard deal which I think perverts the incentives and, frankly, leads to outcomes where they're pushing you to take more investment even if you could just have a sustainable business pulling in 10-30K MRR or something

The whole business of business is to sell later at a higher price.

In some businesses selling earlier at a higher price is also acceptable. It’s only the delivery that is later (or indeed concurrent).

Surely the majority of businesses are small, and are more about making profits every year, rather than selling shares?

I don’t usually see one-liner comments from you.

YC only invests in companies that aim big, and have a big opportunity. So you would have to lie to get them to invest, and they likely would catch you out lying. http://paulgraham.com/growth.html and http://paulgraham.com/mean.html gives you some idea (also see http://paulgraham.com/articles.html ).

Giving 7%, but getting say 20% extra when you sell, could be financially sensible (depending on your other costs and benefits).

Do you think it is worth lying?

I have no intention of lying, I'd rather bootstrap or shop for other investors who don't have the same expectation of 'growth potential'.

The YC model is.. it's own thing.. seems like in the current economy, they need every company to be a potential unicorn, which works out for them because they're doing it at scale, and the ones that deliver, deliver outsized returns.

But possibly doesn't work out as well for the founders, because the 9/10 that don't deliver, are forced to run their company into the ground chasing a moonshot vs. a sustainable lifestyle business, and don't get to reap the rewards they might get from the latter business model

Agree. I have yet to see YC publish figures on founder returns - they mostly talk about the successes. https://jaredheyman.medium.com/on-the-life-and-death-of-y-co...

Amazing video on bootstrapping: https://youtube.com/watch?v=otbnC2zE2rw

There are funds trying to succeed at the many-small-successes model of investing - personally I am skeptical (from my own experience) because the natural failure rate is so high (before stressors due to investors). Edit: and there is a strong negative selection bias - small software businesses asking for money is a loud signal that they are much less likely to be successful at all IMHO. Relevant article about Mittelstands ”We need a middle class for startups”: https://neilthanedar.com/we-need-a-middle-class-for-startups... and my comment https://news.ycombinator.com/item?id=31350478

> small software businesses asking for money is a loud signal that they are much less likely to be successful at all IMHO

Money doesn't seem like the main benefit to going through YC (otherwise there are lots of other investment firms one could approach). The main advantage seems to be the network, connections, and expertise on running a business.

Sure, if I had another 30K I'd have an extra year of runway, which can be pretty valuable right now. But I suspect solo-bootstrapping without a good VC will result in a lot of friction at points that a specialist VC would be well-suited to assist with (providing standard ToS, verifying compliance, business structure boilerplate, etc)

Note: Paul Graham writes on theory of 7% equity: http://paulgraham.com/equity.html

The real benefits and costs are hard to measure, the maths is obvious.

Why don't you look into bootstrapper friendly VCs instead?

TinySeed and Calm Fund come to mind.

This is awesome, thank you for suggesting these!

With the market conditions right now, have any ideas about how it could be better?

It sounds like structural critiques; like a smaller, tighter community that onboards with better incentives, enables more efficient engagement with the alumni and batch would be a big gain. And importantly, like ycombinator could show more flexibility and interest in the batch. That sounds like a smaller network overall though, with less success stories to tout. If they have a better 'batting average' so to speak, though, that would help the investor environment. How does it affect their income and social lives, balancing it all I wonder. Thanks for the article!

I think they did a right move - making the batch smaller and moving it back in-person. The money amount that was not very attractive at 2021 makes a lot more sense in 2023 as well.

As for the community I believe it can only be build relatively strong for <100 people. Hence, smaller niche-specific batches?

How much did your company raise in total, and at what valuation? Would it have been able to do so without YC?

I can say, we didn't see significant uplift at Demo Day, the highest bump of valuation happened when we got accepted, it's fair to assume we wouldn't get it otherwise.

I can't answer your question completely as in the end we decided not to raise and returned the money...

Thanks for sharing this.

What’s the strongest counter argument you can make in favor of YC?

There are a lot of good, even in what I write. The strongest I believe is the early and fully independent support for ideas that received no other recognition yet.

What led you to shut down and not continue and pivot?

Huge % of dilution after going through two accelerators (EF and YC). Would be too much of a burden to drag into a new venture.

Didn't you know that when you took the money?

When we took the money we were planing to build up the original idea, not to start another one. For the consecutive growth of the original idea it wouldn't be an issue.

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