Y Combinator: Disneyland for Investors? | Hacker News Reader

Y Combinator: Disneyland for Investors?

news.cnet.com

83 pointsKMinshew21 comments

Demo Days really do have this feel.

I was pitching a VC partner before the presentations, and he noticed three people walking towards us: "check that out!"

Me: "Oh, yeah, Ron Conway! He spoke at one of our dinners, and we've talked with him personally a couple times, he's a good guy."

"No. To his left."

Mr. Conway was flanked by Ashton Kutcher and Demi Moore. And no, it's not movie magic, they really do look that good in person.

"...and pay irrational amounts of money to experience. "

"Investors pay a shockingly high price to get into highly competitive funding rounds, but they're happy that they got in at all."

Surely investors are getting a good deal despite these statements? I mean they're going to pay more to invest in a company that's been through YC than if they invested in the exact same founders prior to them being in a YC class, but look at what they're getting in return:

- Vetting by pg and co.

- Plugged into an invaluable alumni network

- Automatic investment from Yuri Milner (in most cases) meaning the company has more runway with which to survive lean times

- Media coverage

- Massively reduced risk premium and due diligence due to the above factors

- Etc.

So surely the higher price is still a price worth paying?

Edit: spacing

The Milner point seems backwards: for an existing investor, cash is what they already have, and the presence of an existing investor means that their investment will be pre-diluted. If "runway" is all their startup needs, any investor would be happy to provide it.

The others seem right though, and really they all just come down to "reduced risk". The big problem for investors is that they have a hard time picking winners. YC and its community have a better track record.

Investors want you more when you need them less. When you're desperate, you get a bad deal (if any). Hence having cash is always helpful.

Helpful to the startup, not to the investor. My reply was to patrickk above who listed Milner's investment as a draw for other investors. From the investor's perspective a hungry startup is preferable. Thus startups that aren't hungry by virtue of someone else's investments are less desirable.

The fact that a startup isn't desperate makes it more desirable -> it may get to choose investors -> it ends up with top tier investors -> it is more likely to succeed (good investors are more than a check book) -> hence it's a good investment -> better for any given investor in the round (as well as the startup - it can and should be a win-win)

I agree. Just to add to that, AFAIK only a third of the convertible note comes from Yuri Milner. The rest comes from SV Angel (Ron Conway) and Andreesen Horowitz. These are great investors and having them back you goes beyond the cash they provide.

This is completely unscientific, but once something gains this much hype I just get the gut feeling that the value has disappeared for investors. If the likes of Ashton Kutcher are there, the game's up, the secret's out - these assets are no longer undervalued. If I'm an investor, it's time to pack up and move on to find the next market inefficiency, cause I really doubt it's in YC funded startups anymore.

I disagree. Despite the high valuations, a lot of the companies in YC rise past their seed stage valuations. You may overpay a bit, but you're essentially paying for more security. Most seed stage startups flame out before they even hit Series A -- YC startups are far less susceptible to this problem.

Ashton Kutcher preceded the hype. During his trophy husband days, he branched out into VC/angel investing to prove that he was more than just a pretty face married to Demi Moore.

Despite his affinity for playing idiots onscreen, he's very intelligent in real life.

"...I just get the gut feeling that the value has disappeared for investors.."

One important factor when valuating a company is the perceived risk. YC employs strenuous filtering (it has to reject 97% of the applicants), mentors and connects the founders, and already has a track record of success. This means lower risk which merits higher valuations. It has nothing to do with hype. It's the new way of creating startups combined with the old way of valuating them.

The game's up when people like you start commenting on this board. Don't you have a SCRUM of SCRUM meetings to attend? That VB.NET isn't going to write itself.

Ashton Kutcher was a biochemical engineering major in college, and has actually gotten fairly heavily into investing. If nothing else, he'd have far more insight into press than most angel investors would.

Yeah, I probably shouldn't have mentioned Ashton Kutcher by name. I merely meant to illustrate a type of person. That is, once a thing becomes public, well-known, trendy, etc that the game is up in terms of mining value from an under valued asset.

Yeah, I figured that's what you were saying. I think it's probably not the case, since that depends heavily on deal terms, and even the most entrepreneur-friendly terms currently (such as those of Yuri Milner's Start Fund) seem like they'll be strongly net positive in outcome. YC is taking the cream of the crop, and it's probably not a bad bet to bet on the cream, even if it seems relatively expensive, because startup outcomes are extremely unevenly distributed.

Might be unrelated but I've noticed an awful lot of YC "hype" (press, news, coverage) since the Sequoia investment.

I hope Sequoia is not being a negative influence to YC by dis-proportionally "banging the drums" and ultimately being a distraction to the goal of building and developing lasting and meaningful companies and businesses.

Having an "in" at Sequoia meant that they made a couple introductions that proved very helpful for us.

I'm sure Sequoia has a laundry list of valuable connections for any YC start up.

I just wonder whether contributing to an atmosphere of "frenzied investors" like the original article alludes to is helping or ultimately could wind up hurting in the long term.

Sequoia certainly hasn't had that effect on YC companies. Nearly every founder I've talked to on the subject has said that when they met with Sequoia, they received good questions and advice about how to build a really big company.

There's a common cause for both the Sequoia LP investment and rising hype about YC: both are because YC companies are doing better and better. It certainly is true that hype, PR, and fundraising can be big distractions for early startups, but all the YC partners go to great lengths to make founders focus on the more important things.

It's good to hear from YC founders that they don't see the negative impacts.

I can certainly understand why the hype machine is, at least in the short term, valuable to both Sequoia and YC. It helps raise the profile of YC and causes valuations to rise for all involved companies. Both Sequoia and YC are in the business of making money after all.

But when you have a situation of "frenzied investors" and these "exclusive limited events" designed somewhat to cause a situation of artificial scarcity, the waters get a bit muddy regarding the motivation of connecting companies with investors. It's the difference between having genuinely valuable partnerships, and those quick liquidity events designed to make a quick buck.

The original mission of YC involved developing companies that build things that people want. I hope the Sequoia influence doesn't change that.

That is an unfortunate analogy. I really don't want to see investors riding entrepreneurs.

Reply on news.ycombinator.com