Did everybody see what just happened? The pendulum has swung.

Deciding what to invest in is hard, especially in the seed stage. With the market being so hot, investors have to decide quickly which makes it even harder. When investors are agreeing to an 8 million cap on a YC company and a 4 million cap on comparable non-YC company, they are essentially saying that the YC company is twice as likely to succeed, which I don't think is far-fetched. You may also wonder whether this anticipation fulfils itself (a company that seems more likely to succeed may get "better" investors, positive media coverage, early adopters, etc, which may end up helping it becoming successful).

I also think that the increased popularity of convertible notes is a contributing factor. The 8 million cap only becomes 8 million valuation if the company raises the next round at 8 million or above, so in a way it has to live up to its promise in order for the increased cap to take an effect.

And finally, if a company becomes the next Google then the valuation at the seed stage is insignificant. Therefore the valuation just represents the perceived probability of that happening.

If I were an angel in Montana, having access to the best deals globally would be a lot more attractive than trying to get into all 3 tech startups in Montana in a given decade. It's a lot easier to interact with businesses and founders online, and then to make an investment, than it used to be.

That said: this has all the smell of Yet Another F'ing Bubble. PG and company should be very careful not to let this get out of hand. A big high profile wreck or two (YC-funded startup that takes 20M and bombs inside two years, say) would destroy the brand they've created.

I wish we could claim that. But YC's brand is not that powerful. There are still startups that present at Demo Day and aren't able to raise money.

- In the 90s there were 50 million internet users, now there are over 2 billion. The internet economy is huge.

- It's becoming easier to get seed funding, but it hasn't become any easier to raise series A (some claim it's becoming harder due to the increased number of seed companies chasing those series A dollars). In the bubble days the madness went all the way to the IPO.

- When the bubble burst, people lost faith in the future of technology, or at least in the rate at which it would advance. Now that phones have become computers, books have been digitized, and people rely on technology for every aspects of their lives (even to socialize!), it's pretty obvious that technology is here to stay.

For sure we may see a down-swing. If macro economics go in shambles due a new war or an economic meltdown in Europe, then technology investment will suffer as well. But as opposed to the bubble days, I don't think technology investment will be the cause for such a down-swing. I think we have matured since the bubble and the fact that it was so traumatic (we're still discussing it aren't we?) also helps preventing it from re-occurring.

A CEO with net profits of 10 mil/year is going to be a lot less stingy than a founder with 15 mil in funding.

I hear that at this stage, the way to make money is to do hourly consulting at a high rate. That comes with its own issues, but if cash is your motivation, it is your best bet.

Sequoia sometimes uses that most of their LPs are charitable foundations, schools, etc. as a marketing tactic, but it's Sequoia, so people probably make their decision based on it being Sequoia.

Some of the super-angel type funds do -- I know Founder Collective emphasizes that their partners are mainly entrepreneurs. It's a Boston/NYC fund -- Chris Dixon and some other people.

Not to say YC isn't the answer. There's certainly many good reasons to do YC or something similar (the two biggest being the people/network and the atmosphere/environment - from what YC alumni have said), but I would say that unless your business needs the money... try and do without it.

I read this last month and it also resonated with me: http://bryce.vc/post/17396972172/rise-of-the-independents

I know what company I run: it's an indie company, currently ramen profitable after a few months full-time and probably with an unconventional path in front of us.

They'll pile hundreds of millions into dozens of "corporate" startups, most of whom hit the ground running after market share through predatory pricing, consequently destroying the sector.

Meanwhile, you'll find yourself unable to capture those VC dollars yourself because the VC model needs hockey stick successes to make up for the companies that go bust (recent stat here claimed 9 of 10 tech crunch startups are gone a year later). A startup can promise a hockey stick, but you have a history. Because of your solid 5 years of "just" doubling while remaining cash flow positive in an extraordinarily competitive arena, you're not providing that hockey stick.

And when that funding boom happens, and you're faced with multiple hundred million dollar pocket "startup" competitors each with 2 - 3 years of ability to sell at a loss before their inevitable rollup or death, and without deep pockets yourself despite seven figures of revenue, you're in for a few years of serious hurt. You have to execute flawlessly, not a single misstep, just to survive.