It's a gem. What I'm curious about is how these two ended up at YC as partners and not founding another company. I think I know the answer but always interested to know other people's journeys.
Risky is not the word I would use to phrase that, at least not in the financial sense. There's little such risk there, "if you're already set for life" as you said.
More comfortable, for sure. Easier. PG has said as much himself on X several times when asked whether starting a company or investing was harder.
I found that amusing seeing as the second most recent video in their series, "Should Your Startup Bootstrap or Raise Venture Capital?", spends most of its time making a strong case for why VC isn't right for the vast majority of founders: https://www.youtube.com/watch?v=D81y-kh11oI
Not to mention, most YC exits are usually via acquisitions, and often between YC companies.
Can you expand? How does this relate to the parent comment?
By making raising VC seem specific and exclusive, they make it seem high-value and make people want it more.
It is telling people that the object at the top end of the price sheet is not really for them, vs saying “yes, everyone should buy this.” The former increases interest, the latter increases suspicion.
In the past they have been very condescending of anything that doesn't involve trying to be a unicorn as fast as possible. There's even a video in their catalog deriding 'lifestyle' (ie - non-vc, non-unicorn, non-blitz-scaling) startups.
It makes sense given their business model, but I found it distasteful that they were advising young, impressionable entrepreneurs to take on more risk and to move away from their core competencies: greatly reducing the entrepreneurs' own chances of success in order to give YC and their associates another lottery ticket for a billion dollar payoff.
It also helps that in many ways creating a startup has been commoditized. Specifically, it's now cheaper and easier to use various online tools to get a new business up and running with little upfront cash/time than ever before. This trend will continue.
That's not to say this is true for all startups but it is true for the majority of them.
The good old days of being able to exploit starry eyed kids for their ideas in return for taking the majority of their equity is hopefully behind us.
Many founders are not very impressive but what they have is confidence (however blind) in their ability to do the thing.
Almost every major company period took capital.
Money is energy and time. You can do it without these, but the gradient is steeper.
Selection bias. The median return for a founder is about $0.
If you want to be a billion+ market cap company, sure, use capital to get there. But chances are that the startup will fail. VC investing is diversified - a founder is not.
Founders are free to make agreements to swap equities of their companies with each other.
For simplicity assume that there exist three startups with a similar estimated company value. Each founders gives two 10 % equities (and keeps 80 %) of his startup to each of the two founders of the other two startups. This way, the risk of founding a startup becomes a little more diversified.
Only in theory.
Firstly it depends on the shareholders agreement, and other contracts with the VC. Co-Sale rights, First Refusal rights, drag-along etcetera etcetera can easily effectively prevent selling common shares. Or clauses just put the idea into the too hard basket.
Secondly: nobody wants to give away voting rights. Small investors don't care about voting rights in public companies so they forget just how important voting is in private companies
Thirdly: the necessary diversification would need to swap more than 50% of shares to get effective diversification. Good luck with that!!
Forthly: the dynamic would be that everyone would want to swap their shares with the perceived best startup in the cohort. It just wouldn't work. The only way it could work would be if founders got some ownership of a VC fund.
> little more diversified.
Exactly: not diversified enough. VCs often own significant percentages of the companies they invest in. And they own preferential shares. Common shares have a completely different risk profile than preferential shares.
Sounds like a decent option. :-)
YC sells a good founder friendly story and it seems believable and YC is a repeat player so they care about their reputation: however the financial incentives of YC are not well aligned with founders (for example YC gets preferential shares, and founders get common stock).
The best writing on this is:
https://siliconhillslawyer.com/2019/02/18/relationships-and-...
https://siliconhillslawyer.com/2019/05/01/startups-shouldnt-...
https://siliconhillslawyer.com/2019/03/03/standard-term-shee...
The issues of control only really matter for the few unicorn winner companies. YC can afford to be very founder friendly to loser companies or to founders before the company becomes a clear winner. Founders of winning companies are not going to publicly complain if YC is less than fair.
It is a poor argument because it is entirely possible to come up with terms that could be written into the contracts to prevent that obvious scenario.
I wouldn't be surprised if tag-along or preferential rights or other clauses don't already prevent that scenario. Anybody know?
Founders often invest $100000's of their time - yet they are not given equivalent value in preferential shares.
The game is rigged!