Y Combinator’s Young Startups Tout Revenue Over Users | Hacker News Reader

Y Combinator’s Young Startups Tout Revenue Over Users

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The thing that bothers me most about the "startup culture" that I see is not just touting revenue but constantly touting funding rounds.

It's great that you're funded, but that has nothing to do with me, nor is it evidence that you are ever going to accomplish anything worthwhile, IMHO. It just means you convinced someone with money that you're going to put their money to good use. Their confidence means nothing to me.

The reason startups do press releases about funding rounds is that news outlets write about them. The reason news outlets write about them is that people (like those found on Hacker News) read, upvote, and comment on those articles.

Most startups would prefer to talk about their product, but that's a much harder sell as news.

That's passing the buck and refusing to take responsibility for their own actions.

News places will reprint anything that will get views, and people will click through on anything sensational. So is that a valid excuse for engaging in GoDaddy-ish behavior?

No. You have to take responsibility for what you choose to do.

If you choose to release press releases purely about your VC funding round instead of talking about your product; that's your choice, nobody else's.

And if you talk about your product and nobody is interested in it; you should take that as a sign.

There's a pretty big difference between being 'GoDaddy-ish' and releasing press releases about funding rounds. GoDaddy style behaviour is A Bad Thing in and of itself. The only thing that's bad about funding round press releases is that they're boring. But since people print them and are apparently interested in reading them... well, OK.

Press releases about funding don't reveal a lack of moral fibre or dubious ethics. They just reveal that the organisation is savvy enough to do something that works (een if it is pointless).

I agree there's a difference, I was just using it as an example to illustrate a point; that the fact that people will print something is not an excuse for that behavior.

Startups certainly "take responsibility" for announcing and heavily publicizing their fundraising rounds. It's a strong signal that your company is on a path to success (not the only path) and you certainly want it spread as far and wide as possible.

I don't care if some people think my funding announcement less valid than other industry news, or somehow "less earned." The fact that there is a market for that kind of news means that enough people derive value from it. Not all news is valuable to all people: celebrity news and financial news have two very different audiences. If an investor is accidentally exposed to celebrity news at the grocery store checkout line, is it the fault of the celebrity?

I think that's right, but I do think it's also changeable, and that there is demand for more product-focused news. Part of the problem (imo, of course) is that funding-related news is just easier journalism: reporting a funding round is often a very loose gloss on a press release, while reviewing products requires work to identify which products are worth reviewing, how they should best be approached, maybe even data analysis.

I think people would read that if there were more of it, though. People on HN do vote up even fairly cursory product-focused articles when they appear, e.g. a blog post doing a comparison of Heroku and a competitor. I see the funding-related stories as more just a least-effort excuse to talk about a startup: someone (usually TechCrunch) doesn't really have the time to spare doing a proper product review, but throws out a little blurb about funding, and opens up the floor for discussion about the startup. That then gets voted up on HN because people are curious and want to discuss it, and the TC blurb presents an opportunity to do so, even if it isn't itself that compelling as an article.

Now if TC gets the same hits from those low-effort articles, why would they put in Consumer Reports style work doing more in-depth product-focused reporting? I would guess there's little monetary justification for doing so, unfortunately.

There are legitimate reasons to tout it. As a startup, it's a constant battle to convince partners, vendors, big customers and potential employees that you're growing and not going away. Announcing a funding round is very convincing in that respect. It's social proof from respected people that have done their research.

I'm not saying it's not worth being proud of. It is, for sure.

But is it worthy of being industry wide news? Most of the time, no. Most of these press releases contain no actual information that would be of interest to anyone who's life is not directly affected by that money.

That's my point. Sure, tell all your friends. Post on Facebook and Twitter. Great!

Hell even send out a press release. But industry news sources should not be reprinting these press releases, and we should not be upvoting them, unless they have actual content beyond "Hey these guys got some money to pursue their project."

There are also legitimate reasons to be ashamed of it. Expansion capital aside, a pre-revenue funding round is an admission of failure. Failure to convince your team to bootstrap a prototype, failure to build a product/service that's profitable right out of the gate, failure to "convince" by your product performance alone.

It's odd how this comment appears so frequently on HN and yet each time someone makes it they seem to be under the impression they're making a novel observation. It's like the comment that copying music isn't stealing, or the comment that when women say no they mean no.

There may be a pattern here. Perhaps the pattern is that these statements are emptily true: they're either truisms if taken literally, or miss the point otherwise. It may be the latter disconnect with reality gives the commenter the impression that they have discovered some new insight that needs to be mentioned. I.e. a truism that was also true when applied to the world would clearly be something that everyone else also believed, and thus wouldn't be worth mentioning.

I think you may unintentionally be implying that there aren't lots of people in the "startup culture" that do in fact consider getting funding to be an intrinsically important achievement. That seems like a meme worth quashing.

I agree that the comment has become very boring. It is especially annoying to see it injected into conversations that don't really involve VC funding.

It's an achievement of a sort. It's kind of like winning a medal: the metal disc in itself is unimportant, but it matters because it's a sign someone was impressed with you for something.

As with medals, how much it matters depends on who was impressed with you and for what. Later rounds converge on measuring revenue, which is what people who think companies shouldn't be celebrating fundraising usually think they should be celebrating instead.

It's interesting to observe that the VC rounds that are most often casually mocked on HN --- the huge rounds like Benchmark and then DST's in Twitter --- are, as proxies for earnings expectations presumably based on some very compelling inside information, a more meaningful milestone than many of small first rounds, which are often blue-sky.

As usual, even when the conventional wisdom of HN is on to something, it's for the wrong reasons and rapidly reaches the wrong conclusions.

The difference being that it's just the amount of money involved that is driving the reprinting of the press release, not the worthiness of the recipient or the track record of the VC. It's just "Oh millions of dollars! Let's repost this!"

Like I said originally; I'm happy for anyone who gets funding to pursue their project. Great for them. But it doesn't affect me at all, especially since so many of them are so early in their development they don't have anything to talk about it. It's just a waste of anyone's time who's not involved.

I disagree with that analogy. A medal is, in and of itself, the award you are seeking to win. Yes, there may be an intermediary goal involved, swimming 200 meters faster than anybody else, or having an invention that is viewed as the most innovative in a field. But the medal represents your accomplishment.

A funding round, as I understand it, is financing to enable a certain goal. I don't knock companies that seek funding, and I would congratulate any that received it IF that is something that they deemed necessary. I think this notion that it is an "achievement of sort" is the type of thinking that elicits these types of repetitive comments that remind people, an investment round is awarded to make possible a goal by increasing its access to resources.

A medal is, in and of itself, the award you are seeking to win

I think you're missing the distinction between the symbol and the act. A medal is not what you are seeking to win. Its a representation of what you have achieved (which seems to be pg's point). You can take away all of Michael Phelps medals and it won't in one way diminish the fact that 18 times he was the fastest guy in the pool at the Olympics.

And if I take away your 4 rounds of funding have I changed the viability of your product in the market place?

Conversely if I fund you, does that in any way validate your product? Nope. Paying customers do that I'm afraid.

To suggest that a round of funding is an achievement in and of itself is to put it in the same camp as winning a business plan competition. Sure it might show that One person likes your idea, but that's pretty much worthless compared to paying customers.

Heh, you guys are hilarious. Bring up disagreements about the BS funding train in this echo-chamber and get downvoted to hell as if that makes the statements any less valid. Hahahahaha, downvote away.

I think you may unintentionally be implying that there aren't lots of people in the "startup culture" that do in fact consider getting funding to be an intrinsically important achievement.

It seems to me that raising a large VC round does have an intrinsic and lasting value, I'm not sure whether it should. Kevin Rose is a great example of this type of success. He's started 4 or 5 companies that I'm aware of, out of those AFAIK Revision3 is the only one that I believe had an exit based on the merits of the company (Milk, was a successful exit but seemed like an acqui-hire).

We also continually get messaged that having founded a company once even if it fails is going to be a leg up when raising money for your next venture.

Anyway its hard to say "raising money" doesn't have intrinsic value, when Silicon Valley (and I don't mean "startup culture" I mean the players actually doing deals in SV) continually signals that it does.

It seems to me to just be the HN version of the "SO BRAVE" post. http://reddipedia.com/So_Brave

We invent a "startup culture" archetype (and strawman) to which to ascribe things that no one actually believes and are easy to disagree with. We then disagree with it. And then we, and everyone who upvotes us, feels like clear-thinking contrarians for pointing out the obvious flaws that lots of people (read: no one) believe.

Wait, are you implying that nobody actually thinks VC funding round press releases are newsworthy?

Because that's obviously not true based on the fact that they get posted and upvoted regularly.

Yeah nobody might be out there going "Geez I'd love to see more stories about VC funding.", but people are reprinting them and upvoting them. And that's the behavior I was saying should stop.

First of all, congratulations on your achievements in the field of condescension. I know how hard you and your team worked this year to reach new heights, and it has really paid off.

Second; at no point did I think it was a novel complaint. I'm well aware that it's an opinion that is both widely held and has been previously stated.

But that doesn't mean it doesn't need to be restated. Because the reality is that content-free blurbs about funding rounds continually get posted, upvoted, reprinted, etc. all over the tech industry as though they mean anything to anyone who is not directly involved in the operations of the company in question.

This should be called out as the meaningless crap that it is, and it should be replaced by actual content.

> This should be called out as the meaningless crap that it is, and it should be replaced by actual content.

Meanwhile it seems to have eluded you that the whole point of this thread is that your original comment was meaningless crap devoid of any actual content.

Except that it obviously did, because I spent an hour or two yesterday going back and forth with people about that content.

But hey, it's cool if you wanna be really wrong.

Perhaps the difference is that the population of people reading HN who have closed a funding round is so small relative to the general population. Start ups are by their nature a few founders and many more employees, so unless someone actually goes out and tries to get funded they don't understand what is at stake. Sort of like saying "Woo hoo, you got through hell week in your Seal training, didn't 20 other guys get through too?"

>Entrepreneurs in Y Combinator may be taking a cue from the program’s co-founder, Paul Graham, who in June penned an open letter urging young startups to focus on making money as a hedge against a potential downturn in Silicon Valley [...]

What a crazy idea! Companies should try to make money!

I'm not sure if you're misunderstanding this intentionally or unintentionally, but the issue here is not whether companies should make money, but when. There are plenty of valid strategies that defer profitability. Paypal for example spent tens of millions of dollars before they reached breakeven, and if they hadn't, all other things being equal, they would have lost to a competitor who did.

I wasn't intentionally trying to mischaracterize your statement, apologies if it seemed that way. My remark was too flippant and should have been backed up with some reasoning.

I understand that in some cases (financial, healthcare, biotech, etc) there are heavy capital requirements, simply because of the area they operate in. There are also other cases where using a large pile of cash can push you ahead of the competition and secure the entire market.

But if I had to guess, I'd wager that many, many startups are not in this kind of situation. They aren't in a capital-heavy field, and burning down a big pile of cash isn't going to make them the industry leader and crush the competition. I think more startups could be served better by simply focusing on solid business fundamentals...and it amazes me that just now are startups realizing that. Hence my comment.

That said, I'm arm-chair quarterbacking here. So my opinion counts for about nothing :)

Edit: For what it's worth, I agreed with the article and was pleased with the "be profitable sooner" mentality that the current YC batch has.

It's not just capital-intensive industries. Winner-take-all markets will be won by a company that focuses on expansion first, revenue second.

Not all industries are like that. Social networks and payment networks, though, are examples of winner take all markets. That is why it makes sense to raise a lot of money and try to capture the dominant spot in the market before a competitor does so.

>There are plenty of valid strategies that defer profitability.

You can't point to the exception, the case that just happen to work out, and consider it a valid approach.

The time to make money is always now. Any other approach is just deferring the inevitable confrontation of whether the company/idea/execution is economically viable.

That's not the exception. Few to zero of the biggest technology companies were profitable the first month.

It is a valid approach. In fact I'd argue that companies being profitable in the first month (or first year) are the exceptions, not the rule.

Another public example is Amazon, they didn't record a profit until 8 years after incorporation: http://news.cnet.com/2100-1017-819688.html

YC S12 batch is one of the strongest YC batches of all time. This time the startups not only have a good product; but developed business models, customers and revenue.

Moreover, a lot of startups launched far before demo day. I guess majority of the startups had a product ready when they got into YC.

It's interesting to note that 20% of the companies have been working on their business for over a year (source: https://www.statwing.com/demos/yc-s12 ). Between that and the fact that YC is on record as looking for more clear-revenue companies, I think this shift will be more pronounced.

Another interesting note is that every major win (or apparent major win) for YC so far has had a very clear-- and very early-- revenue model (Dropbox, AirBnB, Heroku, OMGPop).

Do you not consider reddit a win for YC?

I think Reddit might have been more of a PR win than a major investment win. You might argue that it could have been the latter if the team had turned down the Conde Naste acquisition offer, but that might be the point. Without strong revenues it might not have been easy to turn down such an offer. I'm just speculating so please correct me if any of this is incorrect.

Agree. While it probably wasn't a big financial win, I think Reddit was a big win for the YC brand and highlighted what the program was all about.

They sold six years ago when they were relatively tiny compared to today. There's no way they would have been a "major" win up there with the 4 huge exits webwright mentioned:

"We couldn't get them to tell us the acquisition price, but they did tell us that the company has raised just $100k (all in summer 2005) and currently has an average of 70,000 daily unique visitors and 700,000 or so page views."

http://techcrunch.com/2006/10/31/breaking-news-conde-nastwir...

Not to mention, it's arguably still not a win for Conde Nast - I know the founder of Reddit is seen as a success, sure, but the truth is it's hard to monetize their user base.

While AirBNB & Dropbox are successful enough now to consider them "exits" - they haven't actually sold or ipo'd.

For what it's worth, stock in companies at these stages are often pretty damn liquid-- not quite as much as an IPO'd company, but still plenty liquid. YC could sell their stock in either company at or near their recent valuations on SecondMarket. For all we know, they could've partially cashed out in any of the rounds (though I'd bet they haven't).

Reddit was an early PR win. But, if you made a pie chart of returns for YC, Reddit would be a nearly invisible sliver. That said, it established a relationship with Alexis & Steve, one of whom is repping YC in the east and the other came back with Hipmunk, which just raised a huge pile of money in a huge space. So I think it WILL be a huge win for YC... But not from the Reddit exit.

>" This time the startups not only have a good product; but developed business models, customers and revenue."

Chicken or egg?

Does this speak to an increased quality in the new batch of startups? (ie. the newest startups are "getting it")

Or is it a change in the selection criteria biased towards the things you mention, since it seems to be something that PG is, rightfully, promoting?

Amazing job by Vayable! And congrats to everyone running a revenue-generating startup at YC if this is enough of a trend that Bloomberg is reporting on it!

I really hope that this signals the advent of a genuine change in how mainstream investors value revenue-generating startups, so that early-stage companies can get away from being valued simply in terms of a revenue multiplier and thus penalized in comparison to companies that ignore fundamentals. Among other things, this is going to make it much easier for bootstrappers, who need to build revenue into their products from the start.

And Paul -- if this is a real trend I hope you will follow up on this topic with an article in a couple of months. While I know this stuff is sensitive on a company-by-company level, it'll be interesting to hear how and if you perceive valuations are changing for YC companies that put their revenue front-and-center like this. My experience with a few friends in different funded startups outside California is that beyond seed rounds investors are still focused very heavily on users, users, users because the return period on organic linear growth is perceived as too long or uncertain to justify investing any sizable (greater than a few hundred thousand) infusion of cash.

I read this as a pretty clear indicator of what the funding environment is starting to look like.

As well they should, just having lots of users and no plan for monetization is a bad recipe most of them time.

Totally. I read the headline and thought "and...?"

Whether or not it's a bad recipe isn't for me to say however I do struggle to understand the motivation VC's have when they invest millions into companies like lanyrd.com who publicly state (even many months after receiving funding) that they have no idea how they plan to monetise the company.

Huge userbase, no monetisation plan. I appreciate all investment is a risk but surely investing in a company who has no clue how to monetise is immensely risky?

It's risky yes, but VCs do some of their own analysis of likely monetization strategies, along with potential acquisition value of companies. In some areas that revolves around userbase and data: is there someone who would buy the company for its users and the data it's accumulated about them? If so, it may be worth investing in, regardless of revenue.

Okay everybody - time to change your pitch decks.

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