Ron Conway steps back as Y Combinator cuts team funding | Hacker News Reader

Ron Conway steps back as Y Combinator cuts team funding

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68 pointspizu38 comments

Does it strike anyone else as odd that the context for this discussion revolves solely around the funding they're given, and that's the only barometer in this discussion?

While I get that it's not the reason being given, it's hard not to infer that this pullback in funding is in some way related to the real-world success rate of recent YC companies.

Do you think I lied when I said we wanted the amount to be lower because $150k was causing messy disputes?

To get the number down to $80k, I had to ask all the participants to invest less than they'd originally planned to.

Among the YC partners there are still some who think the amount should be lower than $80k.

$80k is still a lot more than the (iirc) initial $5k + $5k/founder.

The $80k is not invested by YC. I get the impression from some of the threads about this that people don't realize that.

YC still invests $11k + $3k per founder, as we've done for years. The $80k is a separate, additional investment offered by third parties.

The article definitely reads as though YC is, at the very least, completely in charge of this money.

I know that it's not true, as do other older members, but I wouldn't be surprised if new members get the wrong impression.

This is an 80k sight unseen investment conditioned solely on acceptance into a YC batch. YC controls it in the sense that they control the batches, but you could fund your own YCXC program that offered $x0,000 to each company in each YC batch. It would succeed or fail to the extent that individual YC companies, all of which completely control their own operations, decided to take you up on it.

From the perspective of the startups, is this an important distinction?

Sure. The YC investment comes with a valuation; they take X% of your company for their funds. The YCVC money is convertible debt and defers valuation to the next round.

But candidates can view the whole thing as a package can't they? $x at A% valuation + $y at deferred valuation.

If a startup needs $95k investment to get started, YC is a viable place to get that. Isn't it?

Ah, so this is the $150k that all YC companies were being given regardless? [1]

[1] http://techcrunch.com/2011/01/28/yuri-milner-sv-angel-offer-...

It breaks my heart when something that starts as a labor of love ends up becoming a bitter dispute. There has to be a better way to shut down a failed startup.

I don't think you lied, but I also don't think you would fend off money that's actively chasing these companies. Are you actively telling interested investors that they can't invest because it would bring the amount per startup over $80k?

Yes. I said so in the previous comment. To get down to $80k, I had to ask each of the participating investors to invest less than they originally intended to.

Fair enough, I stand corrected. It'll be interesting to see how it works out for you, I hope it has the desired effect!

Do disputes over some N$10k of leftover funding tend to be more messy than disputes over some N$10k of excess debt from founders maxing out their credit cards?

Is it more common for startups to close with funds remaining, rather than with personal debts of the founders? I’m somewhat surprised that this would be a common scenario; I would have thought that founders would tend to pursue the company (possibly with some pivots) until money ran out.

The $150k was a problem when founders fell out. When that happens there's usually still money left.

Not to beg the questions, but why are they fighting over money loaned to them?

It's not a loan, it is the remainder of the investment.

Convertible notes are technically debt, and involve a commitment to repay. But the distinction is academic; the debt is a contract liability between the startup and its investors, and if the startup fails, there's nobody to repay.

You can't take a startup convertible note investment and use it to buy Porsches for the same reason you can't do that with an equity investment: it's fraud, and your shareholders/creditors will sue you personally.

One imagines the "founder fight" scenario Graham keeps alluding to is a startup that any outside can see has failed, but the founders can't; people are fighting over the right to continue being paid to work without a boss for X more months.

If you're a founder in this situation, you should know that this is probably the dumbest conceivable fight to get into. Your time is simply much more valuable than a few tens of thousands of dollars. More importantly, any game-changing idea you come up with after the team crackup is now encumbered by the original investors/creditors. Why would you want that? Get out as quickly and cleanly as you can and start over with a clean slate.

What is the effect of later rounds of funding? Do you find that if there is a founder dispute/falling out that it usually happens before a Series A? If thats not the case, then would this mean that you are also encouraging companies to go for smaller rounds?

November 26 - see the full thread of comments on reduction of team funding and rationale behind it here: http://news.ycombinator.com/item?id=4861867

More comments on Pg's submission[1], and relevant HN discussion[2]

[1] http://ycombinator.com/ycvc.html

[2] http://news.ycombinator.com/item?id=4833074

Is there a list of failed/doomed YC startups? Maybe with some analysis?

http://yclist.com/ perhaps?

There's also http://www.seed-db.com/accelerators which was posted on HN earlier.

on yclist it seems 70/84 made it to launch S12, compared to 45/60 for W11.

It seems insane to cut the best investor out of the group - even if you want to reduce the total investment you still want the best people.

From TFA, it seems like he'll still be available for office hours, just not providing $$$

Are those investors advising startups individually at that stage?

Makes sense -- that extra $70K or so probably isn't the deciding factor in seeing whether someone has a validated idea and product. Ron Conway probably stepped back in part because now EVERY company is a Ron Conway-backed company and that his backing doesn't have the same cachet as before.

How is YC doing financially?

YC is fine.

Also I note that this is not YC money that is being cut back. This is YC asking outside investors to give YC companies less money up front before they have proven themselves.

Very well. From last year: http://ycombinator.com/nums.html

The other thing to remember is that YC is growing. Even if YC isn't getting any better at this despite lots of experience, bigger team, etc., they're investing in larger batches (even the most recent decline to <50 is still bigger than until W11). So, assuming a constant distribution of AirBnBs and Dropboxes and Herokus and Cloudkicks and Wufoos, there should be a lot of great companies still in play. (I think Stripe is clearly one of those; Parse and Meteor may be others).

Some investors have more of a long-term perspective than others. Always the scary part of investing in early-stage startups has been the need to fund a lot of losers to cast a wide enough net to find the occasional winner. The main YC team will keep refining its procedures for searching out winners who haven't won yet, while screening out losers who won't win even with a YC investment, but that will always be an inexact art.

searching out winners who haven't won yet, while screening out losers who won't win even with

-- Ad Hominem Investing. Also worth a second look, as a Thesis.

I didn't read it as "..won't _ever_ win.." At worst it means, "..are not ready yet."

It comes across a bit harsh worded that way, but if you look at it purely from the point of view of a VC looking for a decent ROI, most of will be "losers" - most startups fails, and while many founders will try again and again and many will eventually make it, a large portion will never succeed at getting growth enough for an investor like YC to make a decent return.

If it was meant as a personality judgement, then I agree with your assessment. But if you view it as purely a statement about their odds of success at present time, it's just business.

But most startups fail because the product sucks. its not the people that "fail" in the market. The end-market could care less about "the people", in that sense. Its worth sanity checking even good heuristics, occasionally.

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