Y Combinator: Party Like it's 2009 | Hacker News Reader

Y Combinator: Party Like it's 2009

ycombinator.com

222 pointspg49 comments

It's good to see YCombinator applying what they're saying and expanding right now. It's definitely true that if you have the money, a recession is probably the best time to invest since it puts you ahead of more people/companies.

Also, I was really hoping for a real party. Paul, are you reading this? Maybe just a drink at the Cheesecake Factory in Palo Alto? No? Oh well... good luck with the expansion!

This makes me really happy. It's a great example of showing how a recession can re-establish an innovative drive. With both large and small companies cutting back, this is a great time to start your own company. I've been thinking and writing a lot about how innovation in Silicon Valley feels like it's floundering. Hopefully, this encourages people to start building cool things if they aren't already.

Brilliant! I think everyone involved benefits:

* More startups get to receive YC aid and funding, and these startups are more likely to have (as a group) advice from/access to a top-tier VC firm.

* YC gets to fund more companies, while spreading the additional risk and reward around. This also means they get to expand the YC alumni network at a faster rate.

* Sequoia gets to invest, via YC, in web companies that may not need big enough rounds of funding for it to directly be worth Sequoia's time. And they arguably get a slight edge in investing in those YC startups that do wind up wanting more money later. (I am not at all saying they have an official edge, but if they are somewhat familiar with a company from the YC stage, they'll have a slight natural edge. That's how familiarity works.)

* Silicon Valley wins, because that's where this is all happening.

I wonder who first broached the idea: YC or Sequoia?

"I wonder who broached the idea..."

I suggested it in http://news.ycombinator.com/item?id=481791 "Why not raise a side fund and do full fledged seed investing if you can pick winners?"

In order to make sense of this from a financial perspective, I'd have to know more about the performance of YC's existing fund(s). Is that published anywhere? The size of this deal is much smaller than the average Series A funding round of a Sequoia startup, so this is quite a strange arrangement.

This really appears to be a validation of the importance and cachet of Sequoia by YC, rather than the reverse. A very surprising move, which further leads me to question existing YC performance.

$15k for 6% is proportionally much higher.

Yes, but if it's working, why let Sequoia in the deal? YC has an existing brand and deal pipeline... This just doesn't make sense to me. You're also inevitably leaving other potential follow-on investors, such as Founders Fund, at a disadvantage... This really seems like more of a win for Sequoia (access to deal pipeline, continue to expose itself as the preferred VC of Internet startups, etc) than for YC (get $2m and funnel startups to Sequoia for follow-on financing). I know Paul's a smart guy, so there must be a missing piece somewhere.

How about this:

1. The YC founder-investors probably lost 30% or so of their wealth in the recent stock market decline (maybe they did better, maybe they did worse, but they probably feel poorer).

2. At the same time, YC has continued to improve their deal flow and develop connections in Silicon Valley, so they are turning down better applications than they used to.

3. Other VC firms are continuing to notice YC and compete. If YC can remain the top seed firm because of its founders' fame and network, YC will be poised to dominate seed investment for many years, as lower-tier seed firms spur demand but have their most promising prospects sniped by a YC now able to fund and advise a larger pool of companies. Just like top-tier VCs like Sequoia get access to better companies while lower-tier VCs lose money.

Whether it's a good idea really depends on the average quality of the deals YC has been turning down. If YC rejects are increasingly good, expanding the funding pool and accepting more startups makes sense.

> Yes, but if it's working, why let Sequoia in the deal?

You are thinking of YC as a for-profit company; don't. Remember, it was conceived as the result of PG's guilt when he advised students to seek out rich hackers for seed money--just not him. Moreover, one of YC's key goals is to give young, bright hackers the freedom to build valuable things without the impediments of bureaucracy. While the expense/revenue/profit structure is necessary for YC to attract talent and thrive, it's otherwise a benevolent venture. PG wants to expand the goodness. The four YC folks can only do so much.

At the same time it has to be about the money too - otherwise it's a pretty silly venture :) (i.e. it is throwing good money at bad ideas).

it's working, why let Sequoia in the deal?

Because working is not the same as being liquid.

Point taken; thanks. As I replied to your reply further up in the thread, I could definitely see how a future Sequoia-YC combination would be beneficial to both parties. I hope this works out well for you, as you're doing a great job of helping a new generation of entrepreneurs.

My thoughts exactly. It looks like YC's operating expenses will be around $1M to $1.5M per year, depending on what their overhead is. Paul's explanation (increasing investments by 50%, no special access for Sequoia) doesn't really explain why the deal is for just one year's worth of extra capital unless YC is close to broke or Sequoia has absolutely nothing else to do with their money.

Actually there are all kinds of possible explanations but none was given. It is interesting how a press release designed to shine a positive light on both companies can easily have the opposite effect.

As far as YC's past performance goes, I don't think you'll get much information about that. The near-term prospects for YC companies being acquired look much worse than they did this time last year. The ones who planned on using tiny classified ads as their sole source of income are probably the worst off. It seems to me that the ones most likely to succeed are going to be the ones that operate more like "lifestyle businesses" that are frequently derided in discussions here. Considering that, it is pretty risky to bet the future of the business on any deals happening soon. Maybe that is why they decided to take $2M now while they can get it on good terms.

We have no idea what our performance will be. It could take 10 years to know something like that, and the median YC startup is about 18 months old.

If you add up all the valuations of the companies we've invested in so far, I'm pretty sure we're doing well on paper. But I don't even know how well, because I've never done it. It would be so misleading; I'd rather just wait till I have real data.

In the meantime we're operating on a hunch that YC is a good idea. The evidence so far does tend to confirm that hunch, or we wouldn't be so eager to expand.

This is what, to me, is inspiring about your work: YC is first and foremost a 'cool hack'. It's not a finance guy thing or an 'entrepreneur' thing in the sense of a calculated attempt to make a big bunch of money, it's taking some existing pieces and putting them together in a novel way, and creating something new and valuable, and hopefully, in the process, also making a good return on the risk. I think that, ultimately, this attitude is what I've always liked in your essays - hackers can do business stuff and do a good job of it.

Sorry if that seems a bit fawning... let's balance it out a bit: a skeptic might wonder if the YC bunch's investments are not panning out enough to continue investing at the current pace and think that therefore, they're seeking outside funding.

Thanks for the guidance, Paul. In thinking more about this, I came to the conclusion that this is probably a "taster" for what may become a closer relationship between YC and Sequoia. For example... Could you see a future where YC was part of Sequoia? It seems to be a good fit, as they are not currently targeting deals of the size you pursue, and you'd gain access to their resources and infrastructure.

I don't think of it that way and I'm sure they don't either. You can't have the same company doing both seed and series A investments.

A very good, and important, point. Several VCs have told me that they hate the pain the comes with dealing with many seed/angel investors out there; YCombinator has sort of established itself as the premier seed brand, and one that eliminates the old problems with seed/angel while adding a ton of new benefits. I suppose this could be a great symbiotic relationship, rather than a "potential future synergy" (in corporate speak).

I'm still unsure why Sequoia was brought in if they really aren't getting any preferential treatment, as I think this would be off-putting to other VCs out there -- especially with such a small funding round, which I am sure could have been raised without creating any conflict of interest, be it real or perceived. You're a smart guy, so I am sure you had your reasons (access to their administrative infrastructure / easier pipeline for having YC startups acqu-hired by larger Sequoia-backed companies, perhaps?); you may not want to disclose them, however, and I respect that.

Small error:

   Partly. It's easier to expand in in Silicon Valley,

Thanks, fixed.

In one of your earlier essays, you called "incorporating and raising money an O(1) pain in the ass" - would you say the complexity remained the same this time around?

This was easier than raising money for Viaweb in the sense that I didn't have to try that hard to convince people, but harder in the sense that the paperwork is more complicated.

Gaining outside investors means that you have established credibility as someone who can identify early-stage start-ups with a bright future. Congratulations.

Is the YC program going to change in any way? I've often wondered just how far you guys can scale. I think we got a LOT of advantages coming into one of the later sessions (bigger peer group, more credibility, bigger demo day), but I envy the early YC classes a bit. I imagine back in the day, YC could REALLY dig in and help on the product side.

So, with going up to 30 funded startups per session, does YC itself increase headcount?

Smart. This is a good move. The chances of companies going public is greater because you'll have more companies and the economy will be better at the same time so it makes more sense to go public (for some startups) because the market will be rebounding and stabilizing. This is good for YC, good for Sequoia, and good for startups.

How will YC funding 20 more startups per year encourage more startups to go public?

Fixed

It may, actually. Partly simply because the larger the pool of startups, the more candidates there are for IPOs. But there are two reasons startups started now may be disproportionately likely to:

1. Because M&A has decreased so much. The great startups are less likely to be siphoned off by early acquisitions.

2. Because people willing to start startups now are going to be extra-determined. We've always wished we could put a question on the application form asking "Do you really want to do this?" It would be a waste of time, because everyone would just say yes. But now the economy is supplying that question for us.

Given the extended deadline - Is there a possibility/chance that the invites + interviews will be pushed out?

The application deadline and the day we respond have been pushed back (they're now March 25 and April 6) but interviews still take place on the same weekend, April 17-19.

Just a heads up, the http://news.ycombinator.com/apply page still lists the old deadline, you may want to update that as well.

I'm not sure if YC does this already, but here's a thought:

I'm sure many of the applications form clusters around common ideas. What would be optimal is if YC could select the best parts of all the common ideas and the best hackers to implement the ideas, instead of just one combination of the two. This way more applicants are part of the actual YC sponsored projects and the projects are more successful.

Awesome h4x0ring, but it would've been better if you had done it without damaging the existing link. You should write up an explanation of how you pulled it off.

EDIT: Its source code is at http://source.notabank.appjet.com . Apparently news.yc is generating edit-profile closures even when viewing a profile other than your own.

I know Y Combinator is about starting up companies, but what about existing ones? We're less than six months old and would love the experience, however we are "ramen-profitable" with a bootstrapped investor structure. I think we're too far ahead for YC.

As long as you believe giving up 2-10% of your company to YC will improve your outcome by at least as much, you should apply.

This is great news for all aspiring founders out there, at least some of now have a bit more time time to prepare our applications and hopefully our chances will be better due to the higher number of startups that will be funded.

Is it still possible for foreigners to apply for this cycle right now? I.e. can one get appropriate visa to get to US before April 16?

depending on which country you're coming from and your personal financial resources (i.e. bank account), it could be easy for you to get a quick tourist visa or almost impossible

Whoa! This really works. Who made it?

I figured it was pg trying to prove a point, but now I'm not entirely certain...

Think maybe someone confused hacker for cracker.

Edit: I believe this story used to link to http://ycombinator.com/party.html .

"hackers" and "crackers" are not mutually exclusive terms. A safe cracker for example has to have a lot of knowledge of locks and safes.

I think some of HN's superiority complex is contributing to the negative attention it's getting right now. Maybe it would've been better to just admit that some things aren't being designed here as well as they should be, considering the focus and audience?

Yeah, I've been noticing the link name changing a couple times in the past few minutes, so it's obviously being worked on.

Maybe this should be stopped ASAP. Links like these seem to be replicating all across HN

for those who missed it, this comment refers to the hacking of this story. hacker news was briefly hacked, and this story was altered to link to a website (hosted at appjet) that let users edit the text of pg's profile. it was fixed within a half hour or so.

congratulations!

such a sucka!!!

You should have gone with Summer of 2009 as your headline.

Congratulations.

Cash is king.

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