How much do Y Combinator founders earn?
80000hours.org
80000hours.org
The total earnings of all Y Combinator founders is around US$9 billion and so the average founding team is worth US$14 million.
Why is the piece talking about averages, when wealth is distributed as a power curve? Talking about average this-or-that gives you almost no insight about the real state of affairs. Both sentences might be true, but not useful.
The YC homepage does a pretty good job of showing off the incredible value you get by being a YC founder. Trying to quantize that value into dollars might not be a good idea.
EDIT: To expand a little more, YC has to be an incredible value. They must offer so much more value than a traditional employer in order to get most people seriously considering whether to do it. YC's biggest competitor is the cushy office job. "The office job" is undoubtedly responsible for removing the vast majority of potential YC applicants, so YC must continue to be a way better deal. I suspect YC's second biggest competitor is the lover. Falling in love is pretty common, and you tend to lose perspective about the rest of your life in comparison to what you have now.
So, it's really as simple as that: Being a part of YC is valuable because it has to be.
You should start a startup if you think you have it in you to revolutionize an industry, not because someone's spreadsheet says you will earn an average of $X/year doing it. The median founder should expect to earn a lot of valuable experience, and very few dollars.
Like we say in the summary, since all the value is in the tail, an individual should be thinking in terms of 'what are my chances of creating a new DropBox or AirBnB' i.e. revolutionising an industry.
The problem is, no-one knows who exactly that's going to be.
This post shows that getting into YC provides some useful information. It shows you're now in a reference class of ppl who can be expected to earn millions of dollars per year (although the median is still zero).
Beyond that, there's lots more to consider when judging whether to become a tech entrepreneur e.g. are you exceptionally technically able, gritty, able to accept risk, in possession of a potentially huge idea etc. If you got into YC but it's clear you'll never be Drew Houston, then your expected outcome is probably still pretty low.
80,000 Hours is explicitly focused on maximizing social good, often by advising people on what career will maximize their "earning to give" potential. That is, earning a lot of money to donate to an effective charity (e.g. high rated charities on GiveWell).
Because of this, their analyses tend to look different than it would if it was optimizing towards a risk-adverse individual maximizing personal utility.
The justification for looking at expected value (averages) is expanded on here: http://80000hours.org/blog/12-salary-or-startup-how-do-goode...
That seems unlikely to true if a passion for fixing a particular problem is both a significant factor in predicting a startup's success and unlikely to be present in one who makes decisions by modeling the value-maximizing way to live one's life.
That's one reason we point out that the expected value mainly depends on your chances of being the next Dropbox or AirBnb, which probably involves having a huge passion for fixing a particular problem.
On the other hand, I don't think the information should have no impact on decisions. For instance, I think someone at college could read this, and set themselves on a path towards becoming the type of person who makes a good entrepreneur. They could learn to program, hang out around startup people, try out their ideas. They could find a problem and become passionate about it.
From a purely utilitarian perspective, maybe the startup compensation curve is best for philanthropy.
Hypothesis: 1,000 people making $100,000 will give significantly less in aggregate than 1 person with $100,000,000. Therefore, if more people go into a corporate ladder job for the $100k, there will be less total giving.
Most of the returns have gone to a tiny minority of super-successes. The founders of AirBnB, Dropbox and Stripe are worth about US$7 billion, about 78% of all founders’ equity, although they account for 0.5% of the companies.
Outside of the most successful companies, it was still possible to earn significant returns. 12% of companies from the first five years of Y Combinator are now worth US$40 million or more, and a further 10% have sold for US$5-40 million. The remainder probably earned little more than their (low) salaries.
Members of both groups are accepted to YC but then randomly selected as to who actually goes with YC or not. [1]
Of course just knowing that you have been accepted to YC (or telling others) would no doubt skew any outcome. Just like knowing you were accepted to "a Harvard" and/or telling people you were will skew how you are perceived.
That said there certainly could be a study (sans the halo effect) done of startups, as a group that applied but were rejected by YC vs. those that were accepted.
Sounds like something that mattermark could potentially take on. Or maybe priceonomics in a blog post.
[1] Then, years later, compare outcomes.
Addition: To avoid having to completely reject people, you could take randomly select half to enter immediately, and let the other half enter in one year. Then you could measure the difference between the two groups after a year.
Btw, if it were truly just a matter of us picking the right companies, that would be even more impressive given that we reject over 97% of applicants :) That's obviously not the case though, since some of our most successful companies (such as AirBnb) wouldn't exist without YC.
Good point that the question is much less valuable from the perspective of YC partners. From that perspective, all that matters is that the companies perform well in the end. It matters more from the perspective of the applicants. Though even then, because the costs of joining YC are low, it's probably not a big issue for many people.
Agree the success rates would be hard to compare. You'd need to have some other proxies for eventual success besides profits.
Excellent point that if you can show you significantly helped the most successful couple of companies (which account for 80%+ of the value), and there were no other large successes among the people you rejected, then the job is done. You've shown YC increases the expected value of the companies you select.
You currently have people you accept and people that you reject.
You recognize that many of the people that get rejected might actually get accepted if the pool of companies you could manage could be larger. (Similar to how many people are rejected by top schools but the schools recognize that there are people that qualify but miss because of some arbitrary decision process). (After all the class size is pretty much fixed even when the applicant pool rises).
So you create a third class which is, for lack of a better way to put it, "worthy runner up". Like having a silver or bronze medal. (Noting that merely even getting into the Olympics and not getting anything is worth something.)
And then those rejected applicants get some of the halo of YC (which further increases the applicant pool because now it's not solely pass or fail). Plus of course further YC name branding. "While they were rejected by YC they did get a Silver medal and with that..."
Anyway my intuition says that someone branded as "runner up" would do better than someone not given that status.
For example, if the average return were below the typical developer salary, I'd call it a sucker's bet and say that no one should participate unless it was for the yucks.
There are more considerations than just money. Quality of life seems like most important. Experience and connections are probably a close second.
I was always interested this number: Sum the personal networth increase of each founder and divide that by number of founder years. That would give expected networth gain per year for being YC founder. Due to outliers, I think it would be significant number and actually makes a case for being YC founder.
One another advantage in calculating this number is that you can compare it with other accelerators (provided you have data for large enough number of founders for each). This would be interesting for rank accelerators from founder perspective (as opposed to investor perspective).
I'd be much more interested in an average of what the CEOs make in their first year and second year. The Dropbox, AirBnB and Stripe founders wouldn't impact this average all that much since I doubt they were pulling in 7-8 figure salaries from the beginning. And, if someone is thinking of starting a company, they salaries that they're most interested in are those first two years...they want to know just how little they'll have to survive on.
More than two years into a startup, the values might be interesting, but they're not relevant because outcomes vary so wildly.
I have no idea how/why the author makes that leap.
The idea is that YC must make a large return on their $120k and so your $1.6m will end up being worth a lot more than that too - eventually.
This is rough because it depends what financing device they use.
Previously they did use convertible notes, I believe.
1) Valuation != Liquidity. Even if your company is worth millions and your share is also worth millions, until you have exited you are not going to see much or any of that. Even when you do exit, vesting schedules and taxes make that number much different.
2) Earnings != Salary. If you make a certain amount at exit, that doesn't mean you were being paid an annuity in prior years. As stated in the article, with angel investment 50k salary and with VC 100k. You're still a founder making a salary less than you would in industry, which this article should point out to benchmark things a bit.
It's a tough question to answer and the author is taking a bold step to try and tackle it. However, better methods can and should be used to paint a more realistic picture of what founders earn in the moment rather than being optimistic and backward looking.
Check it out here, it is awesome: http://www.econtalk.org/archives/2014/05/marc_andreessen.htm...
I thought this article was after people like Paul Graham, investors of Y Combinator.
> if you can get into Y Combinator, how much will you earn? We
then
> Y Combinator recently increased their standard investment to US$120,000, valuing each company at US$1.7 million, of which each founding team owns $1.6 million10.
I personally would call people who came up with the idea founders. People who invested the startup are investors (or managers of capital ventures).
Furthermore, earning !== net worth or valuation Until you sold the company or until you start making big profit like Google does, the numbers present in the article are just pure numbers.
The citations are bad. You called them references? Things like "~US$1.7 million / ~2.2 cofounders / ~7 years = ~104 million." are not even references; they are in-line page note. You don't put that under references! The one that requires references like "This is from AirBnB, Dropbox and a handful of others." doesn't have proper citation.
The last thing is the font CSS style on the page. Seriously, don't go fancy. I almost go blind trying to understand the article three times.
Seriously, I haven't rant so much lately but I really want to find out how much they earn instead the article provides little useful information, is confusing, not professionally written, and is published with horrible font style.
Would be useful & interesting to see the bulleted stats list in the first paragraph with averages & medians (with and without the 3 big successes).
Our best guess is that 78% of the earnings are in the top three companies gives a general idea of the kind of adjustment you'd have to make.