"I tell many people that Paul Graham is a genius. He saw the opportunity to start YC."
This is a very sly insult and betrays a major misunderstanding of how the market works. Did Facebook succeed because Mark Zuckerberg saw the "opportunity" to start a social networking site? Did Dropbox take off because they saw the "opportunity" for file synchronization? The idea is nonsense. These things succeeded not because their creators were the only ones to see the need (they weren't), but because an incredible amount of time and talent was put into making them successful.
When YC started, everyone said the idea was crazy. It still is. It's worked, like any startup, because of incredible execution -- not because it stumbled into a waiting opportunity.
I think it's more of a soundbite than a misunderstanding. Yes, Facebook did succeed because Mark Zuckerburg saw the opportunity to start a social networking site. Dropbox did take off because Drew saw the opportunity for file synchronization. It's just that they succeeded for many reasons besides that initial opportunity.
In a one-sentence press soundbite, you can't exactly enumerate all the things that the founders did right. But that doesn't make the "opportunity" part wrong. It's just one of many necessary-but-not-sufficient conditions that the founding team managed to nail.
Just last year we were talking incessantly about how angels and super-angels were disrupting VC's in the area of early stage investments in a big way. Were the super-angels a "threat to Silicon Valley" back then? Nobody thought so except maybe a few VC's in private.
PG predicted/observed in his Startup School talk that the way VC's could strike back was to throw around more money at higher valuations than the angels were really comfortable with, since the total risk exposure was a much less big deal to them. The Milner deal is exactly that phenomena taken to its logical conclusion.
Also, the fact that Silicon Valley's most prominent angel is co-investing with and managing Milner's investment should be all you need to know to realize that this is a lot more complex than "Milner is destroying the angel ecosystem"
Sounds like PG's talk was a great way to fish around for someone to offer YC companies an offer like this. I wonder sometimes how much his "predictions" are aimed at bringing favorable conditions into being.
We weren't expecting anyone to make an offer like this. Even if we'd had this idea ourselves, which we didn't, we would never have believed anyone would actually be ballsy and decisive enough to do it.
Really? This was pretty easy to see from miles away. It's a simple investment strategy - YC does the weeding for them, they throw a bit of cash at each company and get a much better return. I've been wondering why people haven't been doing this for a while.
Even if it makes a lot of sense in hindsight, it's still a pretty radical departure from what's been done before in the funding game. It certainly wasn't obvious to everyone that it was coming.
These terms are a lot more entrepreneur-friendly than what's been the norm, and if they weren't so friendly, it wouldn't necessarily be a no-brainer to take it, and this wouldn't be such a big deal.
Okay. Well for the future then: When you see someone being successful at any trend, piggyback on them. The lets you piggyback their research and hard work, but participate in the upside. If Anna Wintour says leggings are in, they're in. If Warren Buffett starts buying up aerogel companies - get in! If PG anoints some dotcoms, drop some pocket change on them all.
NB: This is regardless of whether you agree with the trend or not. I think leggings are hideous, but I won't argue with Anna Wintour. This is purely business, personal feelings have no place here. If someone is throwing out information asymmetrically (They're talking, you're not) take it.
Understood. However reading this just made it click for me that PGs essays and talks about the future of angel investing have a stealth result of signalling to VCs how they should approach and deal with YC companies. Seems obvious in retrospect. It could certainly be unintended, but if I was a VC reading PGs thoughts on where the angel ecosystem is going, I'd take it as a definite signal to meet him on the hill he claims to be walking toward.
But I don’t want Paul to be one of a small group of people who decides which companies get funding—not because he isn’t smart (he is) or a great guy (he is). When it comes to innovation, central decision-making is bad, no matter how good the decision-makers are.
I don't get this POV. It's not like YC is the only place to find companies that are worth funding by angels. Getting "pushed out" of the "YC ecosystem" is not the same thing as getting "pushed out" of the "startup ecosystem" as a whole. If you find that you can't invest in the YC companies anymore, find another incubator to work with, or deal with startups on an individual basis.
Consider what this guaranteed $150k will do to other incubators. YC is going to be so much more attractive to other incubators, the best startups may not bother to apply to other incubators.
Sure, there will be winners that go through other incubators, or no incubator at all, but this is definitely going to tilt the field towards YC.
YC still has limited capacity so that point is simply not valid. If you're not one of the lucky few to get in to YC and you want to do a start-up then you'll have to do without them.
It sounds like what he's saying is with a guaranteed $150k for every YC company, it's almost like Paul has the power to pick and choose which companies will get to succeed.
That is of course not the case, funding doesn't define success, but I gather that was his thought.
The silly thing of course is, if Milner was making the calls, nobody would have a problem with it.
"The irony is that the DST/YC deal didn’t have to cause problems for independent angel investors. If DST simply committed to providing $150K to every YC company, at whatever terms were determined by the lead investor in the syndicate, DST wouldn’t be pricing the angels out of the ecosystem."
I don't really see how this is pricing angels out of the ecosystem. SV/Yuri isn't taking the whole funding round for themselves (though they might in some cases, who knows?). Nothing is stopping other angels from continuing with the same terms they have been giving. Start ups raising a typical angel round (400k-1 mill) will still need more than 150k. With the 150k blanket investment it just means YC startups can wait longer to ask for it. Which is similar to what the original YC investment meant. This simply seems like an extension of their philosophy. I'm sure they did not lock themselves into anything and if this turns out to not be a good move (and they have lots of data to figure it out) they will iterate.
Good lord, you'd think he was being forced to agree to convertible notes with no caps with a gun to his head.
I can see there being a little more pressure to do no-cap convertibles on very competitive deals, but there's nothing preventing him or any other angel anywhere from continuing to offer terms they're more comfortable with.
The reality is that the biggest competition for silicon valley angel investors is not Yuri Milnur but Google, Facebook, Apple, Twitter, and Zynga.
pg says it much better: "Investors all compete with one another for deals, but they aren't one another's main competitor. Our main competitor is employers. And so far that competitor is crushing us. Only a tiny fraction of people who could start a startup do. Nearly all customers choose the competing product, a job." [http://www.paulgraham.com/future.html]
Here's to hoping more college grads join an early stage start-up or start their own company instead of joining Google or Facebook
I found this article to be interesting reading coming from the side of someone who can't invest in the same manner of Yuri. However, what wasn't said is that angles will just have to look elsewhere to find the gems that YC passed over. Perhaps, and I'm hoping this happens, they'll need to look in places outside of the valley. Areas like Boulder, Colorado; Chicago and even Ft. Myers, Florida. Yuri could single handedly be influencing angles to start something new in a whole new place.
All of those areas already have angel networks. Angel investment has historically had a big geographic aspect; it's very hard for most SV angels to add as much value to a Seattle-area startup as a Seattle-area angel.
Angels need to stick to what they're good at: risk taking. In today's ecosystem, the reality is that the startups leaving YC are not as risky as the others. The new 150k plan is simply the market's way of reflecting this. If angels instead focus on the non-YC companies, they should get the same terms and rewards as they have been.
Amateur angel investors aren't worried about the absolute amount of money so much as the terms. If this becomes the new normal then other angels will be forced to emulate it.
A Threat? One things for sure, If an investor does his investing averagely, sticking to industry protocol and so forth then that investor can expect average returns. Thats all fine and dandy, but doing things differently will get different results. In Yuri's case its obvious hes banking on having at least 1 stellar investment per round. If anything Yuri understands the coming net boom and is posturing well to take advantage of that fact. Yuri just upped the performance bar for the rest of the investors out there.
Also, with all the love and respect I have for YC, let's not forget that YC startups aren't all the startups in which investors can invest. They can grow some balls and go with startups they think will be successful and not just betting on the ones pre-screened by YC.
It never was about the angels, it always was about the start-ups. If you don't see it that way, don't be an angel investor. Or grow some balls and dare to drop more than a few thousand on a promising project.
This is a very sly insult and betrays a major misunderstanding of how the market works. Did Facebook succeed because Mark Zuckerberg saw the "opportunity" to start a social networking site? Did Dropbox take off because they saw the "opportunity" for file synchronization? The idea is nonsense. These things succeeded not because their creators were the only ones to see the need (they weren't), but because an incredible amount of time and talent was put into making them successful.
When YC started, everyone said the idea was crazy. It still is. It's worked, like any startup, because of incredible execution -- not because it stumbled into a waiting opportunity.