A big reason they said they were raising the deal previously was the cost of living in the bay area and increased cost of starting a company today[0]. Are they anticipating that those costs are going to come down now? They suggest that this decreased amount will allow them to fund more companies, and hint that it has to do with economic conditions as well. But, if that amount of money is still needed to live in the bay area and work for 6 months, then wouldn't it make more sense to decrease the number of companies funded as to not potentially handicap startups with not enough money?
My guess is that the departures will continue as unemployment rates grown and that when federal and state payments run out we will see a further decline.
I think companies will soon have to justify why they can afford to have an office with remote as the better (and cheaper option). Other than headcount, rent is usually the largest line item for a startup
I’d wager the rent rate is necessary to cover the mortgage, homeowners policy, other insurance, and repairs. I don’t think landlords have 36% IRR on their investments. Rents at that large of a discount aren’t sustainable.
No, they don’t have that IRR if their investments were made at 2019 market prices. They have more than that IRR even with all those expenses if they bought at 1980 prices.
What’s unsustainable is the property prices of 2019 (and June 2020 because real estate asset prices are sticky). “Investment” is path dependent and is irrelevant to pricing for the market as a whole (it obviously does to a single player)
Most “x weeks free” are limited to luxury buildings and 8 weeks is on the very high end of those offers. And even before COVID you’d see 4 weeks free advertised reasonably often. IMO the rental drop isn’t nearly as drastic as you’re suggesting.
If cost of living is so high, I wonder why they wouldn't invest in a dorm-like living space for founders? I'm not familiar with the area, so I imagine there's reasons for it, but being able to focus on work instead of life-maintenance details seems like it would benefit the organization.
(a) It's not clear why YC could run an apartment complex better or cheaper than the many companies who already do it (including some YC-funded startups like https://zeusliving.com)
(b) Founders tend to be independent-minded people who like to do things their own way.
why would existing companies be offering cheaper? The price will be set by the market, and any saving will be taken as profit, not passed on to the tenants.
The easiest way to insure against rent increase is buy a big chunk of local land. Actually offering it to your own startups just means they reduce overheads a little, provide an extra perk, and a small competitive advantage.
What is the opportunity cost of that land investment? Is YC really better off getting into the landlord business rather than using the same money to fund more companies?
Among other things, I'd expect this is because YC is trying to break free of the idea that the only way to be a successful startup founder is to be a young, single, attachment-free man.
Successful startups are created by all kinds of people in all kinds of different life situations, and YC needs to be careful to be inviting to as broad an array of people as possible.
At the same time, I agree that dorm-style living (along with other nontraditional styles of living like mulitigenerational or multifamily units, cohousing, coliving, etc...) is a great idea and our culture should work to be more supportive of experimenting with housing. Especially, as you said, in areas with severely impacted housing markets.
From the beginning, YC was opposed to the incubator model, which that idea would be more aligned with. Even having startups share offices was never something they were interested in. That was partly because they had no interest in managing offices, or managing at all (or offices, for that matter). But there were deeper reasons: the sense that great startups develop in environments of their own creation, a suspicion of scenesterism, and ultimately the fact that they wouldn't have liked to work that way themselves. They strongly approved of saving money, but were more the kind of people who would work out of an apartment (as Viaweb indeed had). The incubator model comes more out of a business-managerial way of thinking. Words like 'synergy' come to mind.
One of the first things YC partners say to you when you the program starts is: "We are not your employers, we will let you fail." I think that's a core part of how YC works and things like sharing office space or having dorms would degrade that by helping founders to escape some of the responsibilities of their company.
For people in YC who are looking for places to work though and want to get out of their apartments I highly recommend the public libraries in Mountain View and the surrounding towns. They're quiet, well lit, have fast wifi, comfortable chairs and desks, and lots of nooks and crannies without much distracting foot traffic.
Employers let employees fail all the time, and when that happens the stop giving them money. When a startup fails VCs stop giving them money. The illusion of autonomy motivates some people, but make make no mistake - when you take VC money you are an employee of that VC firm - with low pay, no benefits, no title, no desk, etc.
This isn't true in the general case. If you found a startup that's profitable, for example, you have genuine autonomy to an extent that you simply couldn't obtain as an employee, no matter how successful.
This is true in the general case. In the general case a startup isn't going to be successful, the founder is inexperienced and easily pushed around by the VCs, and generally needs to follow their orders to keep bridge rounds, etc coming.
In the rare case of a successful startup, if the board doesn't replace the founder with an experienced executive, the founder probably has as much autonomy as corporate executive in charge of a successful division of a company.
That doesn't sound right to me (I've been in the YC network for 10+ years, as has dang), and is at odds with what tlb (an original and still-serving YC partner) said in this comment [1] above, and what has always been YC ethos.
Maybe the person who told you that was mistaken? Or it may have been a YC partner or staff member doing it privately?
I'd expect YC might informally be able to point out such places, or formally invest in some with the right vision, but would not necessarily get further into managing housing themselves. And, too much density/interaction with disparate teams might at some point become counterproductive, compared to the classic "intense founders of the same entity living together to the exclusion of other distractions" model, or the rising capabilities of mostly-remote teams.
This would benefit a subset of founders - those who are young and single. What if you have a partner? A family?
YC is actively moving away from its roots as an alternative to a summer internship for college students to premier seed / Series A investor for companies with traction. Your suggestion runs counter to where they're headed.
Liability. Someone slips and falls, someone is (sexually) assaulted in the dorm, etc...
It would probably be exceptionally helpful for a lot of YC founders I imagine, but in addition to the liability, the optics are kind of creepy in that certain SV culture kind of way they likely want to avoid.
To be among likeminded people to use as a network for social and business purposes for one. You're more likely to feel at home and happy if you are surrounded by people going through similar challenges as you. I'm sure there are other reasons.
I know this is HN and jokes are shunned, but you wrote "We do not expect this to be the last time we change the deal"
and I can't help but think you missed a golden opportunity to write,
"We have altered the deal. Pray we don't alter it any further".
25k doesn’t seem all that relevant. Yeah it’s slightly better to have another 25k in the bank, but it just seems like normal fluctuation with the economic times, to me.
You do YC for the network and guaranteed funding post demo day. Getting $125k is inconsequential and has almost no barring on YC’s value to a new startup.
well, they'll be taking on more risk if that money ends up not being enough to support early stage startups. And, it makes the deal even more difficult to swallow for hardtechs/biotechs/moonshots, and potentially making it worse for those companies could decrease diversification opportunities? still a better move for YC than the companies getting funded
Our startup is profitable, scaling, and in the single-digit millions of revenue per year. We don't have any investors but are still capital constrained. The default YC valuation of $125k/0.07 = ~$1.8M is way too low for us, nor do we want the requirement of having to meet with other startups once a week since we're already quite busy.
Does YC have a "funding offering" for startups at our stage?
> The default YC valuation of $125k/0.07 = ~$1.8M is way too low for us
This is the wrong way to look at it.
Instead, ask yourself: would you exchange 7% of your company to join the YC community and be able to leverage their resources forever?
The answer should be a resounding yes if you think your company will be > 7.5% more valuable if you join YC [1]. Which it should [2]. The $125K is just the cherry on top and just one of many perks of joining YC (albeit a useful one for companies that have no funding/revenues so they can focus 100% on building their product instead of having to worry about paying for housing/food/servers/SaaS).
The vast majority of us who have gone through YC would've done it even if it wasn't for the monetary investment.
[2] You'll likely even make up for the 7% almost immediately because you'll likely raise your seed round at a significantly higher valuation (> 7.5% higher for sure) than if you hadn't gone through YC. But it's very likely that your company will intrinsically be worth significantly more than that too.
Would you exchange 7% of your company forever to join the YC community that might have diminishing returns after several years?
As my sibling poster posted: There is more than one path to success and you make it sound as if YC kinda guarantees success and that all of this is a total no-brainer.
I'm not affiliated with YC and they might still be interested in your startup but I'm curious why you are interested in YC at this stage. Is it for the cap table signaling?
Your description sounds like you are beyond the accelerator/seed stage so the standard deal valuation and funding amount are too low. You also mention being too busy to take advantage of the networking opportunities provided by the program.
Being profitable but capital constrained, have you looked at debt financing opportunities? Do you need investors and a network or do you just need cash to accelerate growth?
See my reply to sibling comment for what we're looking for. Re: debt, we've considered it, but our goal is to expand knowing the economic environment might hit us harder than expected. So equity feels like a better fit.
In the end, we're looking for advice, support, and cash.
In this case, why would you be interested in YC? What would it offer you?
It seems disappointing that YC's value is no longer qualitatively good advice for early-stage founders and a close-knit community of hackers.
Maybe I'm just jaded, but it appears increasingly corporatized every year. Sometimes it feels like YC might as well be a certificate — just a stamp of approval that provides access to a network of investors and clout. (I'd love to be wrong on this).
> In this case, why would you be interested in YC? What would it offer you?
It's a fair point. The irony is that because our startup is doing well, we'd rather spend our time talking to customers and building the product than pitching to investors. Maybe what we're really looking for is a next-gen take on capital that would look something like this:
* Minimal time needed by us to reach a decision on whether they'd like to fund us
* Known good terms (preferably open source) that we don't have to spend time digging in
* No board seat
* Minimal equity take
* Minimal reporting requirements. We already share financial statements and KPIs with the whole company. We're happy to share those but don't want to spend a bunch of time writing an "investor update."
* Minimal distraction from running the business
* Access to advice from credible individuals
* Access to resources that can help us do things like recruit, setup security policies, etc.
In other words, we want reasonably priced capital, support and advice with the minimum possible overhead. We're happy to share in the upside (by granting equity), but want to spend our time with customers, not investors.
Those all sound like reasons to apply to YC. :) We've funded a good number of companies at this point that were farther along when they applied and had millions in revenue (MessageBird, for example, who was just on HN a couple days ago https://news.ycombinator.com/item?id=23624854). I recommend reaching out to some of those alum and talking to them about their experience.
Thank you for clarifying! Do you offer the "standard deal" to such companies, or do you propose something more custom in these situations? I didn't see mention of this on ycombinator.com.
Curiously, you just listed a lot of good reasons to do YC. Until the last few weeks of the program you will be encouraged to focus on your business except for the Tuesday evening talks and short meetings with the partners. As this is remote you won't even have to waste time traveling to Mountain View from wherever you live.
Then at the end you focus on demo day which I promise you is the most concentrated and efficient way to meet investors and raise a round on the terms you are looking for (caveat being I don't know how it works remote). Then it's back to grinding on the company. The further along you are by demo day the easier and more efficient your raise will be.
Is that worth 7%? Lots of founders think so. In our batch we had a company that had more than $8MM revenue previously that went on to raise millions on an uncapped note that converted really high. Pretty sure it was worth it to them.
I co-founded a company that found itself with a similar set of criteria for what we wanted. For us, VC worked out well. We weren't the typical company they saw, but going in with a very clear set of things we wanted from a partner was very helpful. Ultimately, they were high value add when relevant but otherwise let us focus on growing the business.
My guess is it comes down to the right VC/Partner and finding mutually agreeable terms.
YC's model has never been to fund startups for long, only to get through the batch and then hopefully raise longer-term funding at Demo Day. When Scott and I were in the Winter 2009 batch, we got $15k. Costs have gone up since then but not by that much. $150k and $125k are both more than enough to accomplish the primary purpose. Actually I wish they'd lower it further. https://www.youtube.com/watch?v=VKHFZBUTA4k
They are not going to do a batch with 3000 companies. They are saying all in all this will allow them to fund more companies over the coming years - " In the coming years, this will enable us to fund as many as 3000 more companies".
I figured the increase to over 100k is when non-technical people started doing it. They hire people to make their MVP instead of the founders themselves. Or am I wrong about that?
$100K won't buy enough professional services to build, launch, and operate an MVP unless the app is very simple. If it's simple enough that anyone can drop $50K-100K on design services and have your business cloned, it's not a very defensible startup idea.
There are occasional exceptions, but typically the founding team must have the majority talent and skills required to launch the MVP.
Please don’t listen to this. You can hire great developers all over the world for far less than $100k.
Using YC’s $125k to hire a few contract engineers to help you reach velocity and deliver a V1 is an incredibly smart move.
Not every YC company is a developer tool or something complex. In fact, looking at the most recent batch I’d say the majority are fairly simple in their technology approaches.
While that's true, it's rare that a YC company at the founding stage is so unique that only the founders can do it. It's not about the simplicity but rather the fact that the founders are basically putting in unpaid labor that provides the moat, because for someone who wants to clone your business, they need to be convinced first that it's worth investing in.
The founders are convinced, and hence are the ones doing the free work.
By looking at plenty of the "Show HN:" posts we can see many examples of more than just "simple" services that were made on a much smaller ( or $0 ) budget.
How many YC companies are "remote"? What is the optimal deal if the cost of Bay Area located startups is balanced with the cost of distributed startups?
Per the blog post, this is to enable funding more companies in the future. How is YC able to scale funding all these companies? Are the ratios of partners to companies consistent? Does it scale linearly? Or as YC grows do they leverage their outside network more?
What if all the easy stuff has already been done and heavy lifting is necessary for the next wave of impactful startups? This funding model looks like it's going to continue fishing for guppies for the foreseeable future.
[0]https://blog.ycombinator.com/new-standard-deal/