Yes it's really hard as an investor to 1) stay alert through hours and dozens of startups, and 2) actually understand enough of what they do from the presentations to know if you want to know more. Not perfect by any means, but I certainly can't think of a better way for them to do it without taking massive amounts of time from the founders.
When a market is deemed 'hot' investors will flock to it regardless of whether or not they understand the companies or the market. This means that your best bet for finding funding usually lies in a market and/or technology that is poorly understood so you can be an 'expert'. If your proposition is easily understood then the decisions will be more rational than if they're hard or even impossible to be understood in a short time-frame.
It's sad, for sure but there is a reason they call it 'dumb money'.
As for YC, just about any company in a YC batch is deemed 'hot' regardless of whether or not the follow on investors think those companies are great they're too afraid to miss the boat and this tends to YC being used as a stamp of approval.
The pressure is high and competition is fierce, great for the start-ups!
It's a bit like an auction, if there are many possible buyers for an item it's easy to get carried away and so people end up investing in companies they might otherwise not invest in, or to invest on terms they normally would not accept. It's one of the reasons why YC is so sought after, once you're 'in' you instantly increase your chances of getting follow on funding on terms favourable to you, the start-up through some source.
Certainly yes, but it usually takes longer than 3 minutes to figure stuff out. What I really need is an hour at least with a startup 1 on 1 to know if I'm really interested. But like I said above, that doesn't scale with so many companies and investors. So you have to trust your instincts, but there's often a herd mentality as investors talk to each other and try to use those signals to help them.
Would they typically hold longer form talks kind of like public company analyst days where they get into more detail over an hour or so and several potential investors who have dialled in grill them on what is being presented? Apologies for the noob question, I don't deal with startups but am curious about the information dissemination process they use.
I'm a former lawyer and currently a VC. I really can't imagine a situation where I'd ask a company to sign an NDA in connection with a potential investment. If the information isn't confidential I'd just tell them. If it was it probably isn't mine to share (something we know from a portfolio company, for example).
So it's weird. It's also a red flag that the investor either doesn't really know what its doing, or that they're willing to share confidential information that they shouldn't, or that they are litigious and like to corner people via a NDA and apply leverage.
I'd walk away unless they are your only funding option. And if they are your only funding option you probably have issues with the startup or product that need to be addressed anyway.
Listen to this advice. If you need the money, and it's your only source, you have to do what you have to do. This smells all kinds of wrong; and probably won't lead to money or money you'd want.
Thank you all for your replies which I'll go on an study further. I'm honoured you all took the part of your busy schedule to suggest us what to do.
To clarify: They are not our only "investing option", but they are the first to introduce us to this market which we haven't considered before.
The "investor" is probably (we are not sure) going to ask to create a new-co, rather than investing money and getting shares of the company. They plan to access funds from other investors or grants.
To their excuse there actually was some information which understandably they wish to keep confidential, mainly names of peoples and charges and relationships.
I don't want to give more clues about this as I wish to maintain that "hi-confidentiality" intact; which is why I also created this new account on HN
On one side, I think they want to ensure that we don't develop the project without them.
I also think they fear there might be consequences (legal? political? of image? ) for them if we were to disclose their names, charges and some of the things they told us. But I'm not sure.
From a legal point of view I'm not sure if the NDA doesn't define who is the "disclosing" or "receiving" party, nor what were the contents that have been discussed, there might not be any basis to take legal action. Or is there?
This looks good to me, as long as it's enforceable (as in the state sees it as a valid, binding contract). It's still debt until it converts as far as I can tell, which is the only way I know of to give the company money today for securities that don't exist yet.
I think companies will be quite willing to open up. I share the concern on the time compression though. My gut said 20 minutes per company would still be interesting with the right companies/people. But this is an experiment, let's see how it goes.
