YC has just closed a new $8.25 million fund

http://ycombinator.posterous.com/yc-has-just-closed-a-new-825-million-fund

by pc • 16 years ago

238 98 16 years ago

ycombinator.posterous.com

Congrats pg, jl, tlb and rtm! 70 startups per year is an amazing number - how long before YC is involved in practically every startup in Silicon Valley?

pg17• 16 years ago

I couldn't resist calculating the answer to your rhetorical question. It depends how many startups get started each year in SV of course. If the answer is 1000 and we continue to expand at 1/3 per year, then 12 more years. But since we could never get all the startups, what this calculation really proves is that our growth rate is going to have to slow down at some point within the next 12 years.

Unless of course there start to be a lot more startups, which is a real possibility.

But it's alarming to think what sort of monstrosity we'd have to evolve into in order to fund 1000 startups a year.

http://upload.wikimedia.org/wikipedia/commons/b/b7/B-24_Libe...

I doubt I'd want to run it.

MaysonL• 16 years ago

You won't have to. Your alumni network will do it. A more interesting question: how long will it be before YC, or its alumni, are involved in a majority of SV startups?

johnrob• 16 years ago

8.25 million / 20 K per startup = 412.5 startups!

pg17• 16 years ago

Sadly, you are forgetting our operating expenses. We calculate it will fund around 240.

kapitti• 16 years ago

That's a pretty steep management fee.

zhyder2• 16 years ago

Can you share what these variable (i.e. per-startup) operating expenses are?

sadiq• 16 years ago

I'm wondering, will YC's current setup scale with the increase in numbers? As in, will new YC companies have less time with staff, etc..?

How do you plan to cope with this?

pg17• 16 years ago

I think the reason people are surprised that we fund so many startups compared to other YC-like organizations is that I work full time on this, whereas at nearly all (perhaps all) the others, the startups are advised by a consortium of people doing it part time. When you're doing it full time, it's no problem to advise, say, 25 new startups at once. At least once you have some practice.

Earlier this year we hired Harj Taggar who also works full time advising startups. Since this kind of work scales nearly linearly, we're about as busy as one person would be advising 18, which was no problem at all.

netcan• 16 years ago

Any idea what you would need to do differently to fund, say, 250?

staunch5• 16 years ago

I'm hoping we'll eventually see some experimentation with the model, now that they have more money to work with.

I've always believed there's room for a YC-like company to do slightly bigger investments. Instead of $17k for 2 founders, it would be $80k for 2 founders. That way they could attract people with higher cost of living/high paying jobs (who would hopefully tend to be more successful due to more experience/connections/stability)

spoiledtechie• 16 years ago

Its a big reason why I can't do it. I have bills that must be paid. Student loans and they are larger than most everyone I come across.

bkrausz2• 16 years ago

What are your monthly payments? I imagine anything under $500/month is doable (I have $250/month and just quit my job: by the time I run out of money I'll know whether or not my business will work out, and that's really all you need).

EDIT: as a corollary, I'm thrilled I didn't pay off my student loans earlier. They average about 4.5% - that's the cheapest loan you can get anywhere. Treat it like a business loan and use whatever you save to live off of when you're working on your startup :).

webwright5• 16 years ago

How much income would you need? Even with a smallish Series A, you're generally expected to have a pretty crappy salary.

It's kind of sad that startups are a game for people who have a long personal runway (combination of savings and cheap lifestyle, usually), but that's the reality.

No investor is going to be excited to see their money put to work by paying down student loan bills, though at a certain level you can often swing a 50-70k salary. As I understand it, get big revenue or a big Series B round, and you can generally lobby successfully for a non-insulting salary.

abstractbill4• 16 years ago

Are (presumably American?) student loans deferrable? I recall with my UK loans it was possible to defer repayment if some conditions were met (low income I think was one of them).

pg17• 16 years ago

Actually given an incremental dollar to invest I'd always prefer to expand sideways rather than depthwise. It's much more interesting to fund a whole new startup than to give more money to an existing one.

Plus the startups themselves don't need that as much; there are already lots of investors ready to give the next $100k to startups we seed.

samd• 16 years ago

Does this mean that we're going to start seeing a wider variety of startups funded by YC? Most of them seem to be consumer facing, but there is a lot of room for innovation in behind-the-scenes software.

staunch5• 16 years ago

The idea would be to get all the awesome 100k/yr+ hackers with mortgages/families to try their hand at a startup. Their current options are 1) Risk their marriage/mortgage/savings by quitting their day job. 2) Build up traction on the side of their day job.

Most people won't do #1 and #2 makes failure much more likely. If some of these people are significantly more likely to succeed (my theory) it would make sense to invest more on one of these.

hristov• 16 years ago

That is good to hear, especially considering that the path you are choosing ends up costing you a lot more work.

blasdel2• 16 years ago

That's wildly inconsistent with everything I've ever heard from you on the subject before.

I thought the limit on YC was you -- that the partners didn't have enough attention to distribute to any more startups (or more tablespace to sit them all at for weekly dinners :)

How are you planning to expand sideways without drastically reducing your (non-monetary) contribution? Wouldn't this just make YC less valuable on it's own merits? You'd retain the brand value, but that would diminish pretty quickly if the startups you funded started getting crappier. If you did diminish your responsibilities, and the startup quality didn't go down, what would that say about the value of your higher-bandwidth contributions before?

webwright5• 16 years ago

Supply/demand. Why would YC (or ANY early stage investor) ever want their money to go to your higher cost of living when they have a line out the door of great opportunities founded by people who have a cheaper lifestyle and/or a pile of personal savings?

The answer, of course, is "they'd do it if it was an unusually good startup with TONS of traction." Of course, if you're in that boat fundraising isn't a problem, is it?

staunch5• 16 years ago

It would make sense to invest 4x more if the startup was significantly more likely to succeed. I think that could be true in many cases.

benmathes4• 16 years ago

To quote both Warren Buffet and Naval Ravikant (startupboy.com): "It's the people, stupid". It could very well be worth it to invest 4x in a company started by proven startup veterans than to invest in some plucky college grads.

dariusmonsef• 16 years ago

If you believe enough in what you're building that you're willing to ruin your credit... than you have the proper motivation. If you are getting paid well enough to stay financially fat & happy, what risk are you taking? What will keep your head & heart in it after you've hit your first road bump... or wrecked around the first blind curve?

In my experience... everyone can get their expenses lean. Just depends on what you're willing to give up. For those with families that's a bit harder.

char• 16 years ago

If the goal of funding $80k is to attract more experienced founders, it seems to me that by default, those founders would be better suited for different investors anyway. YC is largely about helping founders learn how to start a business, and connecting them with more experienced people (and with each other).

I'm also having trouble understanding what 2 people would do with that much money in only 6 months. I would argue that the 'stability' factor would make them less likely to work as hard as the other companies who are highly motivated to pay their bills in that time period.

crystalis• 16 years ago

There's another benefit to doing $17k/2 - you get to build up your YC alumni at over four times the rate of $80k/2.

pg17• 16 years ago

Yes, that's true. I forgot to mention that, but it is now a very deliberate strategy. When we started YC we didn't even realize we'd produce an alumni network, but it is becoming more and more important.

qeorge• 16 years ago

Looking at it from a money perspective is backwards. The idea is to pay your living expenses so that you can focus, not give you any kind of salary (at least that's my understanding).

The rate seems like a good commitment filter as is.

bkrausz2• 16 years ago

That should keep YC going practically indefinitely :).

Assuming the data at http://spreadsheets.google.com/ccc?key=0AkkhSN3vaY4jdF90b1l1... is complete. And assuming a $17k investment for 6% from all the companies who have exited (I know, big assumptions):

  207 investments @ $17k is $3.5m
  13 exits @ $69m total is $4.1m for YC

That means that YC is probably close to breaking even already, plus they have all their equity in a ton of successful companies that haven't exited yet.

I don't know much about investing, but at this rate $8.25m should keep them going for quite some time.

joshu• 16 years ago

Funds don't generally work that way. They return the investment to the investors. When the money is done they raise a new fund.

(This isn't absolute. There are evergreen funds that have the returns go back into the fund.)

jedc2• 16 years ago

I'm the guy who maintains that spreadsheet, and do try to keep it up to date.

But my huge disclaimer is that the exits are _my_ guesses only, and are likely wildly off the mark. But I keep it since I think my errors potentially cancel themselves out in aggregate, and it's useful to estimate the financial return YC has had thus far.

henning• 16 years ago

The way I see it, there's no way to show confidence in the future like putting your own money up. This is great even for people not affiliated with YC, its partners, or YC-funded startups.

jazzychad• 16 years ago

Posterous's removal of decimal points from titles makes for an interesting permalink :)

pg17• 16 years ago

I noticed that when I sent the link to the YC partners. It was interesting how horrifying it seemed.

tansey• 16 years ago

Coming from the hedge fund world, $8.25M seems so small. It's amazing how much it can fund.

What are the requirements for becoming part of the next YC round?

Do you have to know someone already involved with YC?

Does YC only accept investors who are successful tech entrepreneurs?

What about people who have the money through other means and are tech savvy?

Can investors send a proxy who is qualified at helping out?

pg17• 16 years ago

Basically, we just ask our friends, who mostly turn out to be hackers.

paraschopra• 16 years ago

You can definitely fund more startups but as you admit yourself, the startups you fund don't give up equity for money. They give up equity for your guidance, network and the whole ethos of the program.

Scaling up the YC experience would be an interesting challenge.

rewind• 16 years ago

Perfect timing -- I was just finishing my 93-page business plan and the last line of my nine pages of Excel spreadsheets told me I needed $8.25 million. I'm definitely applying for the next round.

andrewhyde• 16 years ago

Congratulations! Can't wait to see the new classes and what they do to evolve the web.

jagjit• 16 years ago

It is very heartening to know that many YC winter 2010 startups are already profitable.

Is more information available on profitable YC companies so far? And how they got to cash flow positive.

gcv• 16 years ago

The previous YC funding cycle, winter 2010, had 27 startups. Already 20 of them (74%) are either profitable or have commitments for further funding.

That's amazing. Congratulations.

daniel-cussen• 16 years ago

Is it possible to defer YC?

pg17• 16 years ago

We don't have a policy about it. No one has ever wanted to. We do sometimes defer interviews.

breck2• 16 years ago

It was possible in Winter 2009, I think (the first session after the economy collapsed), but I don't think anyone did.

OoTheNigerian• 16 years ago

pg, is there any possibility of expanding YC outside the US?

YC has just closed a new $8.25 million fund

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