Paul Graham Shares Number of Y Combinator Companies Sold or Valued at Over $40M

http://mattermark.com/number-of-y-combinator-companies-sold-for-over-40m-by-year-funded/

by dmor • 13 years ago

143 86 13 years ago

mattermark.com

tannerc2• 13 years ago

Wow, that and the follow-up tweet are impressive. What happened in 2013 though?

pazimzadeh• 13 years ago

Younger companies probably haven't had time to be bought yet! Or to be valued as highly.

tannerc2• 13 years ago

Ah, of course. Thanks for clearing my brain fog.

rjvir• 13 years ago

2013 companies haven't had enough time yet

jayzalowitz3• 13 years ago

I dont think that is true, YC seems to be progressively accepting later and later companies. the 2005 batch was a bunch of kids in college. 2013 is seasoned engineers working on it for a year already with massive traction.

dkl• 13 years ago

42 companies * $40M is $1.7B. Wow.

seiji• 13 years ago

Almost half of one snapchat (with only 20 employees).

idoh• 13 years ago

It's 40MM or more. There are some significant outliers, like Dropbox and AirBnB.

canistr• 13 years ago

42 * $40M * 6% (average stake YC gets in company) = $100M

According to http://techcrunch.com/2013/10/25/y-combinator-13-7b-valuatio...: - YC company valuations total $13.7 Billion - 511 companies total

$11,000 + $3000 * # of founders = total investment in YC companies (let's just go with 17k for 2 founders on average) = $17K

$17000 * 511 = $8.7M

$100M - $8.7M = $91.3M

Clearly a pretty good investment =P

recuter• 13 years ago

That's (very very roughly) 30% IRR which sounds kind of nuts to me.

jayzalowitz3• 13 years ago

account /2 for average probable dilution.

mattmanser• 13 years ago

What about dilution?

nimble• 13 years ago

I wonder whether stake is correlated (perhaps inversely) with valuation.

tedsanders• 13 years ago

Doesn't the 6% get diluted once additional money is invested?

nakkiel• 13 years ago

Are you saying that YC only invests 11K per company plus 3K per founder?

pg12• 13 years ago

$40m is the threshold, but this is a domain with a pretty steep power law distribution, so their total value is a good deal more than that.

skosuri• 13 years ago

Sold or valued at.

dmazin• 13 years ago

I also found the equivalency funny.

rutigers• 13 years ago

pg in 2012 Sept

"The one thing we can track precisely is how well the startups in each batch do at fundraising after Demo Day. But we know that's the wrong metric. There's no correlation between the percentage of startups that raise money and the metric that does matter financially, whether that batch of startups contains a big winner or not."

(http://www.paulgraham.com/swan.html)

pg12• 13 years ago

Almost none of these valuations are the result of investments after Demo Day. These are later rounds, and later rounds converge on an ultimate valuation.

jusben13692• 13 years ago

Does anyone know how many are actually sold vs valuations?

rlt• 13 years ago

You should be able to get a rough idea from http://yclist.com/

pg12• 13 years ago

7 of the 42 were acquisitions.

jusben13692• 13 years ago

Thanks

johnrob• 13 years ago

To put this in perspective, any company that has raised 10M or more is likely to be valued at something near 40M. The numbers seem less startling to me after factoring that in (my first reaction was that there must be a lot more acquisitions than what we see in the news).

dmishe• 13 years ago

Somebody, fix "OFY" in graph header.

chacham15• 13 years ago

Note to dmor: I wouldnt put that copyright on the image. The data is shared by pg, not you. The image itself without the data has little value. Therefore, that copyright seems greedy and portrays a bad image to me. All in all, not a big deal, but someone can take a detail like that a turn it into a PR nightmere.

dmor• 13 years ago

This is a really good point, I just copy/pasted the format for some old slides. I'll update it, definitely not the intent

lucb1e2• 13 years ago

The current graphs don't say much. How about average/median/top valued company by year funded 2 years after funding?

Say in 2005 company X got funded, then its value from 2007 should be used.

Of course 2013 and 2012 cannot be included then, but it's obvious that older companies had a much longer period to build up value and thus the current graphs don't say all that much.

philwelch• 13 years ago

YC's investment thesis is that the whole game of investing in startups boils down to investing in big stars. If you got into Google with an early stake, you won. Medians don't matter: what matters is how many big stars you caught since they'll pay for the rest many times over. So I think PG is measuring the same thing he's trying to make.

pg12• 13 years ago

Though I wish we could claim credit for discovering that, it's really the thesis of every startup investor.

paul_f2• 13 years ago

So many confuse mean with median. It's why lotteries work. The mean return might be positive. But the median is always $0.

lucb1e2• 13 years ago

Alright, top valued then. Or the median/average from the top 10%. Shouldn't that give okay results?

mooted1• 13 years ago

Is there a similar breakdown of companies YC lost money on?

zmitri• 13 years ago

I'm sure they could, but it's not really relevant. It's more about the 2-3 Dropbox, AirBnB, Heroku like companies.

Think of it this way with Heroku:

YC gets 6-7% initially and probably ends up with close to 3% after Series A and B. That's $6.2M on the $212M exit price.

A single exit like Heroku returns them enough to run YC for at least a couple years and returned >10x for other investors.

So while you could show that, it doesn't really matter to YC or to investors, because they have those 2-3 huge wins.

aashaykumar92• 13 years ago

I'm glad pg also shared the percentage breakdown. If just the number of startups based on funding year had been shared, YC's progress/success would not be nearly as telling as with the percentages also shared.

YPetrov• 13 years ago

I would be curious to find out why he chose $40M as the benchmark.

pg12• 13 years ago

There's a sort of threshold around there. A startup can raise at $20m after Demo Day by looking really promising, but to raise at $40m you usually have to be launched and growing consistently.

carlosrt• 13 years ago

So presumably, companies that are on a ~$3M revenue run rate are a safer bet. Assuming a multiple of 15.

sytelus• 13 years ago

This numbers don't give away too much because of subjective nature of "valued at" as well not actually knowing the mean or the variance, let alone the nature of distribution.

However what is impressive is that if you were going to do startup with YC, your chance of becoming significant company is about 10%. Due to nature of power law in these things, I tend to think, may be about 20% of other startups managed to become less spectacular but still successful and other 40% may be just sustainable to make a reasonable living(lifestyle business) and rest had to fold.

larrys2• 13 years ago

"be just sustainable to make a reasonable living(lifestyle business)"

Pure speculation and just throwing this out there to see if others agree but somehow I don't feel that YC is spinning off lifestyle businesses. Not to mention that it's hard to believe that some of the founders (and supporting people) that get involved in and strive to be in YC will stay put at what ends up amounting to a lifestyle business.

graeme2• 13 years ago

I'm not sure I follow. OP's point is that a failed startup might still be profitable enough to be a lifestyle business.

That opens up some pretty cool options for the founders.

pg12• 13 years ago

We're not intentionally spinning off lifestyle businesses, but that is a common outcome for seed investments. For investors it's a failure, but for the founders it could be good.

booyaa00• 13 years ago

Also depends on how much investment they got surely.

Loopt apparently sold for $43m, but had $32m investment. I don't know if that's classed as 'success' or not.

paul_f2• 13 years ago

That's easy, no.

jfoster2• 13 years ago

Imagine the success-failure spectrum.

On one end, there are the companies that fail; for every dollar put in, exactly $0 came out in the end.

The other ("success") end is more difficult to define because there is no end point; the company that is furtherest along that end of the spectrum might not hold that position forever if an even more successful company comes along.

I think the natural tipping point between failure and success is the break-even point, perhaps adjusted for inflation. A company that does just a bit better than breaking even for investors isn't going to overwhelm anyone, but it's the point at which most people won't feel too bad about having invested in the company. Top investors who are used to yielding massive gains will perhaps not feel the same way about that, though.

tomasien• 13 years ago

Reddit, for example, sold for like 20-30 million so isn't included.

I know some other YC businesses that seem unlikely to ever be huge but are profitable and probably will be as long as they want to be. Own Local has that feeling to me, although perhaps it's actually going to be larger someday I don't really know.

midas007• 13 years ago

Perhaps a 3D graph would be interesting.

   - Batch year
   - Valuation
   - Years to reach valuation*

* First dinner to m&a, discounting prior traction/validation.

That way, gross valuation / year can be more easily elucidated.

manuelflara• 13 years ago

Nor Wufoo, sold for 35 million.

pedalpete• 13 years ago

Are we sure that is what this is saying? I was reading it as 'sold' || 'valued > 40 million', not 'sold > 40 million' || 'valued > 40 million'

pg12• 13 years ago

Depends what you mean by subjective. The valuations are not just our internal estimates of the values of these companies. They're the post-money valuations resulting from actual investments, and at these valuations, invariably by institutional investors.

So while of course not all of these companies are going to succeed (a $40m valuation is roughly a bet that a company has a 10% chance of ending up worth a billion), the people making these investments are professionals at valuing startups, and they're betting their own future income on the accuracy of their estimates. There's always uncertainty when you have an asset appraised, especially one whose value is so hard to predict, but you can't generally get a more accurate appraisal than one by a professional who is actually willing to buy the asset at their estimate of its value.

cma2• 13 years ago

Don't many of these rounds have diluton consequences for existing shareholders if some performance target isn't met? Is that taken into account?

LearnAndBurn• 13 years ago

Must be nice. ;)

But on a serious note, I wonder how much that 2009-2012 bump has to do with inflation or a lack of other opportunities in the market. Maybe I am out of touch, but it seems like there are less and less places to put your money. Not to suggest that startups are a bubble. The rise is probably due to YC becoming a better filter, picking better horses in the race.

arbuge• 13 years ago

Adjusting for time (takes a while to build the company), it seems like about 15-20% of YC's startups will eventually hit that number.

stevewilhelm• 13 years ago

To put that in perspective, most of the first non-founder engineers couldn't buy (outright) a 3br house within walking distance of Y Combinator's office with their stock option proceeds.

pg12• 13 years ago

I think what you're saying is that if a company were sold for $40m, employee #1 wouldn't get enough to buy such a house. That would depend on how much stock he or she got and how much he or she was diluted by later investments. The cases I've seen fall on both sides of the line, but there are plenty above it.

But also, we're not talking about 42 companies with valuations of $40m. $40m is the lower bound.

iamshs• 13 years ago

So how does it compare to companies borne out of Y Combinator? That would be interesting to see.

vasilipupkin• 13 years ago

I agree. That would be very interesting - how much better is YC relative to the overall data set ?

arikrak• 13 years ago

Techstars publishes a fair amount of data too: http://www.techstars.com/companies/stats/

Then there's general studies of VC-backed companies. Not much available on pre-VC companies though.

codex• 13 years ago

Interesting: to a close approximation, the odds of a positive payoff from YC (vs opportunity cost) is about the same as buying a California scratch ticket--about one in ten.

bobbygoodlatte• 13 years ago

Anyone know which two are the 2013 companies?

puppetmaster3• 13 years ago

Names?

jhh• 13 years ago

Typical LISP guy: delimiting the pairs with whitespace - good enough :)

confluence• 13 years ago

In other news, women share how much their diamond rings were valued at when they got married. Unfortunately, when they go to sell their cherished tokens after their eventual divorce, they soon discover that diamonds aren't worth nearly as much as they thought they were.

Indeed, they are often horrified to learn that the valuation of the diamond at point of sale was horrendously overpriced through the use of psychological arbitrage and cultural indoctrination, that the cost of their production is surprisingly low thanks to copious amounts of slave labor and theft, and that the wholesale price that the diamonds will clear at is so low as to be an insult to their very dignity.

Oh, were we talking about startups?

I must have digressed into accurate land.

For anyone who's being a bit slow today:

    women = investors
    diamonds = startups
    marriage = first rounds
    divorce = likely failure of startup
    valuation at point of sale = optimistic valuation by investors at inception
    cost of production = ramen, servers and underpaid employees without equity
    wholesale price = true value of a startup on average

Paul Graham Shares Number of Y Combinator Companies Sold or Valued at Over $40M

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