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Sam Altman: ‘Too many’ Y Combinator companies raise money

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Re: Sam Altman: ‘Too many’ Y Combinator companies raise money

#151

Post by sreyaNotfilc »

Maybe I'm missing something, but isn't one of the reasons to join YC is to find ways to get funding? Even in the Standford videos, there's a lot of focus on the topic of raising money.

I think Sam's point (or concern) is with the so-called "Startup-Culture". There's a big focus on...

-1 Presenting a basic idea

-2 Get into Y-Combinator

-3 ???

-4 Profit

Or, I think that's how startups are interpreting what being an entrepreneur is all about.

I think Sam's point is that the product shouldn't be a placebo that happens to raise money. Or, to better say it, you are not here to be good at fundraising. You are here to be good at making a product that will (wait for it) change the world.

I think the success of those so-called unicorns (Dropbox, AirBnb, Twitch, etc.) had caused this problem. There are a lot of investors that are willing to spend away hoping for something to stick and to become profitable. On the other hand, there are a lot of startups who's soul purpose is to be good at selling a 'not fully realized' idea, raise a ton of money, and then cash out. Oh, and have 'fun' while doing it. Why? because it works!

It reminds me of the Hubspot videos with Daniel Lyons. https://www.youtube.com/watch?v=RVSLLvHceSA

Now, if someone was banging on my door desperate to give me a crazy amount of money with almost no strings attached to but into my 'shell of a product' I may consider taking the offer. But doing so may benefit me, but could cause harm to those who really have a great world-changing idea.

Re: Sam Altman: ‘Too many’ Y Combinator companies raise money

#152

Post by IanCal »

namdnay wrote: post #146
simonebrunozzi wrote: post #53

Earlier quoted context omitted.

Sam, let me offer one humble suggestion. 1) UBI (or anything similar) in Oakland is expensive. Back of the napkin calculation: $1,000/month/person = $12,000 = you need about $0.5M in capital to maintain that level of basic income without reducing the capital over time (I am applying the usual 4% interest on capital, for passive income - the number might be wrong or might change in the future (see Piketty) but let's u…

When calculating the capital needed to live off the interest, you need to subtract inflation from the interest, as 1000$ will be worth less and less every month. What you need to survive is "equivalent to 1000$ today", not "1000$".

The safe withdrawal rate of 4% (or whichever figure you pick) already includes inflation.

The rule is supposed to be that you have a high probability of withdrawing $X per year, each year, adjusting for inflation, where $X is 4% of your initial starting sum.

Re: Sam Altman: ‘Too many’ Y Combinator companies raise money

#153

Post by jt2190 »

buro9 wrote: post #134
jtmarmon wrote: post #109

Earlier quoted context omitted.

When you're shooting for one company to return 100x your investment per fund, a 2x difference in cost to get the best possible environment for the company you're funding is worth it.

One wouldn't need a 100x if one hadn't over-funded all the bad bets.

This is not the investment strategy of venture capital, though; they're not trying to be "smart" by picking a few good bets. They're placing a lot of small (small for them, "overfunded" for you) bets in order to increase their odds that one of the bets is really, really good. The more bets they make, the more likely they've bet on a 100x winner.

Re: Sam Altman: ‘Too many’ Y Combinator companies raise money

#154

Post by usrusr »

olfactory wrote: post #92

Early YC: Small, gets disproportionate number of wins. Develops top tier reputation. Later YC: Expands significantly due to the added prestige, and now performs much closer to the mean. Today: Sam says that "too many YC companies are getting funded". Is this fundamentally different from a mutual fund that yields 25% above market for a few years in a row and then performs closer to the mean for the following decade? I…

More than that:

Even after ten years, that early success mutual fund won't be investing in entities that actively try to appeal to them, specifically.

Contrast this with YC, there is probably a whole ebook lurking somewhere in the depths of the Amazon catalog that claims to coach would be founders in how to best pitch to each individual star VC.

Founders are already winning if they only get funded, but investors need an entirely different kind of success. This misalignment (the funders' success is only a subset of the founders' success) is what I think Altman is talking about when he says "too many YC companies are getting funded". At the point where the two success metrics do not overlap (stretching the runway of an eventually failing startup for the maximally viable founder lifestyle), funder and founder are adversaries, which makes it a different (more difficult) situation from mutual funds.

Re: Sam Altman: ‘Too many’ Y Combinator companies raise money

#155

Post by saturdaysaint »

TuringNYC wrote: post #77

If the artificially-created real estate "shortage" problem in the Bay Area was solved, lots of other problems would be solved. - Companies raising money just to pay inflated (yet still insufficient) labour costs - People who would love to work for startups but realize that most startup salaries barely gets you a studio apt, pretty cool until you have a family - Companies who "cant find" talent Is it any surprise comp…

I wonder if companies consider filtering out older workers with families to be more of a feature than a bug.

Re: Sam Altman: ‘Too many’ Y Combinator companies raise money

#156

Post by TuringNYC »

usaar333 wrote: post #88
TuringNYC wrote: post #77

If the artificially-created real estate "shortage" problem in the Bay Area was solved, lots of other problems would be solved. - Companies raising money just to pay inflated (yet still insufficient) labour costs - People who would love to work for startups but realize that most startup salaries barely gets you a studio apt, pretty cool until you have a family - Companies who "cant find" talent Is it any surprise comp…

I'm not sure how much bay area real estate shortages drive this; I suspect little. 1. It's unclear how much additional housing will drop prices. There's enormous demand and denser housing costs more to build per square foot. Realistically, we're talking 10 to 20% drops as upper bounds of cuts (think Seattle costs) 2. [Edited to clarify price driving] These companies have decided to be in the bay area for some reason…

>> you are competing with very high paying companies

True. But for people looking to do something meaningful, which they may find spot-on in a startup, you are competing with cost of living on the downside, not just alternate employers on the upside.

Re: Sam Altman: ‘Too many’ Y Combinator companies raise money

#157

Post by TuringNYC »

abritinthebay wrote: post #111
dmitrygr wrote: post #87

Earlier quoted context omitted.

> Companies raising money just to pay > inflated (yet still insufficient) labour costs This does not match reality since most startups in SV pay very very very little. In many cases barely enough to live with roommates (and forget having a family)

Based on nearly 15 years of working at startups: wut? This is absolutely not true in any way. They sometimes pay less because they try to trade options for salaries but that’s becoming less popular given the lack of cashing out and people’s better understanding of the economics of it. You can get low to mid six figures at a startup easily ... which absolutely does not match your description

>> You can get low to mid six figures at a startup easily

Firstly, mid-six figures is 500,000 -- please share which startup's comp range is in this area.

Secondly, you cant pay rent with options.

Re: Sam Altman: ‘Too many’ Y Combinator companies raise money

#158

Post by chrishacken »

nwenzel wrote: post #113
chrishacken wrote: post #76

Earlier quoted context omitted.

Does anyone running a startup actually put money in a 401k? (Serious question.) I do not, nor do I know anyone else who does. I also don't see how that's enough money to tip the scale.

I do. So do my cofounder and many of our employees. We made the 401k available around 15 employees (I think). The tax savings of the 401k offsets the cost of providing the 401k, so its basically free-ish to offer... without matching. For reference, we started offering the 401k before our A round. At that point, we had raised $2M and were still under $1M ARR run rate. Based in the Bay Area. I don’t get the narrative t…

I was thinking more along the lines of solo-founders. Obviously if you can afford to pay employees, you can afford a 401k. Which brings me back to the fact that you probably still need money to pay employees; which generally means you still need funding unless you're profitable very early on.

We're entirely bootstrapped, but we provide a recurring service and it's taken me 2 years to hire our first employee. I don't think most companies can wait 2 years after launching to hire an employee (We couldn't even.. I had to bring in short-term help on numerous occasions).

Re: Sam Altman: ‘Too many’ Y Combinator companies raise money

#159

Post by api »

cjf4 wrote: post #104
TuringNYC wrote: post #77

If the artificially-created real estate "shortage" problem in the Bay Area was solved, lots of other problems would be solved. - Companies raising money just to pay inflated (yet still insufficient) labour costs - People who would love to work for startups but realize that most startup salaries barely gets you a studio apt, pretty cool until you have a family - Companies who "cant find" talent Is it any surprise comp…

To me this leads to a question about the Bay Area centric techno-spehere: at what point do the prices become so high that companies/ecosystems in other parts of the country become relatively attractive? I understand that the SV network is a real and powerful thing, but holding all else equal (indulge me), wouldn't it make the cost of startups more attractive for all stakeholders if an alternative, viable network were…

There are two big factors driving it:

(1) Branding-- many companies actually maintain a faux office in the Bay Area because having a Palo Alto or Menlo Park address makes you look smarter or more legit.

(2) Investors-- talent and opportunity is everywhere, but smart tech investors are super-concentrated in the Bay Area. The further you get from it the less knowledgeable and more conservative the investment climate becomes.

In the long term I think (1) will fade and (2) will get disrupted by crowd funding.

Re: Sam Altman: ‘Too many’ Y Combinator companies raise money

#160

Post by baldajan »

garganzol wrote: post #147
baldajan wrote: post #93

I know a fair bit of YC companies, and a trend is clear from the last few years. As they say: it's not that YC picks the best startups, it's that the startups they pick "become" the best startups (i.e. crappy companies look good just for being in YC). This definitely isn't healthy, and I'm glad they at least recognize it.

Seen this from the beginning of 2011. Raise the money, throw a dotcom-grade party at MGM Grand, spend like there is no tomorrow. No worries, the product and customers don’t matter much. Networking and hustling are everything this is all about. Rinse and repeat. This is unhealthy and could not last for too long.

I disagree. Sure some do that, but a lot don’t and focus on data on customers and are hard working. Even bad companies are hard working. It’s just sometimes the founders can’t get the product to have a product-market-fit. And product-market-fit is a lot harder to achieve than an outsider (of a startup) would think.
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