31–37 of 37 posts
That's correct. However, a provocative question: does every YC company know where YC's funds come from? My purely anecdotal evidence is that at least half, possibly 2/3rds of them, don't. If that's the case, it might be useful for YC to disclose that to everybody.
Earlier quoted context omitted.
Not to pry, but I'd be curious to know how those investments did for you, if you don't mind sharing! Institutional investors often succeed at nabbing seed-stage investments then holding onto them through 10,000%+ profit. In fact, I heard that in most cases, a few outsize successes are responsible for most of an institutional portfolio's returns.
Better not to count the chickens before they hatch. In general, with companies that are doing well, I'm doing as well as any investor would. With companies that failed, I walked away with $0 and no hard feelings. There are some in the middle that an aggressive investor could have gotten more money out of in return for some hard feelings. But as you say, most of the returns come from the big wins so it's best to spend…
Earlier quoted context omitted.
> institutional fund is legally required to be a hard-ass What do you mean by this?
There are laws/expectations that state a company must optimize for profits (Dodge v Ford). Perhaps this what is meant.
While Dodge v. Ford does say that companies should be run for the benefit of the shareholders, it gives management a ton of latitude in deciding how to do so. Here’s a quote from the actual text: “[T]he ultimate results of the larger business cannot be certainly estimated. The judges are not business experts. It is recognized that plans must often be made for a long future, for expected competition, for a continuing as well as an immediately profitable venture...”
Shlensky v. Wrigley deals with the Chicago Cubs’ refusal to install lighting for nighttime games, due to concerns about how it would affect the game of baseball (which their president believed was “a daytime sport”) and the surrounding neighborhood. Although these are fairly nebulous concerns, the court held they were reasonable business judgements. The decision cites another case, Davis v Louisville Gas and Electric Co, which says “the directors are chosen to pass upon such questions and their judgment unless shown to be tainted with fraud is accepted as final. The judgment the directors of the corporation enjoys the benefit of a presumption that it was formed in good faith, and was designed to promote the best interests of the corporation they serve.”
The standard, from In Re Walt Disney, is that business decisions aren’t reviewable unless “the exchange was so one-sided that no business person of ordinary, sound judgment could conclude that the corporation has received adequate consideration".
Throwaway account for obvious reasons: While the words of warning in this article may be true, they (sadly) sound like a thinly veiled complaint about competition increasing pressure on YC's investment turf. Founders should be grateful for, not skeptical of, increased funding and competition in early rounds as it should help them raise on better terms!
To me, more capital is a good thing. If that creates competition which forces us to improve, that's even better. My point is that investors who hide their incentives by obfuscating that they have outside sources of funding are exhibiting bad behavior. Founders should know about this pattern so that they can make decisions with as much information as possible.
Earlier quoted context omitted.
There are laws/expectations that state a company must optimize for profits (Dodge v Ford). Perhaps this what is meant.
No, that’s a misconception. While Dodge v. Ford does say that companies should be run for the benefit of the shareholders, it gives management a ton of latitude in deciding how to do so. Here’s a quote from the actual text: “[T]he ultimate results of the larger business cannot be certainly estimated. The judges are not business experts . It is recognized that plans must often be made for a long future, for expected c…
Pretty much the only time that fiduciary duty ever comes up (in the sense that it is constantly discussed online) is cases that run up against the Revlon Rule, where you actually have competing offers to buy a company. But there really aren't very many of those.
Throwaway account for obvious reasons: While the words of warning in this article may be true, they (sadly) sound like a thinly veiled complaint about competition increasing pressure on YC's investment turf. Founders should be grateful for, not skeptical of, increased funding and competition in early rounds as it should help them raise on better terms!
There is, of course, a potential conflict of interest anytime an investor gives advice about other investors. But not as much as you'd think, when the investors specialize in different stages. The rounds typically go: seed - angel - series A - series B - series C ... YC only does seed and series B onwards, so it can give unbiased advice about angel and series A. By the time a startup is doing series B, they should ha…