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Y Combinator's Message to Founders

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Re: Y Combinator's Message to Founders

#121

Post by rrrrrrrrrrrryan »

quadcore wrote: post #114

Layperson here, I didn't know we were in an economic crisis that bad, is it global? What are the reasons?

Inflation and interest rates are rising (for lots of reasons), which means money is getting much more expensive. This means that high-growth companies and unprofitable companies are going to get burned hard in the near future, because their very existence relies on access to cheap money.

The wider economy isn't terrible. Inflation is rising and GDP is pulling back a little bit, but unemployment is low, and wages are mostly flat.

But the NASDAQ (comprised of mostly tech stocks) is down 26%+ year-to-date and falling. People on this forum mostly work in software, and this downturn will almost certainly shift the balance of power from unprofitable high-growth companies (especially crypto, Web3, etc.) to companies that actually make real money.

Re: Y Combinator's Message to Founders

#122

Post by gen220 »

quadcore wrote: post #114

Layperson here, I didn't know we were in an economic crisis that bad, is it global? What are the reasons?

There's a trend of global economic inflation, caused by supply issues in energy (oil, gas in all forms) related to the war in Ukraine, supply issues more broadly related to a hangover from COVID's supply/demand shocks.

Interest rates are rising, to appease inflation.

As the interest rate goes up, allocators of capital have less appetite for risky allocations. This makes access to capital for VC firms becomes more competitive. This makes access to capital for "startups" becomes more competitive.

There's also a bigger macrotrend, which is another hangover from COVID: investment poured into the tech sector, which was booming during COVID. Investors over-bullishly priced-in the idea that this boom was, in fact, a new baseline or indicative of future exponential growth. As we recover from COVID, these pricings are increasingly revealed to be wrong as companies generally report post-COVID numbers that are closer to pre-COVID numbers.

This is bad for investors leveraged on tech. Therefore, it's bad for VCs that raised LP capital on the basis of COVID performance. Therefore, it's bad for companies that raised >20x ARR multiples on the basis of COVID performance.

Basically, it's a single or double whammy for most of the economy, but a double or triple whammy for unprofitable startups.

Re: Y Combinator's Message to Founders

#123

Post by irthomasthomas »

Bleak.

"No one cannot predict how bad the economy will get, but things don't look good."

Clif notes:

- Plan for the worst ... cut costs within 30 days... get to Default Alive[0]

- Get money if you need it, and if you can

- With or without money you must survive 24 months

- VCs are people too, and subject to the same downturn. Adjust your fund raising expectations in the same direction. Expect lower valuations, lower rounds and many fewer deals.

- Disproportionate impact on international, asset heavy, low margin, hardtech, high burn, long road to revenue companies

- If you get a meeting, don't take that as a good sign, we still take a lot of meetings.

- Future fundraises will be much more difficult than they have been in the last 5 years.

- Don't expect more money until you demonstrate product market fit.

- If you planned on raising money in the next 6-12 months, we recommend changing that plan, or you may be tryng to raise at the peak of the downturn

- If you survive, and your competitor does not, you may pick up significant market share.

[0] http://www.paulgraham.com/aord.html

Re: Y Combinator's Message to Founders

#124

Post by lumost »

vmception wrote: post #116
ditonal wrote: post #102

This “default alive” advice is repeatedly shared. One thing it obviously does not address is the human element of who you cut and whether they will be “default alive” unemployed in a recession. A huge amount of YC advice in general positions founders as protagonists and employees as NPCs then are shocked people pick Google over their startup offer. Funny thing is I’ve seen this exact advice destroy a company. In Marc…

> One thing it obviously does not address is the human element of who you cut and whether they will be “default alive” unemployed in a recession. An individual's personal financial circumstance is not a factor though. There are many people that have fixed their personal finance issue adequately. And for those who really don't have easy choice of employers or personal runway, then they're fucked. Did that really need…

It’s not a bad decision for a founder to protect the company above all, it’s their job. However, at the same time - cutting people who took a bet on you should be difficult.

When you cut 70%, it’ll make future hiring difficult, it’ll make existing employees recognize where they stand (no where). Getting laid off is one of the worst events that can happen to a person, and you really have no way of knowing what the impact on them is.

Which is to say, If a founder decided to cut exactly 70% of their staff based solely on an email from YC - I’d be very certain to dissuade anyone in my network from working with them in any capacity.

Re: Y Combinator's Message to Founders

#125

Post by SpicyLemonZest »

thecleaner wrote: post #113

Is it possible to raise a series A before reaching product market fit ? I thought it's more like you raise a Series A to scale up ? Why would someone give you 20M dollars to just do research ? Never did this myself btw do maybe all these questions are tosh.

In the fundraising environment of the past few years, well-connected companies could raise a series A before even having a commercial product. (https://techcrunch.com/2019/12/17/anyscale-ray-project-distr... is the example I remember most clearly)

Re: Y Combinator's Message to Founders

#126

Post by pyb »

quadcore wrote: post #114

Layperson here, I didn't know we were in an economic crisis that bad, is it global? What are the reasons?

The stock market is down and inflation is up, but are we really in an economic crisis just yet, or just predicting one in the future ?

Re: Y Combinator's Message to Founders

#127

Post by guerrilla »

wolverine876 wrote: post #82

Like inflation, it's self-fulfilling. Perception is reality. Some people who strongly influence public perception - to whom we seem to have ceded our power to think critically and independently - who look for social disruption, want it. If businesses pull in their horns, stop supporting innovation, the economic result is easy to predict.

This comment seems crazy given that we just had COVID-19, a war causing a massive energy crisis and multiple systemic commodities problems and then climate change... Also you're assuming interest rate hikes have no effect? I have no idea how you could think what's coming isn't entirely material... How can you just ignore all that?

Re: Y Combinator's Message to Founders

#128

Post by sbierwagen »

irthomasthomas wrote: post #123

Bleak. "No one cannot predict how bad the economy will get, but things don't look good." Clif notes: - Plan for the worst ... cut costs within 30 days... get to Default Alive[0] - Get money if you need it, and if you can - With or without money you must survive 24 months - VCs are people too, and subject to the same downturn. Adjust your fund raising expectations in the same direction. Expect lower valuations, lower…

>- If you get a meeting, don't take that as a good sign, we still take a lot of meetings.

They don't explicitly spell this out, but this is because being a VC is still a job. Even if they're not actually making any deals, management doesn't want to see everyone sitting at a desk scrolling twitter for 8 hours, so instead they do pointless meetings.

Matt Levine had a fun Great Recession story which I cannot find right now, which is that during 2008 in the M&A department at Goldman Sachs everyone still came to work, even though obviously merger and acquisition activity was way down. They would spend every day doing calls and making pitchbooks, all of which went nowhere. Goldman didn't close a deal for a full year. A floor full of people could have just collected a salary and stayed home for 12 months and it would have had an identical outcome.

Re: Y Combinator's Message to Founders

#129

Post by tshaddox »

thecleaner wrote: post #107
ditonal wrote: post #102

This “default alive” advice is repeatedly shared. One thing it obviously does not address is the human element of who you cut and whether they will be “default alive” unemployed in a recession. A huge amount of YC advice in general positions founders as protagonists and employees as NPCs then are shocked people pick Google over their startup offer. Funny thing is I’ve seen this exact advice destroy a company. In Marc…

That's just bad software engineering. In general, I would expect software to scale well as far as traffic is concerned esp in today's environment where scaling infra is not really a big deal. Coping with feature requests on a shoestring staff is a different story.

Aren't you kinda just saying "no matter how many engineers you currently have maintaining your infrastructure, your infrastructure should be just fine with fewer engineers"?

Re: Y Combinator's Message to Founders

#130

Post by hef19898 »

StillBored wrote: post #109
sirius87 wrote: post #67

Earlier quoted context omitted.

As someone who has witnessed such a deep layoff and was left in the 30%, I began job hunting and moved on soon after. When I eventually quit, senior management then explained how I was part of their grand comeback plans and offered a salary bump, and in my mind, all I could think of was how they were trying to balance a cost equation. People far more talented than me had landed pink slips, presumably because of how "…

I was at a startup during the .com bust. I survived 3 rounds of layoffs over the space of ~18 months. I like everyone remaining at the company, could see the writing on the wall and I was spamming resume's to anyone who looked like they were hiring. Zero responses, pretty much no one was hiring except when it was an emergency. The big/profitable companies were bolting down the hatches, and everyone else was cutting t…

Which raises the question of when to jump ship, doesn't it? If your current employer is looking like lay offs and bad times are a head, and the market is really good, do you stay and wait or do you start looking now? You defenitley shouldn't wait to be last one to tirn of the lights, because at the very least your gonna compete with your former co-workers.
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