Airbnb was funded in a recession
Sure, but investors don't always act perfectly rationally, but also on soft criteria such as sentiment.
Y Combinator narrows current cohort size by 40%, citing downturn and funding
71–80 of 184 posts
Re: Y Combinator narrows current cohort size by 40%, citing downturn and funding
#72Earlier quoted context omitted.
Even if you think things will look good in 10 years and want to build a company to succeed at that time, you still need the money NOW if you want to invest in a company now, and the availability of money for investment now is completely dependent on the current financial markets. In other words, the amount of money available to invest is independent of the fundamentals of what that money is invested in.
Are VCs funded by debt? I thought the funds would largely have come from existing cash or equities and were only down 15% from ATH on SPY. Is this just people being risk averse right now?
The fact that they cite the current market means that at some point in their process they borrow money. And now that’s more expensive to do.
That doesn’t mean necessarily that they are “funded by debt”. It could just mean that getting into some temporary debt is part of how they work.
Re: Y Combinator narrows current cohort size by 40%, citing downturn and funding
#73Earlier quoted context omitted.
It's actually a bad thing. Just like cryto all the YC companies sell to each other. As per their 2022 stats, more than 50% of sales for all YC startups are other YC companies. So this is just a game of hot potato until they get a fat valuation, raise a zillion dollar series and then list it on the stock market for the retail traders to hold their bags. Less YC startups= less customers for other YC startups.
This is something that people fail to understand about economics. The vast majority of wealth is created by the faster movement of money - Japan went into a period of stagflation because savings rates rose in order to cover loan defaults. A yen doing the 5 rounds in a family of three could buy 15 yen worth of goods.
Created by or represented by?
Re: Y Combinator narrows current cohort size by 40%, citing downturn and funding
#74I always find it amazing that applicants only have 10 minutes to present themselves. If I only had 10 minutes, I'd be nervous as hell and it would not give a true representation as me as a person and my project - unless the nervousness factor is a key decision factor as well.
If you can’t sell to YC, then that is an indicator you couldn’t sell to clients, nor potential employees, nor to VCs.
Re: Y Combinator narrows current cohort size by 40%, citing downturn and funding
#75Earlier quoted context omitted.
Are VCs funded by debt? I thought the funds would largely have come from existing cash or equities and were only down 15% from ATH on SPY. Is this just people being risk averse right now?
The fact that they cite the current market means that at some point in their process they borrow money. And now that’s more expensive to do. That doesn’t mean necessarily that they are “funded by debt”. It could just mean that getting into some temporary debt is part of how they work.
> at some point in their process they borrow money
I would be somewhat careful with such claims.
As an investor who has money available, you have two options (in this example) where none involve borrowing money:
a) invest in some startups
b) lend this money to other entities
Increased market interest rates mean that b) becomes more attractive. In other words: the startups that you invest in for a) have to be much more promising than in a market environment with lower interest rates. This means less investing in startups.
Re: Y Combinator narrows current cohort size by 40%, citing downturn and funding
#76The emphasis on "downturn" concerns me. Aren't reputed firms like YC supposed to look at a 10+ year horizon? If this is true, it indicates that earlier investments were based on the market than the fundamentals of the founding team, market, and product.
The problem is that their investors are chasing a return - they don't care specifically about start-ups, only that they can beat safer assets like T-bills, high grade corporate bonds, SPY, etc. Cheap credit is what fueled this start-up boom and bought us the Juicero, 21 Inc, etc. Now rates are rising and that era is over. I'm sure VCs still believe in their portfolios / thesis.
Re: Y Combinator narrows current cohort size by 40%, citing downturn and funding
#77I always find it amazing that applicants only have 10 minutes to present themselves. If I only had 10 minutes, I'd be nervous as hell and it would not give a true representation as me as a person and my project - unless the nervousness factor is a key decision factor as well.
> I always find it amazing that applicants only have 10 minutes to present themselves.
Consider this as a strong sign that YC is looks for companies that are an "easy sell" to VCs (the same holds for products that such companies produce). You can easily guess why they want that ...
Re: Y Combinator narrows current cohort size by 40%, citing downturn and funding
#78From what I've heard from people in recent batches, this is probably a good thing for those that make it in. Pretty little personalized attention when there are 400 startups in a batch...
In addition there have been competing products launching within same batch
> In addition there have been competing products launching within same batch
This could actually be a strategy: look which of these companies "sticks" and convince the other companies to become acqui-hired by this likely winning company.
Re: Y Combinator narrows current cohort size by 40%, citing downturn and funding
#79The emphasis on "downturn" concerns me. Aren't reputed firms like YC supposed to look at a 10+ year horizon? If this is true, it indicates that earlier investments were based on the market than the fundamentals of the founding team, market, and product.
Even if you think things will look good in 10 years and want to build a company to succeed at that time, you still need the money NOW if you want to invest in a company now, and the availability of money for investment now is completely dependent on the current financial markets. In other words, the amount of money available to invest is independent of the fundamentals of what that money is invested in.
That 40% is an opportunity for a leaner competitor! Which is how YC started out.
Re: Y Combinator narrows current cohort size by 40%, citing downturn and funding
#80Earlier quoted context omitted.
Even if you think things will look good in 10 years and want to build a company to succeed at that time, you still need the money NOW if you want to invest in a company now, and the availability of money for investment now is completely dependent on the current financial markets. In other words, the amount of money available to invest is independent of the fundamentals of what that money is invested in.
Are VCs funded by debt? I thought the funds would largely have come from existing cash or equities and were only down 15% from ATH on SPY. Is this just people being risk averse right now?
VCs aren't directly funded by debt. They generally receive funding from accredited investors, and accredited investors are as a rule wealthy. Now when you are wealthy you make money off your money (through traditional means stocks/derivatives/etc...) but you want to get even more wealthy and have access to special discounted loan rates through things like guaranteed loans. So you go to the bank and say here's some of my books over at Schwab and you can see there's 200M there and it's earning 10% a year on average. Now I want to put 50M into a VC firm so I can really leverage this shit up and make even more money, but I don't want to lose that 10% on the 50M and besides that the tax bill of I cash that position man...
And so the banker is like, but of course Mr Rich Dude here's a line of credit for that 50M at a low low rate of 2% since we have so much money to lend and you can keep making the now 8% interest profits by having your cake and eating it too. And if you're 200M account starts to dip too low that you might be at risk of not being able to pay us back you can always line up some more collateral or we'll margin call and collect that 50M you owe us.
Now sorry I got a bit long winded but that's really the gist of what happens, so yes indirectly VCs are largely funded by debt. And in times like these a lot of that collateral is losing value which is increasing the risk of the debt being collected, this is coupled with rising interest rates which then in turn reduces the potential reward for leveraging yourself up so much. It all becomes a vicious cycle.