Ask HN: YC new move will change SV dynamics. Are you sure for the better?

#1

Post by sinzone » Sat, Jan 29, 2011, 7:20 PM UTC

With this move all small angel investors are out of biz. This new thing will change the dynamics of seed investments forever. Startups (in pre-seed stages) must embrace constraints to stay focused on what really matters, must stay in the garages working with few resources. This is like give alcohol to babies, they will get drunk.

Small angels will just need to seek investments outside of YC, but that takes some good companies off the table. It will definitely reduce the number of angels in SV within 2-3 years, only the smart ones will survive.

It looks like a bubble, and in the human history every bubble has crushed; soon or later. There will be a lot of burn outs and wasted money over next few years.

Re: Ask HN: YC new move will change SV dynamics. Are you sure for the better?

#2

Post by bluewatson » Sat, Jan 29, 2011, 7:51 PM UTC

It most definitely will. The potential to be severely diluted in the next round with uncapped convertible debt is a real potential. It also can perversely make the angel wish for a lower valuation on the series A so they convert at a higher percentage. Overall I don't think that this affects VCs as much as it does angels. If anything you will start to see angels move up the food chain and raise bigger funds to go after a bit later stage besides seed.

Re: Ask HN: YC new move will change SV dynamics. Are you sure for the better?

#3

Post by sojourn » Sat, Jan 29, 2011, 7:55 PM UTC

bluewatson wrote: post #2

It most definitely will. The potential to be severely diluted in the next round with uncapped convertible debt is a real potential. It also can perversely make the angel wish for a lower valuation on the series A so they convert at a higher percentage. Overall I don't think that this affects VCs as much as it does angels. If anything you will start to see angels move up the food chain and raise bigger funds to go aft…

Agreed, however if you follow the money many of the angels already co-invest and have receive financing from very specific VCs, will be curious to see what happens if they try to go more head-to-head with later stage deals.

Re: Ask HN: YC new move will change SV dynamics. Are you sure for the better?

#4

Post by coryl » Sat, Jan 29, 2011, 8:01 PM UTC

It looks like a bubble, and in the human history every bubble has crushed; soon or later.

Bubbles have to have widespread macro-economic build up that will indicate whether or not there is actually a bubble. Are IPO filings up? Is the average dollar amount raised in Series A significantly higher? Are there more visible failures than before? Unless you can scientifically point to some data or experience that MANY unqualified startups are in fact receiving easy money, than you're just a speculator. Because while YC companies have a large attention-share in the startup world, it is still only a fraction of startups and non-representative of the larger landscape.

I hate it when people ignorantly say things like "this is a bubble" just because they read about some dumb company received funding in a TechCrunch article. (Not a personal attack btw on you btw, just my general opinion.)

Re: Ask HN: YC new move will change SV dynamics. Are you sure for the better?

#5

Post by contagion » Sat, Jan 29, 2011, 8:04 PM UTC

coryl wrote: post #4

It looks like a bubble, and in the human history every bubble has crushed; soon or later. Bubbles have to have widespread macro-economic build up that will indicate whether or not there is actually a bubble. Are IPO filings up? Is the average dollar amount raised in Series A significantly higher? Are there more visible failures than before? Unless you can scientifically point to some data or experience that MANY unqu…

It doesn't have to be the money raised in a series A, we are talking about a bubble in the seed level. In fact it does look like the start to investment without much thought/diligence/etc. There is a large amount of capital chasing early stage deals, people are writing checks after one meeting, giving away uncapped convertible gifts.

Re: Ask HN: YC new move will change SV dynamics. Are you sure for the better?

#6

Post by gyardley » Sat, Jan 29, 2011, 8:11 PM UTC

$150K to each YC startup barely moves the needle when compared to the overall amount of seed funding that goes on. It's nice for the YC class, but I doubt it'll have that much impact on the ecosystem as a whole. Maybe ultra-competitive seed deals will be less likely to have valuation caps.

As for whether valuations are creeping up and things are getting bubbly as a whole - perhaps, but so what? Bubbles are great for entrepreneurs, and despite their chaotic collapse and impact on investors, are arguably good for society as well. A lot of innovation takes place and progress gets made when money is cheap. After the bubble collapses, this innovation doesn't just vanish - instead, it sets the stage for further economic growth.

Re: Ask HN: YC new move will change SV dynamics. Are you sure for the better?

#7

Post by mcbreed » Sat, Jan 29, 2011, 8:16 PM UTC

contagion wrote: post #5

coryl wrote: post #4

It looks like a bubble, and in the human history every bubble has crushed; soon or later. Bubbles have to have widespread macro-economic build up that will indicate whether or not there is actually a bubble. Are IPO filings up? Is the average dollar amount raised in Series A significantly higher? Are there more visible failures than before? Unless you can scientifically point to some data or experience that MANY unqu…

It doesn't have to be the money raised in a series A, we are talking about a bubble in the seed level. In fact it does look like the start to investment without much thought/diligence/etc. There is a large amount of capital chasing early stage deals, people are writing checks after one meeting, giving away uncapped convertible gifts.

I am with contagion on this one, the time to raise capital has been greatly reduced, and yes the valuations are up across the board in seed raises. The question is specific to the SV environment, it wasn't "is US technology in a macro bubble."

Re: Ask HN: YC new move will change SV dynamics. Are you sure for the better?

#8

Post by jetaries » Sat, Jan 29, 2011, 8:38 PM UTC

I would actually agree with this to some extend. The cool part is that YC started out as an experiment, and they are continuing to experiment and pushing the boundaries. If anything, this will give YC team more data and knowledge.

Another point is that YC startups have changed since the beginning. More and more teams are semi-established joining the program. To them, this is no doubt a great help.

Re: Ask HN: YC new move will change SV dynamics. Are you sure for the better?

#9

Post by philwelch » Sat, Jan 29, 2011, 9:02 PM UTC

What percentage of startups are in YC, though? So what if small angels are forced to invest in non-YC startups--YC openly admits they reject a lot of promising teams. And if receiving too much investment is bad for the startups that are in YC, then those small angels are bound to have an advantage.

Re: Ask HN: YC new move will change SV dynamics. Are you sure for the better?

#10

Post by pg » Sat, Jan 29, 2011, 9:05 PM UTC

With this move all small angel investors are out of biz.

What? The startups we fund almost always want to raise more than $150k. I would guess the median startup in the last YC batch raised 4 to 5 times that much.