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Stanford, Michael Bloomberg Now Back Every Y Combinator Startup

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Re: Stanford, Michael Bloomberg Now Back Every Y Combinator Startup

#21

Post by monopolemagnet »

Animats wrote: post #13

Stanford is really an investment fund that runs a school on the side for the tax break. This started in 1991, when Stanford spun off their endowment management as the Stanford Management Company.[1] SMC's headquarters was on Sand Hill Road, across from all the VCs. This ended up putting Stanford into venture capital in a big way. This was new. Before that, universities tended to put their endowments into passive inve…

Budget and Auxiliaries alum here.

B&A is a boring-sounding organization which is the primary income sheet profit-center, which rakes in slightly more than tuition; SMC is balance sheet (aka investment) management.

Stanford is unlike most other universities in the fact that there is no pretense of firewalling business opportunity development from academic research. I think this pushes away some pure-research, money-is-evil people and attracts more entrepreneurial folks.

Re: Stanford, Michael Bloomberg Now Back Every Y Combinator Startup

#22

Post by vidarh »

gameshot911 wrote: post #5

>Each startup that goes through the three-month program now receives$120,000 in cash — $20,000 from Y Combinator, plus $100,000 from the outside investors – in exchange for 7% equity in their company. $120k for 7% in a company!? Is that really a favorable term to startups? There's no way I would ever , EVER sell 7% of my company for a such a small sum. Who would sell out their passion for such a pittance? It's very p…

How many companies have you started? $120k at that kind of valuation for a seed round is not at all strange. I've been part of companies that have done much worse (~$30k for 20%..) and much better ($1.2m for 10%); in the end you take the best you can find, and the valuation you can get in your seed round is not necessarily a good predictor for how well you'll do as a founder.

And you have to consider that "the best you can find" also depends on other factors such as the advice and contacts you gain, which could very well make or break the company by itself.

You're looking at it all wrong when you say "for an idea I believe is worth only $1.7M". It's an idea and a team that's only worth $1.7M now when factoring in risk and time. Let's say a coin flip right after the investors have put their money in determines if the company will continue as is or get shut down; if so the present value of the company is at most half what it will be after the coin flip, probably less. And the reality is that startup risks are massive.

Now add the time element, and your growth also need to reflect returns the investors could have gotten elsewhere.

The net result is that if your startup is valued at $1.7M today, then they're saying they think it'll be worth far more than that assuming you succeed. Even then, the $1.7M number exclude the value of the advice and contacts you gain access to.

Re: Stanford, Michael Bloomberg Now Back Every Y Combinator Startup

#23

Post by aianus »

gameshot911 wrote: post #5

>Each startup that goes through the three-month program now receives$120,000 in cash — $20,000 from Y Combinator, plus $100,000 from the outside investors – in exchange for 7% equity in their company. $120k for 7% in a company!? Is that really a favorable term to startups? There's no way I would ever , EVER sell 7% of my company for a such a small sum. Who would sell out their passion for such a pittance? It's very p…

Forget the money/valuation for a second. If YC makes your company just 8% more valuable on average than it would have been otherwise, you win. For the value they provide I think it's a no brainer.

Re: Stanford, Michael Bloomberg Now Back Every Y Combinator Startup

#24

Post by [deleted] »

choppaface wrote: post #16
cmsmith wrote: post #2

Thanks, I'll forward this the next time they ask for money. A shotgun approach to investing other people's money in tech startups is fine, but drawing down the $__B endowment in 2008-2009 to avoid salary freezes was too risky.

Wow, any links about Stanford's position on the salary issues? Agree that Stanford putting in so much money (more than YC!!) seems pretty wonky. Perhaps not as bad as Larry Summers blowing billions of Harvard's money on derivatives, though.

[deleted]

Re: Stanford, Michael Bloomberg Now Back Every Y Combinator Startup

#25

Post by iheartmemcache »

beambot wrote: post #10

You know what would be really awesome / disruptive / game-changing? If YC funded the program via crowdfunding (eg. JOBS Act) monies so that normal peons (sorry, "non accredited investors") could realize gains from a fund of early startups while effectively locking out all these institutional investors. This would be a real coup for people who believe in Basic or Guaranteed Minimum Income [1], like Sama. [1] http://bl…

Eh, it might be a good idea for the small population of tech savvy investors in Silicon Valley who make 6 figures and work within the industry so they can make informed decisions. But the whole SEC regulatory dictum that allows only accredited investors (accreditation based on annual income and net worth, not passing a Series 7 test or what not) can invest in certain forms of securities is a good thing.

Imagine if Joe Schmo reads an article on the home page of the tech section of "his Yahoo" about this new investment vehicle, decided to put all of his 401k money that as safely placed in low-load index funds into a YC fund that didn't particularly do so well when the fund finally matured and he cashed out. I've seen people pissed off at losing 10 bucks on Kickstarter prototypes-- imagine how pissed off Joe would be that he lost 200k because he wanted to "get in on this Web 3.0 stuff".

Those accredited investors regulations do more good than harm mostly because people in aggregate are greedy and don't read prospectus' in their entirety. Most people didn't even read their mortgages in 2007 (or now for that matter, even after the systemic ..situation of 2008), look what happened there.

If you're living in SF and married to someone in tech, odds are you make enough to qualify as an accredited investor anyways-- the per annum barrier is pretty low.

Re: Stanford, Michael Bloomberg Now Back Every Y Combinator Startup

#26

Post by patio11 »

gameshot911 wrote: post #5

>Each startup that goes through the three-month program now receives$120,000 in cash — $20,000 from Y Combinator, plus $100,000 from the outside investors – in exchange for 7% equity in their company. $120k for 7% in a company!? Is that really a favorable term to startups? There's no way I would ever , EVER sell 7% of my company for a such a small sum. Who would sell out their passion for such a pittance? It's very p…

You're welcome to not take/seek the deal. For what it's worth, I have asked ~100 YC founders whether they felt it was valuable to them, and have had precisely one person say no.

Incidentally, for virtually the entire startup era prior to YC, "two geeks with a gleam in their eye" was worth ~$250k. The first check from an angel to pay for ~6 months of rent and ramen bought 1/6th the company for $50k.

Re: Stanford, Michael Bloomberg Now Back Every Y Combinator Startup

#27

Post by nrao123 »

Animats wrote: post #13

Stanford is really an investment fund that runs a school on the side for the tax break. This started in 1991, when Stanford spun off their endowment management as the Stanford Management Company.[1] SMC's headquarters was on Sand Hill Road, across from all the VCs. This ended up putting Stanford into venture capital in a big way. This was new. Before that, universities tended to put their endowments into passive inve…

Stanford did not pioneer investments in alternative assets classes (VC/PE etc...) Robert Swenson of the Yale endowment fund was much earlier than that. It also became known as the "Yale Model"

===

For the two decades after Swensen took over as manager of Yale’s endowment in 1985 (just five years after he’d gotten his economics Ph.D at Yale), this worked spectacularly well — with a 16.1% annualized return compared with 12.3% for the S&P 500 and a remarkable record of sailing through stock market downturns that pummeled most other institutional investors.

https://hbr.org/2010/04/why-the-yale-model-of-investin/

===

The prevalence of Swensen acolytes in leadership posts highlights how dominant the Yale investment model has become among major U.S. universities. Colleges and universities ended 2014 with 51% of their portfolios invested in less-traditional fare like hedge funds, private equity and real estate that Yale favors—nearly double the allocation to those investments in 2001, according to annual surveys done by Nacubo and Commonfund.

http://www.wsj.com/articles/universities-look-to-yale-for-in...

===

Swensen’s idea, implemented at Yale and copied nationwide, was that universities should shift their endowment money out of traditional investments such as stocks and bonds and into higher-yielding ones like private equity, hedge funds, and real estate. The Yale model, as it came to be known, perennially outperformed stodgier strategies, gaining Swensen gurulike adulation.

http://upstart.bizjournals.com/executives/2009/03/18/David-S...

Re: Stanford, Michael Bloomberg Now Back Every Y Combinator Startup

#28

Post by robryan »

cmsmith wrote: post #2

Thanks, I'll forward this the next time they ask for money. A shotgun approach to investing other people's money in tech startups is fine, but drawing down the $__B endowment in 2008-2009 to avoid salary freezes was too risky.

They might be putting up $10 million a year. In the context of a $22 billion dollar endowment this seems minor. All that money has to be invested somewhere, this isn't drawing it down.

Re: Stanford, Michael Bloomberg Now Back Every Y Combinator Startup

#29

Post by rtpg »

iheartmemcache wrote: post #25
beambot wrote: post #10

You know what would be really awesome / disruptive / game-changing? If YC funded the program via crowdfunding (eg. JOBS Act) monies so that normal peons (sorry, "non accredited investors") could realize gains from a fund of early startups while effectively locking out all these institutional investors. This would be a real coup for people who believe in Basic or Guaranteed Minimum Income [1], like Sama. [1] http://bl…

Eh, it might be a good idea for the small population of tech savvy investors in Silicon Valley who make 6 figures and work within the industry so they can make informed decisions. But the whole SEC regulatory dictum that allows only accredited investors (accreditation based on annual income and net worth, not passing a Series 7 test or what not) can invest in certain forms of securities is a good thing. Imagine if Jo…

See Mt Gox for a good example of what happens.

Re: Stanford, Michael Bloomberg Now Back Every Y Combinator Startup

#30

Post by planfaster »

sama wrote: post #14
beambot wrote: post #10

You know what would be really awesome / disruptive / game-changing? If YC funded the program via crowdfunding (eg. JOBS Act) monies so that normal peons (sorry, "non accredited investors") could realize gains from a fund of early startups while effectively locking out all these institutional investors. This would be a real coup for people who believe in Basic or Guaranteed Minimum Income [1], like Sama. [1] http://bl…

We would someday like to allow access for individual investors. We actually looked into it this time around; it's still extremely difficult. But hopefully the laws keep evolving and someday soon we can make you lots of money :)

I can't help but think how ironic it is that most Americans would say what we have is capitalism, but at the same time there are laws in place prohibiting people from freely sending capital to each other.
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