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Y Combinator, Backer of Dropbox, Vaults from Experiment to Kingmaker

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Re: Y Combinator, Backer of Dropbox, Vaults from Experiment to Kingmaker

#61

Post by dsacco »

austenallred wrote: post #59
rococode wrote: post #56

Earlier quoted context omitted.

I doubt realized returns are available, but I think it's possible to at least very roughly estimate money invested. Their current "deal" is $120k for 7%, and that number has been going up over the years. So say all 1,588 startups they've funded got that investment (not true, since earlier investments were something like $20k). You're looking at about $150m in cash investments. According to https://www.ycombinator.com…

Their return from Airbnb alone will probably cover the costs of investing in every other YC company. So Dropbox, Stripe, Twitch, Reddit, Cruise etc. are gravy. Those are phenomenal returns.

I think the fact that they're phenomenal is pretty clear, but I think a more important question is how reliable the returns are. They might be reliable, but that doesn't seem obvious to me from the comments in this thread, and it's still not clear to me that YC is capable of catapulting an arbitrary company in their set to wild success ("kingmaking") or that they're capable of repeating those successes over the long term.

Re: Y Combinator, Backer of Dropbox, Vaults from Experiment to Kingmaker

#62

Post by dsacco »

stale2002 wrote: post #52
joeblau wrote: post #48

Earlier quoted context omitted.

Being acquired or acqui-hired(soft landing) means the company (and probably the culture) is gone. I worked at BBN Technologies back in the mid 2000's. This is the company that co-founded the internet, they have the second domain name ever registered (bbn.com)[1], their engineers co-invented foundational technologies that make the internet work today. In 2009, they were acquired by Raytheon[2]. As a stand alone compan…

> Being acquired or acqui-hired(soft landing) means the company (and probably the culture) is gone. So what? An exit is an exit, as it means the investor gets their money. The one and only metric to look at is total value or total returns on investment.

An aquihire is not always a positive exit. More generally, not all liquidity events are positive outcomes for all parties involved, including investors. Many exits are agreed to by all parties to cut their losses and recoup some amount of the original investment.

Re: Y Combinator, Backer of Dropbox, Vaults from Experiment to Kingmaker

#63

Post by dsacco »

a13n wrote: post #55
austenallred wrote: post #45

Earlier quoted context omitted.

YC companies are collectively worth over $80 billion. They’ve invested in about 1500. Considering they’re almost always first money in, those are not even in the same zip code as normal returns. Those numbers are absolutely astounding.

They started doing pro rata rights a few years back, and terms have changed over the years. It's unclear exactly how good their return is. That $80b isn't liquid.

Can you clarify how terms of changed, or direct me to further reading about that?

Otherwise I think point about the $80B not being liquid is a good one. It's not a dishonest figure, but it's clearly inaccurate and inappropriate for the purpose of estimating returns. The real answer is going to be far more nuanced than simply stating the aggregate value of all YC companies on paper.

Re: Y Combinator, Backer of Dropbox, Vaults from Experiment to Kingmaker

#64

Post by dsacco »

austenallred wrote: post #50
majani wrote: post #49

Earlier quoted context omitted.

The 'worth' of a private investor's portfolio is a vanity metric. A more precise measure of YC's success would be money invested VS realized returns. Are those figures available?

It’s not really a vanity metric in this day and age. A lot of the best companies aren’t going public... ever. The measure that determines whether it’s a vanity metric or not is liquidity. If there are a dozen investors willing to buy stock at $x it’s worth $x.

> If there are a dozen investors willing to buy stock at $x it’s worth $x.

This is not a correct representation of liquidity, and thinking about it under this definition can be very dangerous. You need to consider:

1. How many shares are there outstanding?

2. What is the ask price of those shares on paper?

3. What is the bid price of those shares by investors willing to purchase them on the private market?

4. How many owners are allowed to sell their shares at the same time?

5. How many owners could realistically find a buyer at the paper ask price of the shares?

6. How many owners could sell their shares before the existing deviation (spread) between the paper ask price and available bid prices changed?

This is not to say your overall point is wrong, it's to say that it can't be defended this way; more importantly, we really shouldn't be simplifying our discussion and its definition of liquidity to the one you've presented here, which is too simplistic. There is a lot of nuance about price discovery between public and private valuation that's missing here. For (one) example, you can maintain an artificially inflated valuation of a private company if there are fewer owners willing/able to sell than there are buyers, despite a relatively larger set of potential owners either not allowed to, or not conveniently capable of, selling their shares. This scenario makes presents an asymmetry between the weighting and availability of positive vs negative price sentiment that is much more easily resolved in the public market.

Re: Y Combinator, Backer of Dropbox, Vaults from Experiment to Kingmaker

#65

Post by austenallred »

dsacco wrote: post #64
austenallred wrote: post #50

Earlier quoted context omitted.

It’s not really a vanity metric in this day and age. A lot of the best companies aren’t going public... ever. The measure that determines whether it’s a vanity metric or not is liquidity. If there are a dozen investors willing to buy stock at $x it’s worth $x.

> If there are a dozen investors willing to buy stock at $x it’s worth $x. This is not a correct representation of liquidity, and thinking about it under this definition can be very dangerous. You need to consider: 1. How many shares are there outstanding? 2. What is the ask price of those shares on paper? 3. What is the bid price of those shares by investors willing to purchase them on the private market? 4. How man…

Of course there’s a lot of nuance there. But certainly we can all agree on two things:

1. YC has not had good returns because it has only had one IPO (apparently selling Twitch and Cruise for $1B each don’t count as a win?)

2. While it’s difficult to know what the true value of YC companies is, the fact that there are nearly 100 companies valued at $100m+ is not just a “vanity metric.” Especially st the later stages of more mature companies there are real dollars trading hands and there’s more liquidity available on secondary markets.

Re: Y Combinator, Backer of Dropbox, Vaults from Experiment to Kingmaker

#66

Post by austenallred »

dsacco wrote: post #63
a13n wrote: post #55

Earlier quoted context omitted.

They started doing pro rata rights a few years back, and terms have changed over the years. It's unclear exactly how good their return is. That $80b isn't liquid.

Can you clarify how terms of changed, or direct me to further reading about that? Otherwise I think point about the $80B not being liquid is a good one. It's not a dishonest figure, but it's clearly inaccurate and inappropriate for the purpose of estimating returns. The real answer is going to be far more nuanced than simply stating the aggregate value of all YC companies on paper.

It used to be $20k for 7%, now it’s basically $120k for 7% with pro rats rights (that’s again a simplification, but it’s close enough for this conversation).

I agree that n companies valued at over x isn’t a great metric, except that the number is so huge and the valuation so high that a single company could return the entire amount YC has invested, and what we’re debating is if YC are “kingmakers.” By nearly any possible measure they are.

Re: Y Combinator, Backer of Dropbox, Vaults from Experiment to Kingmaker

#67

Post by austenallred »

dsacco wrote: post #60
austenallred wrote: post #58

Earlier quoted context omitted.

There’s not really a way to get those numbers outside of asking a bunch of random people. I can say that I worked at a company that wasn’t in the top 50 and the market for shares was completely liquid. Most of the time at $100m+ valuation it should pretty active.

I think you should clarify what liquidity means in your anecdote, because liquidity is a function of time and volume. Definitionally speaking, shares in a private company are not as liquid as shares in a public company. So what does "completely liquid" mean? Could every owner of private shares find a buyer if they wanted to? If not, what subset could? That these figures are not public is a very important discussion p…

It means I had shares that I could sell a ton a moments notice on a secondary market, and so far as I could tell the market for those shares was enormous. I’d guess anyone, including VCs and founders, at the top 50 or so YC companies could sell their shares at any time to a large number of willing buyers, given the ability to do so. Therefore I’d argue that the value of those shares is far different from a “vanity metric.”

Re: Y Combinator, Backer of Dropbox, Vaults from Experiment to Kingmaker

#68

Post by austenallred »

dsacco wrote: post #61
austenallred wrote: post #59

Earlier quoted context omitted.

Their return from Airbnb alone will probably cover the costs of investing in every other YC company. So Dropbox, Stripe, Twitch, Reddit, Cruise etc. are gravy. Those are phenomenal returns.

I think the fact that they're phenomenal is pretty clear, but I think a more important question is how reliable the returns are. They might be reliable, but that doesn't seem obvious to me from the comments in this thread, and it's still not clear to me that YC is capable of catapulting an arbitrary company in their set to wild success ("kingmaking") or that they're capable of repeating those successes over the long…

They have consistently pumped out many of the top companies in Silicon Valley for over 10 years now. Most of the companies are newer, as always, and I don’t think YC would claim they can pick any random company and make them successful, but if YC isn’t a “kingmaker” then there’s no such thing in Silicon Valley.

Re: Y Combinator, Backer of Dropbox, Vaults from Experiment to Kingmaker

#69

Post by woolvalley »

fjsolwmv wrote: post #23
lallysingh wrote: post #13

Earlier quoted context omitted.

From the latency, it looks like it doesn't cache. So it's literally transformative. If that matters, I don't know.

Where did this "editing a copy makes it transformative" meme come from? Legally, transformative means "created a substantially new work" not "mechanically applied a style change that preserves all of the original content and its original value"

By that logic adblock, readable mode, applying your own css and making the text bigger with cmd-+ is 'copyright' infringement since every modification is modifying some copy in memory.

Re: Y Combinator, Backer of Dropbox, Vaults from Experiment to Kingmaker

#70

Post by DoreenMichele »

dsacco wrote: post #61
austenallred wrote: post #59

Earlier quoted context omitted.

Their return from Airbnb alone will probably cover the costs of investing in every other YC company. So Dropbox, Stripe, Twitch, Reddit, Cruise etc. are gravy. Those are phenomenal returns.

I think the fact that they're phenomenal is pretty clear, but I think a more important question is how reliable the returns are. They might be reliable, but that doesn't seem obvious to me from the comments in this thread, and it's still not clear to me that YC is capable of catapulting an arbitrary company in their set to wild success ("kingmaking") or that they're capable of repeating those successes over the long…

It was found that 90 percent of the small businesses fail within one year.

http://smb-trends.com/2011/02/smb-failure-rate-us/

Out of 1280 YC companies, only 139 are listed as dead. Without pulling out a calculator to determine an exact figure, that roughly flips that figure from 90% failure rate to a near 90% success rate. And actually it is worse than that because the 90% failure rate is in the first year and the near 90% success rate for YC is an "all time" figure for the history of YC.

http://yclist.com

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