How very Silicon Valley of the author to treat these numbers almost like they're profits, or any reasonable sort of "income" at all. The real question is: how much of that money has already been multiplied tenfold, through exits, IPOs or exorbitant profits?
What on earth did the author say that conflated fundraising with revenues? All he did was compute an average and list some individual amounts raised.
Also, a 10x return is the sort of target a VC will have for a series A round. Investors in later stage rounds have lower expectations. And since later stage rounds are much bigger, that means most of the money invested in a successful startup is done with the expectations of way less than 10x returns.
From what I know, I would guess that the investor of the median dollar of that billion is happy with the way things are going so far.
Why are HNers so dense when it comes to fundraising? No, the treatment doesn't come off at all sounding like profits or income. Yes, fundraising is definitely a point of success. Why do HNers have such a hard time with this? Money is an important resource for growing companies! Sheesh.
In Techcrunch's defense, they have published a very good article on these kind of numbers[1]. Actually, they have published a lot of articles on this[2].
What is more insteresting, is that Paul Graham reiterates the Power Law of Startups he talked to Peter Thiel recently[3]:
Peter Thiel: Do Y-Combinator companies follow a power law distribution?
Raising money isn't any indication for any success but is a nice accomplishment - money coupled with the mentoring and connection from ycombinator could significantly improve the companies odds to succeed.
These numbers are vanity metrics but are still indicating a trend - companies going through ycombinator are more likely to raise money than others.
I know I would go thru ycombinator - not because of the money I could raise easily but mostly because of the alumni network, connections and access to world class mentors.
It's pretty incredible to think that YC is likely the highest performing venture fund in history.
For 380 companies that works out to about $7.6 million invested into a portfolio of companies worth $7.78 billion. Assuming a 2-7% stake for YC(after dilution), that puts the value of YC's share at $155-$545 million on that $7 million invested.
There are a couple of catches though. One is that we can't invest more at such rates of return. A VC fund may get a lower return per dollar, but they can invest a hundred times as many dollars at that rate. The other catch is that the $7 million doesn't include our operating expenses or the value of our time.
I think it's mainly because of Paul Graham. He's a visionary and he's excellent at spotting awesome teams (even if their ideas suck). Nobody would have thought twice about Airbnb, but Paul saw something that other investors didn't see. He noticed how effectively the team worked together. He also knew they would pivot if they needed to. Having that type of discernment has allowed YC to find & fund all these amazing startups. His hunch with the Airbnb guys paid off considering the company is valued at over a billion now!
~20x isn't close in the pantheon of record venture deals, especially when normalized to an IRR (annual return).
Benchmark Capital is often cited since their $6M investment was worth 500M+ at IPO less than a year later and then eventually ballooned to being worth $5B as shit got crazy.
the 12.7M Accel invested into Facebook in the A was worth ~$10B at IPO. I think even that is less on IRR than the ebay deal
What's interesting is that if 2-3 years ago, ycombinator had the ability to identify and pick winners. I have the impression that in the past year it became the other way around.
Y combinator by picking companies are in fact the kingmakers and are creating the winners.
Last I checked you still have to get users/customers to be a winner in business. YC has clout with investors, so their companies are more likely to get investment, but that's not the right measure of who is a winner.
The millions of consumers you need as customers (or, if B-to-B, say fortune 500 companies) don't give a damn about the YC stamp of approval.
Increased investment only turns into increased "wins" if you use that money to get more users/customers, i.e. with a better sales team, more marketing dollars. Is this happening? I don't know, it sure seems like a lot of software companies are eschewing traditional marketing and sales and counting on viral growth to be a success, but you can't just hire more engineers and increase a product's viral-ness. I don't think anyone truly understands what makes a software product catch on.
Quite a lot, actually. While some startups (e.g. Twitter) take a while to generate significant revenues, it happens that the most successful startups we've funded were not of that type.
I can't think of any YC-funded companies that have slowly grown organically into modestly successful long-term businesses. Paul Graham made a comment somewhere that YC actually has no problem if the founders want to build a "lifestyle" business, and won't push for VC-backed moonshots if it's not in the founders' interests, but I just haven't heard of that outcome happening. It's possible I just don't know about them, though.
There have been several that sold for reasonably good totals without raising any funding, if that counts. For example, Clickpass sold for $1m, and raised no funding except YC's $20k.
For shits and giggles let's use 6%. A low end estimate of their ROI would be around a whopping 174%. Their current holdings of the 7.78 Billion would be around 466 million.
This is all wacky math I realize but it's interesting to take into account how well this fund has done.
You're not taking into consideration the various dilutions and other preferred rights from other investors but all in all - it's clear that this fund will be very successful.
Didn't Paul breakout the outcomes of Y Combinator companies a while back (e.g. acquired, sold, in business, etc)? It would be interesting to see if anything has dramatically changed.
I'm doing quick 3 min survey on what people think about certain venture capital firms and see if there is any correlation to their industry, location, school etc. Will post results back here upon completion.
More amazing, given that over half of the companies are from last year and this year, and it is mostly agreed that they have only gotten better and better by Demo Day.
[+] [-] skrebbel|13 years ago|reply
[+] [-] pg|13 years ago|reply
Also, a 10x return is the sort of target a VC will have for a series A round. Investors in later stage rounds have lower expectations. And since later stage rounds are much bigger, that means most of the money invested in a successful startup is done with the expectations of way less than 10x returns.
From what I know, I would guess that the investor of the median dollar of that billion is happy with the way things are going so far.
[+] [-] pbreit|13 years ago|reply
[+] [-] DanielRibeiro|13 years ago|reply
What is more insteresting, is that Paul Graham reiterates the Power Law of Startups he talked to Peter Thiel recently[3]:
Peter Thiel: Do Y-Combinator companies follow a power law distribution?
Paul Graham: Yes. They’re very power law.
[1] http://techcrunch.com/2011/07/30/vanity-metrics/
[2] http://techcrunch.com/search/vanity+metrics
[3] http://blakemasters.tumblr.com/post/21869934240/peter-thiels...
[+] [-] adambenayoun|13 years ago|reply
These numbers are vanity metrics but are still indicating a trend - companies going through ycombinator are more likely to raise money than others.
I know I would go thru ycombinator - not because of the money I could raise easily but mostly because of the alumni network, connections and access to world class mentors.
You could have a look at what companies raised money and what were the successful exits to date: http://www.crunchbase.com/company/y-combinator
[+] [-] mehulkar|13 years ago|reply
[+] [-] austenallred|13 years ago|reply
[+] [-] il|13 years ago|reply
For 380 companies that works out to about $7.6 million invested into a portfolio of companies worth $7.78 billion. Assuming a 2-7% stake for YC(after dilution), that puts the value of YC's share at $155-$545 million on that $7 million invested.
[+] [-] pg|13 years ago|reply
[+] [-] frankphilips|13 years ago|reply
[+] [-] nikcub|13 years ago|reply
Benchmark Capital is often cited since their $6M investment was worth 500M+ at IPO less than a year later and then eventually ballooned to being worth $5B as shit got crazy.
the 12.7M Accel invested into Facebook in the A was worth ~$10B at IPO. I think even that is less on IRR than the ebay deal
[+] [-] nrao123|13 years ago|reply
[+] [-] adambenayoun|13 years ago|reply
Y combinator by picking companies are in fact the kingmakers and are creating the winners.
[+] [-] pg|13 years ago|reply
[+] [-] Heinleinian|13 years ago|reply
The millions of consumers you need as customers (or, if B-to-B, say fortune 500 companies) don't give a damn about the YC stamp of approval.
Increased investment only turns into increased "wins" if you use that money to get more users/customers, i.e. with a better sales team, more marketing dollars. Is this happening? I don't know, it sure seems like a lot of software companies are eschewing traditional marketing and sales and counting on viral growth to be a success, but you can't just hire more engineers and increase a product's viral-ness. I don't think anyone truly understands what makes a software product catch on.
[+] [-] cluda01|13 years ago|reply
[+] [-] harel|13 years ago|reply
[+] [-] pg|13 years ago|reply
[+] [-] brazzy|13 years ago|reply
[+] [-] CubicleNinjas|13 years ago|reply
[+] [-] MaysonL|13 years ago|reply
[+] [-] _delirium|13 years ago|reply
I can't think of any YC-funded companies that have slowly grown organically into modestly successful long-term businesses. Paul Graham made a comment somewhere that YC actually has no problem if the founders want to build a "lifestyle" business, and won't push for VC-backed moonshots if it's not in the founders' interests, but I just haven't heard of that outcome happening. It's possible I just don't know about them, though.
There have been several that sold for reasonably good totals without raising any funding, if that counts. For example, Clickpass sold for $1m, and raised no funding except YC's $20k.
[+] [-] davidwhodge|13 years ago|reply
[+] [-] iioowwee|13 years ago|reply
But maybe a more interesting title is how much profit YC companies have made.
[+] [-] wallawe|13 years ago|reply
According the the FAQ (http://ycombinator.com/faq.html) they take an average of 6 or 7 percent stake in each company.
For shits and giggles let's use 6%. A low end estimate of their ROI would be around a whopping 174%. Their current holdings of the 7.78 Billion would be around 466 million.
This is all wacky math I realize but it's interesting to take into account how well this fund has done.
[+] [-] adambenayoun|13 years ago|reply
[+] [-] cluda01|13 years ago|reply
[+] [-] swift107|13 years ago|reply
https://www.surveymonkey.com/s/VCstartup
[+] [-] teyc|13 years ago|reply
[+] [-] earbitscom|13 years ago|reply
[+] [-] lazyjones|13 years ago|reply
[+] [-] adambenayoun|13 years ago|reply
Taken from http://ycombinator.com/about.html
[+] [-] adambenayoun|13 years ago|reply
[+] [-] xxiao|13 years ago|reply
[deleted]
[+] [-] eupharis|13 years ago|reply
http://imgur.com/7yyJC