Comment by hobofan
1 year ago
> You don't want to attract founders who figure YC is a low-risk alternative to grad school
Of course YC would want that (in the short- to mid-term).
The only thing YC has to do is produce a portfolio of companies that looks good enough that other VCs invest into that. This is completely disconnected to building viable businesses, as they just don't have to be the ones that are left holding the bag, and as an accelerator they are in the best position to do that.
The easiest way to fill that pipeline is to pair current hype XYZ with Harvard (or other ivy league) undergrads (or high-level ex-FANG people). As long as their ROI stays above a certain threshold, that's the main way to scale up YC.
> The only thing YC has to do is produce a portfolio of companies that looks good enough that other VCs invest into that. This is completely disconnected to building viable businesses, as they just don't have to be the ones that are left holding the bag, and as an accelerator they are in the best position to do that.
That's really short term thinking.
It might work for a class or two, but eventually VCs will realize that they're getting bad returns from their investments, and YC won't be nearly as attractive as it is today.
For long term success, YC needs to pick companies that will eventually become successful. Particularly the big, standout successes.
> The easiest way to fill that pipeline is to pair current hype XYZ with Harvard (or other ivy league) undergrads (or high-level ex-FANG people). As long as their ROI stays above a certain threshold, that's the main way to scale up YC.
If you think that's the path to good long-term ROI, I have a startup to sell you.
> but eventually VCs will realize that they're getting bad returns from their investments
I'm not saying that they are necessarily bad returns. It's just that for many reasons there is a strong opportunity for a disconnect between viable business models and seed-investments. E.g. exit event horizons are currently so long[0] that it becomes hard to correlate exit success to seed-funding (for better or worse).
> If you think that's the path to good long-term ROI, I have a startup to sell you.
Oh, I don't disagree with you. But from the actions of YCombinator it seem like either:
- They don't see this as a risk to their long-term ROI (due to some factors we are not seeing here)
- They don't have proper means of self-assessing their selection quality and think they are scaling well while they don't
- The situation is not as bad as the article and some of the comments here make it look like, and everything is fine with YC
[0]: https://www.ycombinator.com/topcompanies/ <- There are many 10+ year old companies on that list without an exit and YCombinator isn't even 20 years old yet
A question that has probably been answered, but...
In a hits business, does quality picking matter? You want to avoid adverse selection, but beyond that - isn't it just about scale?
There are probably a few levels.
Originally, at small scale, you need to pick hits better than others (or get lucky).
Next, you want to scale large enough that you can make enough bets to amortize individual bet risk across a large portfolio.
Then, once you're over that scale, you need to be back in the business of picking hits more reliably than the next VC.
>That's really short term thinking.
Isn't that exactly what we're discussing happening to YC?
YC doesn’t benefit from founders who are just looking to pad their resume because they don’t follow through to a liquidity event for YC.
How do you tell the difference? Especially when so many YCs seem almost like comical vaporware or shovelware but with a charismatic CEO.
Very true.
Saw one recently that literally forked VSCode and Cursor and called it a company with some really shady practices. Not even sure what YC was thinking with that one, but it indeed falls into the category of comical vaporware.
How did something like this get funded? They must think there will be a follow through to liquidity event, but no clue how. Maybe YC is playing into the bigger fool theory that someone else will come along and pay more so YC can extricate their equity.
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Sure, that would be a theoretical failure mode. But that's not really what's happening right now, is it?
YC doesn't look to have a problem of people joining just to get the stamp on the resume and then "half-assing" it after they get into YC. I think that's something that YC is still quite actively selecting against. As long as they are selecting companies that make it to a series ~C (which most founders will stick around for as long as they are on an good-enough upward-presenting) YC can (partially) liquidate at good enough fund performance.
A high-quality early stage team that self-selects out of follow-up rounds may be a decent outcome for some VCs. This means early liquidity in all of the "positive" events. If the founders were high quality, spinning an acquihire out can still recoup some of the loss.
The challenge would come where the founders are not serious, and instead are viewing YC as a stepping stone to a level up position in a big tech/large firm. While I'm sure everyone has this idea to some extent as a fallback, you need people to be committed to making their business work.
> The only thing YC has to do is produce a portfolio of companies that looks good enough that other VCs invest into that.
This is completely incorrect. They need liquidity events. Simply getting to follow on funding without ever making it to an exit is a negative outcome for YC.
Liquidity event != exit.
While an exit (= aquisition, IPO and similar) is obviously always the optimal end-goal, every round of fundraising is a potential liquidity event for all existing stakeholders.
It's very common to have partial liquidation from roughly Series B-C onwards on the side of founders (e.g. wanting to keep up lifestyle with your C-level peers; removing personal financals as stress factor) and earlier investors (e.g. their funds entering the liquidation period of their lifecycle).