Ask PG: Will the Yuri Milner deal affect which startups YC accepts?
One thing that hasn't been mentioned much is that, after making such a significant financial commitment, Yuri Milner/DST will probably have some say in who gets picked for YC. Does this mean that the next batch of YC startups will be more closely aligned with those investors' goals? For example, DST has pledged to invest heavily in social media. Does that lead to more social startups in the next batch? Would YC still fund, say, a hardware or enterprise software startup?
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I don't know if people realize this, but there is no actual deal between Ron/Yuri and YC. The deals are between them and the startups. We liked their plan of investing in all the startups, so we called a meeting for them to present it. But we don't have any control over which investments the startups accept. Anyone who wanted to do what Ron and Yuri have done could have done it at any time, whether YC liked the idea or not, simply by making the offer publicly.
While we're on the subject, Sequoia, which we do have a deal with (they're our biggest LP), also doesn't have any effect on the startups we pick.
For example, maybe there's a startup which couldn't possibly succeed without big initial investment - with a <$20k fund, you wouldn't bet on them doing well, but with an additional $150k available, you might see them as having a much higher chance of success.
Sure there are other examples, but basically the fact that it changes the amount of funding available to your startups, it has the potential to change their success, which means that, if you forsee those changes before deciding whether to accept or reject a startup, it could also change your decision.
The only case where having the first 150k guaranteed would make a difference would be if we were considering a group that we liked, but we thought other investors would be too timid to fund. E.g. a group doing something insanely risky. But in those cases we always fund them anyway, and count on our own ability to talk the later stage investors around.
The companies that communicate a good idea well on Demo Day will succeed in getting good funding.
The difference between $20k and $150k is "They need to work on communicating their idea" vs. "They can get to work on their implementation".
If you are going head to head with something like ec2, $170K is probably enough to get you started, I'd think, if you are willing to live cheaply and don't screw up too much. If you count all the contracting money I put in, eh, that's probably in the ballpark, and I am to the point where I can reasonably provide compute units at a competitive price, though my software lags by quite a lot. I mean, you need /some/ scale, though you don't really need as much scale as they say.
Of course, if you are a high-margin infrastructure company, and your margins are high enough to re-sell ec2 with a value add software stack, $20K very well might be enough. I'm just saying, $20K doesn't get a lot of hardware
Not if you're making hardware...well, not all hardware, anyway. Was Wakemate able to get off the ground with 20k?
How do you guys manage 40 startups in one batch? I am quite excited to read about them when they launch.
LPs are basically the investors in YC who remain mostly silent as to the operations of the firm. They participate in the proceeds and receive limited liability from the affairs of the business. Sequoia invested in YC, just as YC invests in startups.
Practice. We could never have done that when we started, but after 5 years of gradual refinement, plus hiring more people, we do a better job for the current 43 than we did for the initial 8.