And as for the 7% I'd say you might get that back with more funding for less equity if you're already one of the larger companies by demo day, lots of investors will throw money at you.
They didn't acquire it because they thought their tech was great or that they had a great product. They acquired it because a) the team was local and b) because sequoia invested in it.
Larry Page: “I think we should look into acquiring YouTube” (2005) - https://news.ycombinator.com/item?id=28424339 - Sept 2021 (245 comments)
FWIW I think their reasoning must have changed drastically in the year between those initial emails and when they actually acquired Youtube. The emails suggest $10-15M as a price. They ended up paying $1.65B, which shocked everyone at the time (and now seems small). The difference is that in that year, YT grew exponentially. So this is actually an example of a high-growth win; indeed it's one of the classic examples.
This sequence of tweets kind of confirms that:
https://twitter.com/JGamblin/status/1433847336459964420
https://twitter.com/jhuber/status/1433863045613174784
https://twitter.com/JGamblin/status/1433865429932462083
https://twitter.com/jhuber/status/1433866494752935938
(the last one is the important one but the sequence is amusing)
Well, the actual fact is that Youtube was a great product with twice as many features as Google Videos as documented in the San Jose Mercury News diagrams published at the time. And growing faster.
So however Google discussed (underestimated) it at the time, Youtube was not only a credible product, but a better one, which was understood by Google, if unstated.
IOW, Google might have been arrogant about the difficulty of building a similar product, but that doesn't change reality that they didn't.
> They acquired it because a) the team was local and b) because sequoia invested in it.
That might be what the initial reasons were. But after Youtube won the eyeballs, Google paid a market rate for network effects and eyeballs to monetize at 1000x their initial valuation estimate.
Also, Sequoia's funding meant that Youtube would continue to grow exponentially and stay ahead of Google Videos. So it's true that SV VCs are incestuaous across boards, but their funding also in reality builds out competitors.
Similar situations are when Microsoft also chased Hotmail and Facebook as they climbed in value, far greater than MS' initial valuations and offers.
Ballmer actually tried to motivate Zuck by saying he could buy a private jet if he took MS' offer. It's one of the most Ballmer things I've ever heard. The second-most is when he said he'd stay on the board for a year but bought a sports team instead - taking his toys and going home.
Pay back the loan whilst increasing revenue and keep the entire company to yourself/team. The additional revenue can offset the expenses which were taken care of by the loan.
There is also: 5% of a high growth, negative profit, thriving company that can rather trivially raise additional capital to keep pushing growth faster.
Hundreds of start-up companies have fit that model over the last 10-20 years.
See: Facebook, Airbnb, Zoom, Twilio, Square, Stripe, DigitalOcean, Cloudflare, Fastly, DocuSign, Teladoc, Datadog, Coinbase, Etsy, Lyft, Uber, DoorDash, Pinterest, Twitter, Snapchat, Okta, Zscaler, Hubspot, CrowdStrike, Palo Alto Networks, Splunk, Workday, ServiceNow, The Trade Desk, Snowflake, Roku, Unity Software, MongoDB, Robinhood, Palantir, Roblox, Veeva Systems, Wayfair, Peloton, UiPath (Romania originally), Anaplan, Qualtrics, Asana, RingCentral, Zendesk, Dropbox, Appian, Bumble, Smartsheet, Stitch Fix, C3 AI, Affirm, JFrog, Box, BigCommerce, Sumo Logic, FireEye, Qualys.
Along with dozens of other prominent and smaller companies. And although not US companies, Shopify, Atlassian, Elastic, Wix, MercadoLibre and Spotify are also in that same bucket (and were funded by US venture capital). China also has a ton of thriving companies funded in a similar model (Alibaba, Pinduoduo, ByteDance, Didi, JD, Tencent, etc).
These are significant companies that all followed that model - to one degree or another - and have IPO'd in the past decade (even Tesla's IPO was just 11 years ago, they exist courtesy of the same model).
Salesforce lost money for a very long time. They were founded in 1999, and didn't reliably turn an operating profit until just a few years ago. In a few years they'll be larger than SAP.
Not saying that is a good way to run a business or the one I would personally prefer.
Utterly bizarre, they weren't listening to a word I said yet wanted me to lead one of their companies?!
Have they finished displacing Medium yet? Who in turn only appeared a few years ago?
Have any normal people even heard of these companies?
Medium went for a bottom-up approach, trying to monetize the content of the crowd. Substack is going for a top-down approach, grabbing writers with an existing large following and paying them top rates, which are justified by the conversion rates for their well-known creators.
Normal people might not have heard of these companies, but niche audiences certainly follow some of the specific authors/columnists/influencers and are following them onto substack with paid subscriptions.
Is that a moat, or will they jump to the next platform? A few have been poached by the NYT and other venues, so maybe the moat isn't that big.
If you think Google was a fast follower you are incorrect. There are patterns to how these types of company crop up and they are about revolutions in how a field is done rather than "copy AltaVista" and see if you can catch them. Nobody succeeds at copying a company that has a genuine mission to accomplish.
I'm not saying it's impossible to build a company that happens to do the same thing as say Substack but you have to build it for the correct reasons and fast followers are generally always compromised in some way.
Your glib suggestion that Google, a once per decade company, is a follower of AltaVista really doesn't do any of what Google accomplished justice.
I.e. facebook cannot even copy snapchat and they have INFINTE resources, and 2B users.
Also, Markets today are so huge, nobody dominating anything.
These people are in the business of making money, which means growth at all costs and at a huge ROI, especially since insane valuations and going public is creating crazy returns for investors.
Obviously there are a variety of caveats, such as voting issues and time investment.
Personally, I suspect most founders are at a negotiating disadvantage (knowledge, power and bargaining asymmetries), and think it would be easy to get an extra 7% by having YC on your side of the table.
Also see https://www.ycombinator.com/deal/ for details.
If you haven't reached market-fit yet, then a mentorship could be useful if you don't have such skills in your networks.