* The modal win for a founder is $0.00

* PG makes big talk about winner's average returns... Yayyyyy..... However YC gets preferential shares; YC is not aligned with the common shareholders (founders; builders). YC builds a story that they support creators however YC doesn't sit on the same table-side as creators.

* I actually believe YC is worthwhile, but I wonder if Ize just been brainwashed?

(reëdited for clarity)

> I actually believe YC is worthwhile, but I wonder if Ize just been brainwashed?

Ask yourself, if you really need VC money in the first place.

The moment you go to YC, they become your new boss and always win and you get to laugh at all of us HNers in this secret club called bookface [0]. (Yes, that hidden version of HN and part of YC)

Very unlikely to change anytime soon, but the SVB collapse should have taught us something.

[0] https://bookface.ycombinator.com/

There is nothing to learn from the SVB collapse. They mismanaged interest rate risk and overextended. So what.

Of course it is. That is why I said the quality bar it is at an "all time low".

> There is nothing to learn from the SVB collapse. They mismanaged interest rate risk and overextended. So what.

Ah yes, why not tell those same so-called "AI startups" to repeat that same mistakes again in 2023 and also continue to burn lots of that money and we'll see yet again widespread massive panic, downrounds on this site like we did before.

The startups that got complacent over believing that VCs will just throw money into their startup forever (until they don't) are the ones that will be added into that inactive directory unfortunately.

So as soon as this AI bubble collapses with a new surprise catalyst, I won't be surprised to see YC directly caught in the contagion because they threw themselves into hundreds of low-quality startups, unable to make money and they are cloned and raced to zero.

Many people think capitalism is simply a market economy. It's not. You can have a market economy without "capital" (investors) having special privileges that make all the money flow to them.

Not sure if I’ve changed or the landscape has.

It's not that YC specifically gets "preferred shares" -- it's that investors in general insist on liquidation preferences when buying non-liquid shares in unproven private companies.

How would an alternative scenario of investors buying common shares of illiquid stock in a private company actually be realistic? Maybe the startup founders could hypothetically insist on selling only common shares and never preferred shares as a condition of investment?!? But what investors (other than family relatives) would put in money in that case?

Or put another way, let's say we create a brand new VC fund to invest in startups and one of the novel concepts is that the fund only buys common shares to be more "founder friendly". The problem is that hypothetical VC fund will attract no rational limited partners with money because they know that startup founders can just take their invested dollars with no payback protection. Such a VC fund with no investors and no money to invest would be a moot point. The general partner of such a VC fund would be considered a "financial idiot" for buying common shares in startups.

In the end, the "preferred shares" is the market's "risk premium" that investors charge as an offsetting factor for losing 100% of their money. If startup founders can't find a way to convince investors to accept illiquid common stock instead of preferred shares, they need to avoid investors altogether and self-fund via bootstrapping.

But as a potential employee interviewing for a new job, if you're being offered equity compensation then you might want to inquire about share classes and liquidation preferences. It could be a factor in your decision if you have multiple options.

Some terms are going to need to exist to prevent that, so the investor shares will always be preferred. Beyond that there are in fact a lot of other terms that are in some deals but not others (2x preference, pro rata, etc..)

If anything, employees are taking a greater risk because you can replace money far more easily than years of your life.

If you can find money that doesn't insist on preferred liquidation, good on you. But those with the money tend to have a lot of say on giving it away.

YC famously claims it is not a VC fund because it invests their own money, they wouldn’t have this problem.

Th label "VC fund" can be imprecise because YC itself has changed its structure over the years.

The original 2005 YCombinator where Paul Graham & Friends used some of their personal Yahoo wealth from selling ViaWeb ... instead of raising outside money from "limited partners" ... was the period when they were more like "angel investors".

Today, YC is more institutionalized and has different funds that raise money from outside investors as limited partners -- very much like traditional VC funds. (https://www.google.com/search?q=YC+new+funds+raise+billions)

But YC still doesn't do all the typical "vc fund" procedures such as take a board seat or negotiate a different % with each startup founder on a case-by-case basis. The VC funds like Sequoia/a16z/etc will require a board seat and negotiate different ownership percentages.

So today's YC is a "semi" VC fund depending which aspects are salient to you.

YC invests on a SAFE, the terms are public.[0]

For most companies, pre-seed SAFEs don't end up much above common.

[0] https://www.ycombinator.com/deal

I'm not sure that is correct.

AFAIK the modern YCombinator post-money SAFE [1] converts to the exact same share class as the VC investment round. The bookface document[2] says "when the company decides to sell shares of preferred stock in a priced round (an 'Equity Financing'), the outstanding safes will convert into shares of preferred stock" and also says elsewhere "then the safe holder will receive shares of Standard Preferred Stock".

I know nothing - so could be completely wrong!!! Complicated stuff LOL

[1] https://www.ycombinator.com/documents/

[2] https://bookface-static.ycombinator.com/assets/ycdc/Website%...

The others end up at another Series B+ startup or go to a MANGA company if they can grind leetcode for a bit and get an interview.

Or do you mean that they're zombie startups that make enough to pay the founder 200k/year?

We had open salary bands so we were all paid OK - especially our couple ~entry level folks at $100-120k. It was strange times in my eyes, though. They hired an HR person whose first act was to raise the c-suite salaries to market rate ($200k+) while the business still had negligible income but closed a round.

It is good to be in the owner class, I guess.

It's a pretty decent compensation though. The base salary of a mid-level position at Amazon with substantially better equity terms (no cliff, no one deciding your bonus will be cut without your input, etc). It's a far cry from the PG ideal of salaryless founders surviving on instant ramen in their garage.

It's not unequivocally better, but it's certainly a trade-off that some people would be willing to make.

The LP has 20 startups they can afford it, we on the other hand have lot more skin in the game than they, and not being able to afford say proper health-care or having to commute 2+ hours everyday affects the success of the startup lot more than extra 50-100k extra is going to cost the fund in a meaningful way.

At a more fundamental level, it an agency problem found in any management compensation theory. Investors/Shareholders need to keep the management motivated and vested in the success of the organization, if that means 200k salaries today it doesn't really matter.

So, not "functionally dead" then. ;)

Looking back, maybe I should have just done the illegal thing and gotten pardoned.

https://www.azquotes.com/quote/1062178

divs.forEach(div => { div.click(); // Trigger a click on the div });

The methodology of the aggregator might have been as simple as "ping every YC company's listed website, check the response" with some light hand curation, which suggests that the number presented is just a lower bound on the number of dead YC startups

Anyone who is half-decent is going to be expensive.

wiki says 4K, so 821/4K = 20%. not too bad. I expected much worse.

Many other failures (likely most of YC's portfolio) will have died by being acquired for less than the most recent valuation, meaning YC lost money on the deal. These sometimes look like successful exits unless you know the details.

https://www.paulgraham.com/die.html

Does YC really lose money on all acquihires ?

Because it seems like most of the batches look to be purpose built for it.

https://archive.is/HNJoo "From Unicorns to Zombies: Tech Startups Run Out of Time and Money"

Discussed at HN: https://news.ycombinator.com/item?id=38554608

(I also wondered what it was)

It’s not really dead, but not really a “startup” in the traditional sense anymore either.

B) We have no way of knowing how well Blume's product actually worked

C) Health insurance is heavily regulated, which means it's not a great target market for AI

Yeah bad example, Google Reader was extremely successful, so much so that it’s demise was enough for _many_ companies to be very financially successful by taking Reader’s customers.

Airbnb… idk. Who wants to rent their house out to total strangers? I wouldn’t. I wouldn’t have thought it would take off like it did.

Airbnb is a favorite textbook example of VCs being wrong. They were rejected early on because people were thinking it's risky to rent out your house to strangers, and well, motels exist. But I think that's always been a blind spot with VCs - they just don't understand what it's like to be broke. Airbnb pivoted quite a bit from what made them big; they used to have top tier hosts and hospitality for much cheaper, now they're just alternative motels with no free breakfast.

...yet when Google does this, people are up in arms and insist they should run their products forever, even if they have no product market fit.

These startups are flailing with poor management, but the blast radius is small because of their limited resources and nobody has a better idea for what they should have been working on. And flailing startup management is expected in a way that Google has no excuse for.

A Pissed Off Tutorial For Google Wave:

https://www.youtube.com/watch?v=4Z4RKRLaSug

In the long term, Google's better off focusing their efforts optimizing the AI and UI behind their "I'm Feeling Lucky" button.

a) Almost all of the other incubators are just awful. Either they are predatory, ineptly managed or simply not well capitalised enough to offer a competitive product.

b) YC is able to rest on its laurels i.e. they can/do market how well AirBnb, Stripe etc have done. And so their funnel of talent is by far the best.

c) That said, YC is the worst I've ever seen it. And Garry Tan is mostly to blame although it's been trending downwards for a while. It's now as if Jake Paul ran an incubator: very hype driven, cynical, focused on easily exploitable young 20s males.

Started with Sam now with Garry Tan it is really going in the gutter.

And if you look at the partner YouTube videos you see why. There is a concerning lack of diversity in how they see the world i.e. they are all very much the e/acc types.

[1] https://www.walturn.com/insights/in-depth-analysis-trends-in...

If I was betting on technology right now, I would bet on SF-in person teams with young founders and a focus on AI. Sounds like the perfect target.

I have an issue with the way they continue to market themselves as being altruistic and a defender of startup founders everywhere rather than your run of the mill predatory, self-interested SF VC.

Investors' worst nightmare is if you just make enough money to keep going, but you don't grow ("lifestyle business" as they use it is a derogatory term).

That's because they prefer a sudden death where they can write down the investment and deduct their loss from taxes than an investment where they never see any money again.

And then there are "acquisitions" that are really "acui-hires" dressed up as acquisitions to get the people (more common) or to buy an asset in a limited shell package (less common) after things did/may have (but people were to tempted to take the offer) or did not pan/panned out. Some people consider anything <$50m as a "failure", because that's roughly the sum that many corporations can spend without calling the bigshots for a board meeting to decide.

If I sell something I bought for $1 million for $1 in an arm's length transaction, I'm realizing a loss of $999,999 even if the asset was worth $500,000. And it'd be a rational decision if it cost me $5 million in opportunity costs to do that $500k sale.

https://www.irs.gov/taxtopics/tc409

> When you sell a capital asset, the difference between the adjusted basis in the asset and the amount you realized from the sale is a capital gain or a capital loss.

Am I misinterpreting this?

https://www.nolo.com/legal-encyclopedia/irs-tax-audits-trigg...

> We perform everything from preparing and creating treats like turkey legs and churros to serving grant and exquisite meals at the famous and exclusive Club 33. If you are eating in the parks, our members are making that happen.

https://workersunited.org/joint-boards/local-50

Edit - looks like 5% but they can only work the unskilled food service etc

But the point is that a business model that is "profitable" but actually took millions in initial capital and has no provision for debt service isn't an actually profitable business model.

If it takes 10mil of funding to get off the ground and it would also take any competitor that to catch up… then you have a moat and can basically make money forever.

Even if you wanted to get into money transfers, the licensing alone is around 1million, and you haven’t even written any software yet or gotten any infrastructure. You can also “rent” someone else’s license but then your margins go out the window.

So, I’m not sure what the point is here. Some types of businesses require capital to start, even if they never scale.

If you’re not carrying the cost of that capital on the books you’re not “making money” at all.

See https://codiesanchez.com/book/ or https://store.hbr.org/product/hbr-guide-to-buying-a-small-bu...

But he didn’t spend 10s of million dollars to get there.

Particularly if the brand has value when he’s ready to move on and can be sold.

They also make the best story-driven RPGs I've played in my life. And they specifically went the story-driven route because it's cheaper to hire good writers than it is to wow people with AAA graphics or a giant open world or whatever.

More video game companies should be like Falcom.

Not none, of course. It's just not a near-requirement.

It's true that investors aren't going to invest in your startup if you tell them that your likely outcome is a healthy, stable 3MM/year. And it would be unethical to tell an investor you were swinging for the fences when your true intention was to bank the money and bunt. But if you really do take a big swing, and end up settling in a comfortable spot, how pissed do you think investors are really? You swung, you missed, that's life in the National Football League.

In the case of "lifestyle business," it includes businesses that tried their best to expand but hit a ceiling. They failed, basically, to return their investment in any meaningful way. Or to put it even more simply, they failed. At the same time, "lifestyle business" includes businesses that are tremendously strong and could be 10 or even 100x bigger, but aren't due to owner's choice. It mixes together businesses that are capable of being Fortune 500 with those that are almost the inverse. In that sense it's confusing and unhelpful.

If the dividends are so low that you will never be reasonably paid back you can often negotiate to get out in some form. Very low cash flow only with no growth seems to be the only exception...which I'd guess would only exist if something such as high revenue or some unique IP existed to make the equity very valuable and therefore the company worth running.

With a convertible note as opposed to a SAFE, you either need to extend the maturity date or get paid back your note with interest.

Both SAFEs and convertible notes seems to have a path to exit in some reasonable form.

The only time I've seen "nightmare" situations occur is when the investor themselves makes it a nightmare i.e. https://www.cnbc.com/2025/01/07/tech-investor-denis-grosz-or...

...and that's a nightmare for the company, not the investor.

There are two direct ways to return money to the founders - salaries and dividends. In the U.S. there is a tax advantage to dividends, over an amount anyway. This is not true of all countries.

That's not an exception. That's the norm. Most start-ups fail.

They literally burn down the investors' money and that's it.

This is very typical in startups, where making revenue at all may be rare in many categories (social media for example), and a startup is either wildly successful or nobody uses it.

Hopefully, the startup is about to be wildly successful, but it's easy to end up in a situation where some funding was raised, the product has reached a dead end, but the founders continue to "try to make it work". Whether they are doing this to "draw a salary", are earnestly trying to make it work, or a little bit of both, there isn't much legal recourse for investors if they aren't doing anything worse than not being very successful.

Zombie is when founders get rid of almost everyone except what they need to give the impression of effort, do little work, but draw an income and slowly spend down the money they raised until it’s gone.

I was one of the very few survivors at a startup that turned into a zombie in 2020 (went from 100+ employees to 10 in a matter of weeks).

In some ways it was a cushy job and a privilege, just wish I realized the founders didn’t truly care about success. Cause then I could have shared the mindset and better prepared myself and my skills for life after.

A proper zombie is a lifestyle company without the lifestyle — enough revenue to maintain an eternal startup crunch and trying to make a product work, but without the resources to actually grow. Doesn’t die, doesn’t quite live.

Hindsight is 20\20, the company probably would have been better off thawing itself until lockdown ended then going right back to what it was doing (that’s what their main competitor did, and while rumors of their demise always abound, externally they’ve grown and raised more rounds).

One of the founders is a niche big-shot in the VC world and well connected. I assume eventually they’ll be acquired for an undisclosed amount of $0. It’s been a year since I left and until this post I’ve been shocked it’s yet to happen. Now I wonder if they are waiting until they payed out all the money they raised as salary to play that card because otherwise they need to give the money up for no real benefit other than continued employment.

If the board thought the founder was just transferring the remaining investment to himself slowly they'd fire him and replace him with someone to wind operations down.

Plus the possibility they do hit it big is always there. It’s not like they aren’t putting in any effort and collecting a salary. They just aren’t grinding.

Then there are the personal relationships.

If anyone’s been involved with an inactive YC project and wants to chat about what’s possible, I’d love to connect.

Looking through the list, my reaction to some was “of course that OpenAI wrapper failed” but others sounded compelling. It’s logical that some of those failed companies have a viable product but failed for other reasons. Maybe combining the IP of similar companies could breed a winner. It’s an interesting concept and I’m curious if it works.

Another example of objectively obvious fraud that is on the graveyard list is "NFTScoring". Yeah, just what kind of people aspire to tell other people which NFTs to buy (professional shills and get-rich-quick scheme scammers, that's who), and what kind of people knowingly invest in them?

I’m not sure I can assign any meaning to that. Just my immediate observation.

YC has often talked about how the average YC startup ‘dies’ and yet I’m sure they’ve funded at least double the number of startups on this list. Is ‘dying’ also synonymous with ended up becoming a ‘lifestyle business’? Clarity would be appreciated on this!

though i noticed some outdated info for most companies (last updated >2 months ago).

Spoken like someone that uses other people‘s money. I think the statement would be different if it was their own money being lost for the startup or interest rates weren’t 0%.

I am still very bullish on YC. If you have a startup and have an opportunity with an interview / ability to attend the batch, you should definitely do it.