[sydneyliu]

Sam also just tweeted that 300 YC companies are no longer around. Amazing how much transparent they are and how great YC is at picking and training. So many really crazy ideas that most would think are insane and YC is able to find the ones that make sense and help them. Seems like that's a bit less than 1/3 of all YC companies

Tweet is here: https://twitter.com/sama/status/636586179970752512

[bkjelden]

The failure rate is probably skewed low by YCs growth rate. For example, 1/9 of the companies were in their most recent batch, and it's unlikely that any of them have gone out of business yet.

Still impressive though. Any success rate over say 10-20% seems really impressive for an incubator.

[bfe]

The breakout-success rate thus far is also skewed low by YC's growth curve. Things have still just begun.

[ghiculescu]

Yeah. A failure rate by cohort (a "churn rate" of sorts) would be handy.

[codingdave]

YC filters applicants for dedicated founders who will not give up easily. It is amazing what can be accomplished by manic perseverance.

[jordigg]

Last week I saw this from Sam.

> If we don’t invest in these companies, they don’t happen… The thing about Y Combinator that’s cool is that most companies won’t happen if we don’t fund them.[1]

I thought YC was always looking to fund those that would exist with or without YC. I have seen less and less "crazy bets" every batch, but I have to say there's more diversity of founders and topics (biotech, energy, farming). Companies generate revenue before DemoDay and many are startups that work for other startups. It's not a bad thing but would love to see more Airbnbs or Reddits around. Those are the ones that can generate a true impact on society and can only exist thanks to YC giving them a chance. The fellowship can be a great starting point for those.

[1] http://venturebeat.com/2015/08/23/sam-altman-and-jessica-liv...

[staunch]

YC has said that Airbnb would have failed without their help. How could they not update their thinking? Being determined to succeed is necessary but insufficient. Every successful startup received a big helping hand early in its life. YC's business is to provide that opportunity to founders that otherwise wouldn't have it, such as Airbnb, which no other investor would back.

[ryanSrich]

What's more intriguing is how was YC able to see through what the other investors saw as an issue?

Even to this day I'm astonished that AirBnB exists and yet YC was able to see something in them years ago.

[HelloHN]

My understanding of the story was that YC was going to pass on Airbnb but then one of the cofounders mentioned the cereal box story and that changed PG's mind

[staunch]

YC also despised the idea, but invested because they liked the founders. But they also presumably liked the 600+ YC founders that failed, so you can see how much investors can really predict.

[T2_t2]

You mean at the series A? Their original idea was really different.

[sydneyliu]

I think Sam is saying that without YC, there are some companies that may not end up succeeding or being able to raise and continue on (without YC's network, advice, speed, focus etc. to help them)

The distinction is that they want to fund companies who would continue working on it even if they didn't get into YC. They are so passionate about the problem that they will try to make it succeed no matter what.

[forgetsusername]

>YC filters applicants for dedicated founders who will not give up easily

Well, they try to filter by that quality, as would any other incubator or investor. It would make no sense to accept apathetic founders who will surrender at the first obstacle. Personally, I'm skeptical that they having any advantage in identifying such abstract traits. How would you identify it from a 15 minute interview?

[exelius]

That's actually mostly in line from what I've heard heard from other VCs. After 5-7 years, you expect half of your portfolio to be either out of business completely or "walking dead" (cash flow negative without enough traction to get positive before the end of the runway).

Though you do have a point; I would expect a higher failure rate from an accelerator given that they fund riskier ventures.

[lawstudent2]

This is also rather misleading - because 300 have been shut down, 904 have been funded, which includes 107 in the last batch, which can be discounted entirely from these stats. This gives us 300/797 have shut down, or a percentage of about 38%.

What I'd like to know is the value, at exit, of the companies that have exited or gone public. Because I can guarantee you that the "valuation" of $65B+ is a totally meaningless number. This includes every single company that had a huge, unsustainable up round which will almost certainly be devalued based on future financings or exits.

[pc]

> Because I can guarantee you that the "valuation" of $65B+ is a totally meaningless number. This includes every single company that had a huge, unsustainable up round which will almost certainly be devalued based on future financings or exits.

"Meaningless" is hyperbolic. How much would you pay for a share of Airbnb? More than nothing, I assume. I think one can conclude something from consummated, informed responses to this question.

[lawstudent2]

No - I stand by that as a literal use.

Does 65B represent the actual money value that people will pay for the shares of 100% of the ~600 currently existing YC companies?

Does it tell us the average value? The mean? Standard deviation? Quintile distributions? P/E? Is that number just based on valuations from funding rounds? Projections?

It is literally meaningless. It is not verifiable. The standards that are used to calculate it are not explained. There is no explanation to how it relates to the companies in the portfolio.

I'm a bear by nature. I think that the current batch of SaaS unicorns have an unsustainable valuation, and I think this unverified number feeds into that.

[austenallred]

Valuation means the price that investors or acquirers were willing to pay. That someone was willing to pay that is a verifiable fact.

What the returns will be is an unknown, of course. But to say that is "meaningless" is either naive or a misuse of the word. Stock prices and market caps are decided the same way.

[gress]

Public stock prices are decided by supply-demand balance. In no way does this valuation resemble that mechanism.

[austenallred]

Public stock prices are the last price someone was willing to buy that stock at.

Private stock prices are the last price someone was willing to buy that stock at.

It is slightly less simple, because you may give a discount for advice, but private stock prices are definitely reliant upon supply and demand. If one investor wants to set your valuation at $1B and another at $100m, you go with the one who offered a $1B valuation. There is occasionally a discount for advice/connections, but the mechanism that the highest bidder wins is generally the same. Private market stocks are by no means exempt from economics or supply and demand.

[staunch]

The problem is using the words "valuation" and "worth" interchangeably. Just because someone pays $50 million for 5% of startup doesn't make it magically worth $1 billion. No one would actually pay anything close to $1 billion for the whole thing, hence it is not worth anything close to $1 billion. That's just the implied valuation.

[T2_t2]

AirBnB: $24 Billion. DropBox: $10 Billion. Zenefits: $4.5 Billion Stripe: $3.5 Billion. Instacart: $2 Billion Twitch: $1 Billion

Total: $45 Billion.

Source: http://graphics.wsj.com/billion-dollar-club/

So they value the rest of the portfolio at $20 billion. Does that seem reasonable?

[loumf]

I believe that they just added up acquisition amounts and the last funding rounds of each company. I don't believe that number represents what "they value" the portfolio at beyond that.

[SandersAK]

Happy to buy any shares you have in any of the YC unicorns.

[austenallred]

Especially for $0

[sskates]

You can calculate the mean yourself by taking total valuation divided by number of companies. I'll do it for you:

$65 billion / (940 companies) = $69 million / company

[aj_icracked]

Who else wants PC and Lawstudent2 to continue this debate? :) I'll bring popcorn.

[7Figures2Commas]

I think the point you're wanting/trying to make is that private market valuations are ridiculously high. But that's not YC's fault. It should enjoy this while it lasts, and hope that as many of its investments as possible get to liquidity before the music stops.

A more interesting observation is that two companies account for over half of the $65 billion. Airbnb's most recent valuation was reportedly $25 billion, and Dropbox's was reportedly $10 billion. These companies are not likely to go away overnight a la Homejoy, but their valuations are going to be hard to sustain. Dropbox in particular would be a very tough sell to the public markets at its private market valuation given its comp[1].

Making analysis even more difficult is that today's big money, late-stage deals have lots of strings attached, so these valuations are hard to assess without knowing all of the details.

Final comment: despite the constant suggestions to the contrary, YC's portfolio appears to live in the very same power law reality as most early-stage investment portfolios in Silicon Valley.

[1] https://www.cbinsights.com/blog/dropbox-valuation-bubble/

[csomar]

>> Although these are very imperfect indicators of success, here they are.

There you got your response at the beginning of the post. It seems that you are attacking for the sake of attacking? Sam is providing these data because people asked for them.