[lquist]

YC (and probably Ron Conway) are apples to oranges with a16z. Spray and pray works when you are looking at 10000x multiples on your best investments. It doesn't when you are deploying billions and don't come near that order of magnitude for your best bets.

[georgewsinger]

As far as I know YC doesn't have a single 10,000x investment (i.e., $100B+ exit). Not one. Yet I once listened to a YC video where Michael Seibel (President of YC) discussed some of their stats. He said they've funded over 2,000 companies, and of those have 17 unicorns that are worth ~$100B in aggregate valuation. So that means their hit rate is generously

17/2,000 = 0.85%

Compare to i.e. Jason Calacanis who on his own has a hit rate of better than 1 in 20. Now assuming YC paid $100K per company and gets to keep a blended 1% of the $100B (is that too small?), they've put in about $200M in funding to get back

$100B*1% = $1B

to net roughly $800M in profit for their stakeholders. So they're a 5x fund. But that's really...not that good...(at least it's not world class).

But am I missing something? They've definitely gotten a lot better at picking companies during the Sam Altman era (by, IMO, funding deep tech companies that actually have the chance of 10,000xing), but it'll still take another 5-10 years to really prove that.

Now YC might argue that they're not purely a profit-driven fund. And that's true. But isn't it a bit worrying that after thousands of investments they haven't funded a single $100B+ company? YC has an enormous influence on the startup ecosystem. Is an institution with a 0.85% hit rate really sending us the right lessons?

[philipodonnell]

> So they're a 5x fund. But that's really...not that good...(at least it's not world class).

a 5x return on an _investment_ isn't that good but a 5x return on a _fund_ is very good.

[wjnc]

Interesting points. I'd say creative destruction is as volatile as it gets and 1% might be pretty large. On 95% of this planet the odds of creating a unicorn are about zero. Questions: How many 100B+ firms are there? How many arrived in the 'old economy'? How many failures for each ramen, for each SME, ..., for each unicorn?

In my opinion it's enormously unusual to find a product market where 100B in future profits are up for grabs and a testament to mans inventiveness that we are even having this discussion. In a competitive market I'd expect the chance of a unicorn to approach zero. And it doesn't! It's awesome and takes a whole lot of failure.

On the side of the investors I'd be in the boat thinking it's more of a lottery than a skill, but these funds seem to prove otherwise so while I wouldn't invest in them and caution my company to be careful, I hope my pension fund is in them, a little.

[lquist]

Few comments: * As rightly pointed out below, YC's investment used to be $20k for 7%, meaning they had a 10000x return on AirBnb and Stripe (so far) * YC has funded increasing numbers of companies over time. Of the 2000+ companies that have been funded, the majority (75%) have not reached maturity. * Yes there is dilution to the 7% stake, but it is not as significant as mentioned, especially for the most successful companies. I would estimate their stake at closer to ~3% after dilution, not 1%.

Take all these together and you are looking at a much higher fund multiple than 5x. My estimate would be at least an order of magnitude higher.

[AlchemistCamp]

I would be very surprised if Stripe didn't surpass $100B.

[streetcat1]

wait until libra.

[thebladerunner]

Is there a fund that is better than 5x in aggregate? Everybody flaunts their unicorns, but at the end, those bets are balanced by many more losing bets...

[jamiequint]

YC invests 150k for 7%, so a 10,000x is more like $21bn of which it has 2 so far, Stripe and AirBnB.

[georgewsinger]

I was assuming that YC's 7% equity gets diluted by the time a company gets to that size. If that's not the case then I stand corrected.

[Judgmentality]

Don't forget back when YC invested in AirBnB and Stripe that they only put in $20,000 for the 7%, which brings down your valuation quite a bit closer to something that might include AirBnB and Stripe as 10,000x exits.

[tfehring]

As I understand it, YC has the right to participate in priced rounds at the same valuation as other investors to retain their 7% stake. That does reduce the return on their most successful investments (since the denominator is bigger), but it also causes those investments to make up a larger share of their portfolio, which helps their aggregate ROI.