[cookiecaper]

Many investors are not very kind to founders with families and mortgages. YC itself is a horrible deal for anyone that's not a college dropout. Move out to SF for 3 months, leaving wife, kids, and property behind to fend for themselves, shack up in a tiny apartment with a co-founder, and get paid nothing for $20k and 5-7% of your company? That's alright man, pg can keep focusing on his college dropouts (of both sexes!).

Even more traditional investment arrangements put a great deal of focus on "equity compensation", i.e., only paying founders and employees the bare minimum for survival and "making up" the lacked payment with equity. Not a very realistic deal for an engineer with a family and mortgage who makes 120k-150k in the job market to take a startup gig for 60k (multiply numbers based on local cost of living).

The startup community is missing out on a lot of extremely useful experience and maturity with these cheapskate shenanigans. Of course, the investors are happy to lack this, because exploitation of naivety in founders is one of their primary mechanisms to maximize profit.

I've sought funding a few times myself and always backed out because I was getting offered a sucker's deal. Yes, it's much slower and much harder to bootstrap, but unless you're desperate, taking investment is not worth it, because investors are going to rake you over the coals. And that's the long and short of it.

[patio11]

The general "YC gives you not so much for quite a lot of equity" critique would have made a lot of sense ~5 years ago, when all you'd reasonably count on from doing YC is $10-20k. Currently, you're structurally guaranteed a substantial follow-on investment on terms which are practically "free money", and if your startup is not a walking zombie you're all but a mortal lock on a seed round at quite possibly the most systematically founder-friendly funding feeding frenzy terms in the Valley.

That's if you value the actual participation in YC (and later in their mafia) at nothing. I'd personally suggest, on the basis of numerous reports by founders I find personally credible, that it's a really good network to be in if your life plan includes doing a funded trajectory sort of company.

Incidentally, I've got a wee bit of experience with the boostrapped software business thing, and unless you do the consultancy to product route (which has plenty to recommend it) you're most probably going to take a dip from $120k to $150k for a couple of years at the outset. I know people who paid themselves that in year 2, but that's not incredibly common, and I'm coming up blank thinking of any bootstrapped product companies which made their founders that right out of the gate. (It's doable in consulting -- aggressive, but clearly doable.)

If that's a huge problem for you, I recommend a job at AmaGooFaceSoft. They're all good companies, they cut quite steady checks, and there is nothing wrong with taking their money if your family situation demands an iron floor at $120k.

[argonaut]

I'm not sure if you don't know what you're talking about or if you're just exaggerating for the sake of argument.

1. Most YC founders are not college dropouts. Quite a few are in every batch of YC, but nowhere near 20%.

2. YC isn't in SF. And most YC companies don't stay in SF during YC. Lots of companies stay in Mountain View, Palo Alto, Menlo Park, etc where you can rent out a 4-6 bedroom with your co-founder(s). Housing is even cheaper in other areas like Sunnyvale, Santa Clara, and San Jose, where you can potentially have a house to yourself.

3. If you expect to get paid for starting a startup, then obviously starting a startup is not for you. By definition there's nobody there to pay you except yourself. By definition you are exchanging equity for salary.

4. YC gives you $100k: $20k directly and $80k in convertible notes (well, SAFEs now) at the best possible terms (you'd never see elsewhere). The additional value of YC is that as long as you build a product with some users, you have an extremely high chance (not guaranteed) of raising 1M+ at a 5M+ valuation. Other companies that don't raise can go on to raise more convertible notes. In fact, going through YC is one way of guaranteeing that you don't end up being offered a sucker's deal.

[cookiecaper]

1. OK, we can expand it to "recent college graduates". The point is, YC is predominantly young adult males, aged in their early 20s, unlikely to have major external responsibilities.

2. As someone who's not from SV, everything in that area gets lumped into "SF" for me. My apologies if this is considered obtuse.

3. Isn't this kind of part of the point of seeking investment? Aren't you saying, "I can't do this all on my own, I need some help with the finances, and will cut you in if you'll hook me up"? Somehow I don't see that as the same thing as "please pay me a pittance". As I stated in another reply, if the founder could live on a pittance, the chances are he'd save up a little bit at his cushy corporate job and enter conservation mode with that, rather than seeking external funding.

4. I haven't looked for a few years, but I was not aware that YC offered an additional $100k in financial instruments. This is somewhat better, but I'm not sure how those instruments work in this specific case so I can't make a complete evaluation. As far as follow-on investments go, these all have their own separate terms, yes? Unless YC is officially brokering all of these, how can being a YC company prevent you from getting suckered by YC copycats?

[argonaut]

1. Yes, that much is true. Though I will claim that is partly a result of the applicant pool. My guess is that most applicants are young adult males.

3. If you're an exec earning $300k at big corp, you are not going to get $300k at a startup, because the startup obviously does not have the revenue or cash of big corp. Ditto for an engineer earning $150k at a tech company. But who said anything about a pittance? It's up to you to set your own salary. You can still pay yourself $100k/year, if that's necessary. The larger point of raising money is not just for paying yourself, but it's for hiring other people.

4. http://ycombinator.com/ycvc.html I made a correction to my post: the amount is now $80k, which is still good considering the assumption is that the money only holds you over until you raise money after Demo Day (say, 6 months). The link is a bit outdated because YC uses SAFEs now. But the notes had no discount and no cap, which are the best possible terms for notes, and that carries over to SAFEs. YC is brokering these. They have their own separate terms, but the terms are available publicly online and are the same for every YC company.

[run4_too]

I think you are missing cookiecapers main point by focusing on minutiae.

YC targets the young male college student demographic, partly because that demographic shares the different components that you two are arguing about. This isn't really relevant though.

If they were targeting suburban boomers that vote republican, it's silly to point out that some of their investments are actually women that voted democrat.

cookiecaper's point is that the effect of targeting a particular founder profile means that there are a lot of other high potential founders that are under served by the "Aquire Funding, Kill Yourself, Profit!" model. I would tend to agree with that, particularly when you see that across the spectrum, most businesses are started by people that are 40+ and have over 10 years of experience in an industry.

YC was started particularly because the "college dropout" demographic was under served. Now, at least when it comes to tech, they have become the norm and the "career switcher" has all but been ignored.

I don't think YC needs to address this in any way, but as a tech community I think we're missing an opportunity by not tapping in to what has traditionally been the strongest segment of new entrepreneurs.

[argonaut]

Do you have any evidence YC targets the young male demographic, today? AFAIK YC doesn't target any one demographic. They don't really do any outreach to demographics. I believe their cohort demographic is a result of their application demographic. Anecdotal evidence seems to agree with me.

[run4_too]

I don't want to speak for YC or their intentions, so perhaps target is the wrong word here, since I doubt they have model that looks to offer to the needs of a particular subset of people and then "sell" to them. That would be the traditional definition of a "target market"

However, what YC presents is a series of preferences and options that everyone knows appeal much more to a certain personality and - in this case - stage of life, than others. Jumping across a country to live in temporary stasis for three months (or whatever) isn't something a 45 year old woman with two kids and a career is likely to do. It's something a lot of 20 something college kids will consider though. Are they targeting college kids with that stance? Not particularly. Does their offering appeal to one demographic much more than another? Most certainly.

Overall though it's irrelevant, as I said. YC can target or not target as they choose.

The bigger point is that it's pretty hard for that 45 year old woman to gain traction in the tech world right now, and there could be an opportunity cost there that may be pretty large, considering how the demographics of entrepreneurs spread out over other industries.

[sdesol]

To be honest, I use to think YC would be a poor route to go, but having just dipped my feet into the marketing water, I would have to say it may be your best bet. Advertising and networking is a beast onto its own and there really is no bigger juggernaut for startup momentum than YC.

Like my professor use to say, owning 100% of nothing is nothing.

[altreal]

It would be hard to appreciate this without thinking like an investor. Let's say you pitched an investor. He has seen your passion and drive 100s of other times before. He decides to give you $200K as seed money so you can keep getting same income as your corporate cushy job. He knows your chance of failure is 90%. Next year very likely investor is going to loose all of that money.

On the other hand, you have no downside. For you, it's pretty much the change of job because you get to keep same income as before. In fact, it's much better than a change of job because now you get to work on stuff you want in your pajamas in your backyard of your 4 bedroom home. Come next year, there is 90% probability that your startup would have failed. But you would have zero loss in any material respect. Instead most likely you are just going to move on with your life and find another corporate cushy job with minor or even major promotion given that now you can brag about having tried your own startup and claim that experience.

So you see, we have a transaction where one party has 90% chance of loosing everything and other party gains 110% always. Anyone fantasizing about such transaction would have to find a great fool or own a casino. This is why you can't expect any competent investor funding your startup so you get to keep your "cushy job" income.

PS: Betting your "name" and "reputation" is meaningless to investors unless you are Evan Williams or Kevin Rose.

PS2: If you think investors are still getting fair deal because they have chance of hitting a jackpot, know this: Average VC fund has less returns than S&P 500. Rate of failures of startup takes away pretty much everything but small slice of big pot.

[cookiecaper]

1) Investors can vastly improve their odds by knowing what they're investing in. There's a reason Paul Graham and YC are the gold standard in these circles now, and that is because Paul Graham and YC are one of the only informed investors in the game. Practically everyone else is just playing a favorable casino game.

2) If an investor wants to give you $200k seed money, and you can make a justifiable case that you need $200k to maintain a reasonable lifestyle based on your family's needs, then you're going to need more than $200k.

That said, I don't argue that most founders need $200k, I just argue that they should be given reasonable allowances to provide some basic decencies for themselves and their families, instead of ending each pay cycle with less than ten bucks left in their pockets.

3) The risk should be appropriate on both sides. If $200k is a risk that jeopardizes the welfare of an investor, he shouldn't be investing it; "never invest more than you can afford to lose". And if taking a job at a startup is a risk that jeopardizes the welfare of a founder and his family, he shouldn't be risking it, for the same purpose. A good founder is worth a good salary. He probably shouldn't be rolling in the dough, but most investors seem skeptical if the founder isn't living off of ramen. This is not acceptable if you have a family to support.

What does a VC really lose if a company goes under? Not that much. The founders are pouring years of their life into the development of a product. They are asking their friends and colleagues to trust them to build something great and join them, transferring responsibility for their livelihoods as well. Founders have a legal and moral obligation and fiduciary duty to output the best product possible with their investment. Most founders take this responsibility very seriously. The failure of this venture is a major emotional loss to the founder. And what's the loss to the VC? Oh yeah, a rather insignificant portion of their total play, because it was specifically engineered to be that way. In fact, most of them hardly notice when these failures occur, unless they begin to occur en masse.

I find the argument "VCs have everything to lose if you don't take a 50-70% pay cut!" despicably shallow. VCs never have anything to lose except money, and certainly make sure never to jeopardize that in a serious manner, so what do VCs have to lose? Almost nothing. What does a founder have to lose? Oh, a few years of his life, emotional health and well-being, reputation and trust among his family and friends, etc. Just petty stuff compared to the $200k check an investor will write and instantly forget about.

The founder should be made to put even more on the line! He shouldn't be allowed a salary that's commensurate even with a cruise-control corporate position for all that responsibility. He shouldn't even be allowed a salary that will afford him a few basic privileges like a decent mode of transportation, decent living quarters in a decent neighborhood, or a bit of leisure every so often. No income to fiddle with new gadgets or experiment. No room to breathe. On top of the stress of the company, he must endure the stress of barely meting out enough to make his mortgage, which several people rely upon for shelter. He should do all of this because he needs more to lose, so that the VCs are satisfied.

The founder's only way to make any decent income backported over those years of indentured servitude is to make the VCs a billion dollars first. Seriously. And if anyone doesn't like this, then the VCs try to shame him and lecture him about the stakes. Remember how I said VCs depend heavily on the naivety of founders to maximize profits? Here you go.

[ryanSrich]

> The startup community is missing out on a lot of extremely useful experience and maturity with these cheapskate shenanigans. Of course, the investors are happy to lack this, because exploitation of naivety in founders is one of their primary mechanisms to maximize profit.

Perhaps the SV Startup Community is but as far as the Midwest and East Coast goes; 90% of the founders I interact with have a house and kids. The biggest difference in business is that most of these companies actually have mechanisms for generating revenue. Aside from the fact they are solving 'real world' problems, not just building iPhone apps that delete the picture after you take it...

[sytelus]

5-7% of your company

Where are you getting that number? My impression was that YC had very fair deal with founder equity > 30% (unless they are funding beyond angel).

Beyond that it's just risk/reward equation. If you want same income as your stable job then you are not taking risk and hence should not expect reward beyond that. Good founders rarely however expect same income as the stable job they could have gotten because they strongly believe in their vision and success and are willing to bet everything they have. That's the first requirement to be founder, IMO. Nearly every successful founders from Bill Gates to Elon Musk have showed this most important characteristics. BTW, lest you think Bill Gates was just another college dropout with nothing to loose, consider the fact that dropouts are usually at great schools, have spent lots of time, money and effort to get there and a suddenly giving up all that to chase some idea is significant risk taking. Even to this day, Elon Musk had been willing to bet every single penny he had on SpaceX. Without this singular characteristic, your chance of becoming successful founder is very low.

[cookiecaper]

You're still taking significant risk if you get paid market or near-market rates when you start your company. You've put your name on the line, you've committed yourself to providing a product and running a company, with all the difficulties it entails.

I understand the impulse to have founders prove their commitment by living as paupers, but I just don't think it's a good way to judge the competence of an investment. I think there are other meters for passion that are more accurate than "Yes, I'm willing to take a 50-70% pay cut".

[onion2k]

A few months on a very low wage (that is what the $20k is for..), away from your friends and family, living in a tiny apartment is nothing compared to working on something you feel exceptionally passionate about.

Chances are you'll never find that problem. Most people don't. Those problems are rare, and solutions to them rarer still. But that's fine. If you have a business idea that you're keen on but don't want to give months away from your family or accept a huge drop in income for, bootstrapping is the right way to go. But that doesn't mean investment is always for chumps. For the few that do find a problem that they live to solve, making the tremendous sacrifices at the beginning is worth it, even if other people get rich off your efforts. Your friends, family, investors and humanity as a whole is better for it.

[cookiecaper]

There's nothing wrong with other people getting rich off your success, as long as the ratios of wealth are commensurate with the value provided. This is very rarely the case in typical investment scenarios.

I have less respect for the man that lives to introduce the greatest SaaS platform ever built than I have for the man that lives to see that his home and family is well provided for.

Most grown-ups making grown-up wages can easily infuse 20k into their own businesses. Persons with that passion typically exercise a modicum of discipline and save up for a while before they decide to live on a shoestring. They don't need YC's help to do that, it happens among entrepreneurs the world over every day. And they get to keep 100% of their companies, and even get to continue living in their own houses!

Like I said, if you have no permanent responsibilities and no dependents and think it'd be cool to live in an apartment in SF on $200/wk for a while, be my guest, that's totally fine with me if that's what you want to do. But it's simply not realistic for any adult with permanent responsibilities, no matter how passionate they are. If such a person allowed his "passion" to override his obligations to provide, there'd be a good abandonment case against him. This kind of irresponsibility is simply not allowed when you're an adult with dependents.

Please do not attempt to twist this into "anyone who isn't willing to abandon his responsibilities is just not a passionate founder!" That's typical investor FUD and it's not constructive. It's an absurd ad-hominem.

Perhaps the problem is that we have not all become as morally decrepit as the investors that would claim we lack passion merely because we seek first to care for our wives and children. I'd say the man who provides for his family while bootstrapping a business all on his own has a good deal more passion, in more important areas, than the man who abandons his dependents to pretend like he's 21 again and live off pizza and ramen in a SF loft on a one-in-a-million shot while his family is left without his emotional, physical, and financial support.

[hhw]

Having permanent responsibilities and dependents means you have much less time to work on your startup, thus reducing your probability for success. Why should investors be interested in higher risk without a commensurate higher return? Obviously, there are other factors involved, but this is a very significant one.

[cookiecaper]

Because there is a commensurate higher return. The founder's family provides a mechanism to enforce a decent work-life balance and provide for the founder's emotional needs. There is also a high likelihood that founders with real dependents and obligations are more realistic, mature, and serious than founders without these things. Realism, maturity, and seriousness are all desirable traits in entrepreneurs.

[hhw]

Who's to say that a founder without a family will not posses realism, maturity, or seriousness. If anything, I would turn it around and say that being a founder and having a family is like trying to have your cake and eat it too, which is not realistic. Delayed gratification is one of the prevailing signs of maturity, and postponing settling down and starting a family until after establishing a business would be a clear example of it. And someone who consistently works very long hours is if anything serious.

We can argue these points all day, but the reality is, unless you can provide evidence that founders with families possess these attributes in measurably greater quantities, and with statistically significant higher probability of success, whether or not having a family is an asset or not in achieving success with a startup is purely subjective.

On the other hand, the number of available working hours, and how more work will result in greater likelihood of success is pretty objective. There may be diminishing returns as the number of hours increase, but at least up to a pretty high point, those returns will still be positive.

[cookiecaper]

On the delayed gratification note, there are a couple of points. First, not everyone knows that they are going to be starting a business in the short-term when they have children. Second, there is a very real biological countdown in place for child-bearing and child-rearing. Our bodies do much better when the parents of the children are in their 20s and 30s. Many who delay their families find that they're limited by age-related implications. There are no such biological countdowns on entrepreneurship, and founders' experience, and therefore value, only increases as they age (until the point where dementia or other debilitating mental conditions become a serious possibility, but for most people that's well past retirement age). From a lifelong perspective, if you intend to have children, it's more intelligent to prioritize reproduction and delay your gratification for entrepreneurship.

Furthermore, family life teaches much more about delayed gratification than single 20-something life. If your argument is that entrepreneurs should show maturity through delayed gratification, the college kid really does not want to go up against the family man.

As to your point that the availability of excessive numbers of working hours and lack of work-life balance is superior, I think there are many who'd disagree. I don't feel compelled to cite a bunch of literature at the moment, but suffice it to say that slave-driving is not considered effective management, and workaholics are not considered healthy people.

[beat]

There are important, valuable problems that simply aren't visible to the inexperienced kids that the current model wants working on startups. My own idea for a startup was the result of two decades of experience in the software industry and many years of seeing specific pain for myself and across the industry. I wouldn't have thought of it back in '94 when I was starting my career. And by the time I could see the problem (much less see a solution), I pretty much had the kids and the mortgage.

[jnardiello]

Only someone who doesn't have family could say: "A few months on a very low wage (that is what the $20k is for..), away from your friends and family, living in a tiny apartment is nothing compared to working on something you feel exceptionally passionate about."

Do you have small children? If so, can you try to imagine how difficult could be to miss the first words or first steps of your baby? Can you imagine what could mean to simply drop everything on the shoulder of your wife? Your comment is so superficial.

[argonaut]

Why do we always have to assume we're talking about small children? If that's a concern, wait until your children grow up to be teenagers before you leave for 3 months for YC.

[cookiecaper]

Do teenagers not need fathers? I understand what you're saying, but the point is that it's silly to set up a false dichotomy between entrepreneurship and family and attempt to force the entrepreneur to choose. I believe that the startup community is much poorer because of the tendency to do this, and I'm extremely suspicious of anyone who'd advocate it.

[argonaut]

Is it so hard to be away for 3 months?

Doing a startup instead of taking a stable job involves tradeoffs, like all choices. How much of a tradeoff you take depends on you. You can move your entire family to the Bay Area, with the tradeoffs that entails (uprooting family, more expensive housing). You can move to the Bay for 3-4 months with the intention of permanently setting up the startup back home, with its own tradeoffs (farther from investors, farther from mentors, 3-4 months away from family). Etc. etc. etc.

There is no false dichotomy. There is no free lunch. Stop making these narrow generalizations.

[cookiecaper]

There is a false dichotomy. Not asking for a free lunch. I think these are real concerns for entrepreneurs with dependents. Is it possible to be away for 3 months? Sure, it's possible, but almost everyone in this group, entrepreneurs with dependents, will tell you it's not worth it for the kind of terms that are being offered, and that it shouldn't be necessary to leave the family behind in order to start a business. It creates a great deal of strain to leave your family for that long, and the rewards need to be obviously worthwhile to justify it. In my estimation, and afaict, the estimation of almost all others in my peer group, the current startup programs do not make this tradeoff obviously worthwhile. And, for the third time, I think the bigger loss is on the side of the startup ecosystem when they create programs that are hostile to mature founders.

I guess it's hard to explain to someone who hasn't been in the predicament.