[logicallee]

> But $120k is just not a lot of money. The real value of YC is the signal that getting accepted sends to other seed investors.

This idea (first quoted sentence) needs to die. It is toxic to the early-stage ecosystem. Any amount of money is a ton of money. Period. You can ignore the hustling that Jobs or Zuckerberg did for literally a couple of thousand dollars - read Zuckerberg's contracts at the time he was at Harvard making facebook. Look at the timing jobs "Stole" $5000 from Woz and founded Apple with it (making his friend a multimillionaire in the process). The reality is that no windfall bonus from Atari of less than $4300 - which is money that Jobs had 0, absolutely 0, access to, from any other source - equals no Apple. Look at the dates.

You can also ignore what companies actually spend the YCombinator seed money on when it was $14K-$20K, at a time that the YC badge easily added $200K+ to a YC company's average valuation - a badge that doesn't bring instant liquidity. How many YC companies would not exist if YC only added its badge to the valuation, and not actually given any money.[1]

What you can't ignore is that there are people who are working a day job while owning and building a company - working that day job because any amount of money, even part of a single full time earner's after-tax salary, is a ton of money.

Just try raising it.

[1] Imagine if the YC admission read: "Congratulations! This admission is easily worth $200K in extra valuation. With the YC badge, you should have no trouble raising money. We are therefore not making any cash investment, not even $12K, but rendering only services. We welcome you to the bay area on (date)."

[tptacek]

Sorry, I just don't agree. 120k barely makes expenses for 1 FTE. Not only that, but it's also an amount of money that a strong freelancer can generate on top of living expenses in a particularly well-utilized year.

[newsum]

Exactly. move into your mother's house. become a 1099 contractor at $100/hr+. save, save, and save. a year later there's your bootstrap funds + credit cards, excess of 100K. Outsource design/dev if necessary, launch it, raise a large seed round/series A, valuation 4m+

You don't have to give away anything. be an entrepreneur.

[ricardobeat]

And do that before you have kids.

[abracar]

Outsourcing design/dev doesn't sound like a good idea (nor does credit card debt)

[newsum]

nor does hoping/praying to get into YC so you can build the company of your dreams. take risks, calculated of course.

[mikeg8]

An idea-stage startup should not be paying a FTE 120k. That is lunacy and engineers need to start to understand this. More equity, lower salary until there is money coming in would help more companies survive longer while they look for product-market fit.

[tptacek]

I don't doubt that you're right about this, but I'm using the (lowball) estimate of the cost of a single developer as a benchmark for the amount of money we're talking about. Also: I'm not sure what you call someone who takes half salary in exchange for equity. It's probably not "cofounder", but "employee" doesn't fully capture it either.

[eldavido]

Maybe.

I have a roommate in SF. He's freelancing, I'm working at a company. He's making more cash than I am, but I'm working on building a company (as an employee) that's shipped multiple iterations of a category-leading product, raised $XX million in VC, and hired almost 100 people.

I'm not disputing that a good freelancer can clear $120k net of taxes and living expenses, just that that's the best path to take, if the end goal is to be an entrepreneur.

[tptacek]

Are we sure we're talking about the same thing? I'm not suggesting a freelancer can net $120k in a year. That's easy. I'm suggesting a freelancer can net $120k plus living expenses in a year --- a number perhaps closer to $200k-225k. The reason I think that I that I know a lot of people who do --- many of them outside my (particularly lucrative) specialty.

Practically every established consultancy in the US throws off numbers like that year in year out, as a routine. Which is one reason a lot of consultancies end up spinning up product teams.

[logicallee]

You're simply empirically wrong [about the 'amount' of money that represents, whether it is large enough to make a substantial difference], and your anchors[1] are not only irrelevant and misleading in an early-stage context, but extremely toxic.[2] What was Google's first check in the amount of? $100K. It was a ton of money. As Wikipedia points out, "The first funding for Google as a company was secured in August 1998 in the form of a US$100,000 contribution from Andy Bechtolsheim, co-founder of Sun Microsystems, given to a corporation which did not yet exist." They used that to raise "On June 7, 1999, a round of equity funding totalling $25 million", about 10 months later. Pop quiz. Which was more money, the $100K in the first context or the $25M in the second? Well, as I've heard they never did spend much of that $25M, it sat in Google's bank account while they grew and raised further rounds....

But that $100K? That was a ton of money.

Basically, you are wrong that it was not a ton of money, your anchors and comparisons are toxic and misleading, and if he had not cut that check then Larry and Sergey would not have created Google. That is what actual reality shows us.

You simply do an incredible disservice to all early-stage startups by talking in these terms.

I gave you several actual examples of far less than $120K being a ton of money in an early-stage context. As little as $5000 being a ton of money. I also specifically stated that if, say, $20K, weren't a lot of money, then it would make no difference empirically if YCombinator did not actually pay that cash. And YC companies wouldn't have either relied on or even actually spent that cash. But it does make a difference, and they did.

As I specifically point out: your FTE expenses are completely irrelevant, and even part (less than 100%) of the after-tax portion of a single FTE salary is a ton of money. (In an early-stage context.)

To imply otherwise does a huge disservice to all first-time, early-stage founders everywhere. The very idea is toxic and needs to die.

[1] The meaning of anchor I use is: http://en.wikipedia.org/wiki/Anchoring

[2] Your figures both about (1) the cost to the company of a fully loaded FTE senior engineer and (2) the amount that a good freelancer can generate above living expenses in a year, are irrelevant and do not need to be argued. I will grant both as irrelevant to the discussion.

[tptacek]

Your comment is very emphatic, but you didn't rebut either of my points:

* 120k will barely pay the fully loaded cost of a single engineer

* A good freelancer can generate 120k above living expenses in a year

Your response was "the fully loaded cost of an engineer is irrelevant". That's a weird argument, given that the cost of engineers dominates the expenses of early-stage startups.

[waterlesscloud]

That's cool and all, but what matters to a very early stage startup isn't the cost of hiring an engineer, it's covering the founders' living expenses and whatever business expenses arise (which may be very small).

You know this, so I'm not sure why you're off on a tangent about things that don't normally apply in these situations.

[tptacek]

There was a long comment here, but I found a better way to make my point:

If I gave you $120k to start a company with 1-2 other people, and you had no other funding commitments, I don't think I'd be changing your odds all that much.

But I have no trouble believing that when YC gives founders $120k, they are changing the odds significantly.

[nostrademons]

$100K is a ton of money to a student or someone whose career hasn't really "launched" yet. It's peanuts to anyone working in tech with a track record. You can easily save that much money in 1-2 years working at a 9-5 in a big company, or consulting.

The skills to get that big company job or land those consulting clients are pretty much the same skills you need to make your product company successful. An understanding of what people will pay you money for. Ability to execute on a project. Collaboration and communication. And of course, solid coding skills. The difference is that a product company also requires a fair degree of business strategy, determination, and sheer resourcefulness that you don't need to get a job.

So if you want to found a successful company, you're much better off developing those skills, testing them by getting a job or someone else to pay you money, and then striking off on your own. If you just get the money, chances are you will lose the money pretty soon too.

[argonaut]

You say it "was a ton of money," but you haven't provided any reasons that is the case, other than claiming that Google would not exist otherwise, something we don't really know either. Maybe Larry and Sergey didn't really need that 100k either, but took it just in case? And even if it were a lot of money at the time, 1999 was a different time and place. First-time founders were a lot less sophisticated. The seed funding environment that exists today didn't exist. AngelList did not exist. The current market rate for engineers and cost of living is a lot higher than then.

[Iftheshoefits]

That $120k has to buy incorporation and legal fees, business operating expenses, and living expenses for at least 2 founders for three months. It's significantly better than $17k plus a note, but it's still a small enough amount that the program effectively selects for founding teams who either don't need the money (e.g. already have substantial financial means from other sources) or haven't got anything to lose (e.g. 20-somethings fresh out of school, or still in it). That excludes a huge talent pool.

[ZenPro]

This. This x100.

We are in a crazy scenario where we are seeking a Series A with a good product in a validated market fit.

The investors have essentially said unless you are eating ramen noodles and scraping by we are not interested.

^^ That attitude essentially rules out anyone with a family, prior commitments or debts from college/life.

Why would a funding round not earmark a portion for a fair (albeit lower than market) salary?

[uiri]

I just want to raise the point that your Apple example doesn't take inflation into account. The $4300 in 1975 is roughly $18.5k (to within $500) in today's dollars. This is inline with YC's previous seed funding of $17k.

I have to agree with you that what is "a lot of money" is entirely relative; I don't think that $5k in today's terms is a lot of money by any startup's standards but any amount upwards of $15k or so is definitely "a lot of money" to a larval startup.

[ScottBurson]

I don't think you're expressing yourself very well, but I do think you have an interesting point. I would put it this way: if you want to start a company, and you manage to raise, say, $30k from friends and family, you should be very much encouraged, not discouraged. That's not to say you won't want to raise more later, but this may very well be enough to get you off the ground.

[morgante]

To be honest, I imagine they'd all still exist even if YC gave no funding. A program like YCVC would exist (because VCs put inordinate trust in YC) and startups would get the funding they need.

And, let's be honest, $120k really isn't a lot of money. Sure, it might be more than my net worth right now—but as an engineer I could easily save up that amount in less than 2 years.

[SocksCanClose]

... actually a "ton" of money is technically £2000, or $3365 at the 22APR14 exchange rate. $120,000 is therefore ~35.66 tons of money.

[_deh]

A ton is £100, you're thinking of an Archer.