Paul Graham's Dilemma

A few observations:<p>1. A convertible note, however favorable its terms, is still fundamentally a <i>loan</i>. This means it will have a due date at which the holder may demand payment unless the amounts due have been converted into equity before then.<p>2. Item 1 in turn means that there will be no coasting for the YC companies upon receipt of this money or even necessarily a break from the pressure of fundraising. Why? Because the investment is not from a relative who is looking to get a high-interest-rate return on his investment but rather from a venture investor who fully expects that the company will make a good-faith effort to raise funds as appropriate to meet the minimum funding threshold at which his note will convert into equity. That means there will be considerable pressure to do a Series A round within the term of a typical note of this type, which means within the first 9 months.<p>3. What this money does then, in my view, is strengthen the negotiating leverage of the YC companies in terms of getting further bridge funding to carry them out to Series A. They won't need to worry about survival money during their first steps and they can in turn be more selective about whom to talk to and what terms to consider in taking further bridge money for their early build-out.<p>4. The terms of these notes will undoubtedly have provisions covering what happens if the startup is acquired before a triggering event for the note conversion. Those terms might vary widely but my guess is that they will be such as to motivate the founders to push for funding so as to effect a conversion. There is nothing wrong with an investor building in reasonable safeguards to make sure he doesn't get abused and the safeguards here might be such as to make it unattractive for the founders to exit via M&#38;A prior to conversion, which again means that there will be great pressure to get the larger funding.<p>The biggest impact here will be on those investors competing for early deal-flow and on what should be a broader pool of applicants who can now seek to go the YC direction. I doubt that it will relieve the fund-raising rigors of the YC companies themselves very much, if at all.

The tone of this article makes me nervous. It became clear to me why, when I got to this:<p><i>Talent selection in the hands of too few is one sort of problem, but financial engineering concentrated in the hands of too few, especially those who think of themselves as smart, is really, really dangerous.</i><p>No, it's really not <i>dangerous</i>. Dangerous is something that can deprive people of their life or property without them choosing to take on that risk; it's normally something the government is supposed to prevent. The markets are designed for investors to take risks, and overall, it's a great system; it's the <i>opposite</i> of dangerous.<p>(In fact, if people supposedly having knowledge about venture capital start shouting about how "dangerous" it is, that's only going to increase the amount of government regulation, which is a lose-lose for everyone involved in venture capital or startups.)<p>The whole article takes on sort of an end-of-the-world gloomy tone. Y Combinator just doesn't have <i>that</i> big of an impact. If Y Combinator were to disappear tomorrow, things would keep on going, <i>at least</i> just as well as they were before Y Combinator was brought into existence.

I've been wondering this, so here goes.<p>By accepting this money, is YC basically saying that $10-20k isn't enough to startup? Or at least that having the next $150k promised is beneficial to startups in general?<p>If that's true, why doesn't YC just give more money to teams to begin with? I thought the low amount was part of the secret sauce - constraints leading to creativity and all that.

What is Yahoo! Combinator?

I don't really get the whole controversy with the angel industry. It's not a friendly world, it's vicious out there. You can't honestly just sit there, and expect the game to stay the same for the next century... It's a fast moving world. To stay competitive, new investment ideas should be developed, like Yuri's genius plan.<p>People are criticizing how it's a bad investment, but come on DST has earned god knows how much money from the three social network/deal/gaming giants, they can afford to lose some money. Bottom line, these offers are great for the entrepreneurs, which is what i believe pg would want, therefore he allowed Yuri/Conway to propose such deals to them. If these were horrible deals with massive strings attached, pg would never allow that to happen to his YC peeps.<p>The main reason i love what Yuri is doing is because this deal has increased the possibility of the American Dream. If you're brilliant enough and hard working enough, you don't need a rich family to become successful. Even if you lack in startup capital, YC, and soon many startup accelerator, as well as the increase flow of angel money (if angels want to stay competitive), will open endless doors of opportunities.

pg already gets tons of applicants per round, I don't think Yuri's plan will triple the number of applicants so I doubt it will be a problem in the short term at least.

Why is this viewed as a problem? He's already said he has never (and won't) set a cap limit on the number of startups he accepts, so if he gets more great companies, there will be more great companies. And also, when has people fighting for your product (his product, being this mentor program) ever been an issue? If anything, this is going to skyrocket his clout and prove that what he's doing works (and very well).

tl;dr = The influx of potential startups due to Yuri's $150k investment offer is going to cause problems for PG and YC.

is the failure rate of startups so high because a lot of the people involved are inexperienced?<p>will the 150K improve the success rate by motivating more experienced people to join?

I got a notification from my antivirus program about a malware. I am not sure what it said exactly though because I pressed "Deny Access" quickly. So, beware.

"That[Yuri's uncapped convert notes] drives up the check amounts, removes the incentives for the angels (uncapped converts…really?) and doesn’t really allow any one angel to take the mutual fund model, which means they would be investing with no due diligence. "<p>Yikes...I never thought about it that way. Basically Yuri is encouraging the speed at which the angel/super-angel bubble is hyper-inflating. I wonder if most incubators/angels have responded/will respond with refusal to go along with Yuri, or up the ante with larger amount of angel investment?