Is YC a force to reckon with?...a model to replicate? I'd love to hear some guesses about how well they've done so far.
I tried to estimate their return on Reddit (http://news.ycombinator.com/comments?id=4474), but couldn't find even a ballpark number for the sale (paul? ;) ). My best guess is that they did great, but not stratospheric. With Kiko selling for 200K, they can't have done much more than break even.
Perhaps seed money has different economics than later stage VC money, which traditionally looks for 10x return on 10%(+) of companies. Are they getting in early in hopes of getting 100x return on 1%(+) of companies?
We have no idea how much money something like YC might make long term. VC is a well understood business, but this is completely new. We're in the black at the moment, but not buying jets.
We lost money on Kiko, incidentally. Their later stage investors got paid back, and the founders made a little, but YC got 38 cents on the dollar.
The VC model encourages/forces founders to go for huge exits. You can't do a series A round and then sell the company for 10 million. Probably not even 20. The VCs won't let you. So they're more likely to get the giant outcomes that make up for the losses on the rest of their portfolio. Whereas there's nothing to prevent the founders of a startup we fund selling early for comparatively little.
Also, VCs have leverage working for them. They get a percentage of the returns on other people's money. We're using only our own.
Smaller principal x lower returns = less profit. Probably. But we're hoping to make enough that we can at least keep doing this.
Shooting in the dark, I'd say one big difference is the focus on the founders, rather than just throwing money in and hoping for something valuable to pop out. You can see that in the YC application--very different from a request for a business plan.
Another possibility is that YC could maintain a higher percentage of success, at a lower individual return. Because YC attracts some of the best young talent around, is very selective in funding, and seriously optimizes their fundees chances of success, it's not unreasonable that YC could maintain a better batting average than the VCs.
Another possibility is that because YC tends to form definite relationships with the founders they fund, they can count on the law of large numbers within, not just between, teams. For instance, YC lost money on Kiko, but is also invested in justin.tv--if justin.tv makes it, the YC[kiko folk] relationship could still end in the black.
N.B. This is all complete speculation; any more insight from pg would be appreciated.
Higher percentage of success seems like a plausible outcome of the YC model. Everyone involved is clearly committed to something more than the 15-20K. Perhaps that's the advantage of recruiting hackers instead of b-school graduates...it's easier to endow hackers with good business connections than it is to endow b-school types with smartness!?
I haven't written about them because they are making money comparable to the likes of Sequoia, but the effect it is having and will continue to have in making smart people realize their true potential.
Is there any measure to transform the value of awareness, mentorship and intellectual capital into money?
Quantitatively and predictively, no. You can only look at the outcomes from YC-funded companies, see to what extent they beat the curve. Of course, you still have to sort out the potentially higher quality of YC fundees to begin with. It's a hard statistical problem; any takers?
I tried to estimate their return on Reddit (http://news.ycombinator.com/comments?id=4474), but couldn't find even a ballpark number for the sale (paul? ;) ). My best guess is that they did great, but not stratospheric. With Kiko selling for 200K, they can't have done much more than break even.
Perhaps seed money has different economics than later stage VC money, which traditionally looks for 10x return on 10%(+) of companies. Are they getting in early in hopes of getting 100x return on 1%(+) of companies?