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How to Fund a Startup
21 hours ago
- Venture funding operates in gears, with startups taking just enough money to reach the next stage.
- Conflicts with investors can be more problematic for startups than dealing with competitors.
- The five main sources of startup funding are friends/family, consulting, angel investors, seed firms, and venture capital funds.
- Friends and family funding is accessible but mixes business with personal life and may involve non-accredited investors.
- Consulting can fund a startup but carries risks of distraction and lower returns compared to product-focused startups.
- Angel investors provide early funding and valuable advice, but their deals vary widely and may lack protections.
- Seed firms offer standardized early-stage investments with a focus on founders rather than ideas.
- Venture capital firms invest large sums later on, with tougher terms like vesting and board control.
- Startups should approach VCs with personal introductions and when they can convincingly demonstrate potential.
- Deals often fall through due to buyer's remorse and the risky nature of startups; persistence is key.
- Key strategies include spending little, working fast, and maintaining leverage through competition in negotiations.
A New Venture Animal
21 hours ago
- Y Combinator's primary role is not just seed funding but helping early-stage startups get launched, similar to a steam catapult on an aircraft carrier.
- In the earliest stages, money is less important than the intensive help and guidance needed to address fundamental questions about technology, design, and team.
- YC provides a three-month program where startups relocate, receive hands-on support to resolve co-founder tensions, set up paperwork, and focus on building an impressive product.
- Demo Day serves as the launch mechanism, presenting startups to Silicon Valley investors after the intensive preparation phase.
- YC targets a different niche than VCs: it creates new deal flow by encouraging hackers to start companies instead of taking jobs, competing more with employers than with other investors.
- Declining startup costs due to technology advances have made it feasible to launch companies with minimal funding, enabling YC's model.
The Future of Startup Funding
21 hours ago
- The gap between large VC investments and smaller startup needs is being filled by super-angels.
- Angel rounds are becoming more legitimate, competing with series A in prestige.
- VCs should adapt by taking fewer board seats and doing more, smaller deals.
- Future angel rounds will involve rolling closes, less restrictive terms, and startups in charge.
- Founders are gaining power, leading to faster, simpler, and more founder-friendly funding.
- Investors will need to make quicker decisions and close deals faster to attract hot startups.
- Abuses like option pools and tranched deals will decline as founders gain leverage.
The New Funding Landscape
21 hours ago
- Startup funding has entered a period of change with the emergence of 'super-angels,' a new investor type between traditional angels and VCs.
- Super-angels invest larger amounts than angels (around $100k), make decisions quickly, and compete with both angels and VCs by offering a faster, lighter form of funding.
- This shift allows startups to raise medium-sized rounds (like $600k) with less dilution and control loss compared to traditional Series A rounds.
- VCs are responding by making smaller, angel-sized investments, which can drive up valuations and create competition.
- Founders benefit from higher valuations, faster funding rounds, and more options, but must consider 'signalling risk' if VCs decline further investment.
- The long-term outlook suggests convergence between super-angels and VCs, with continued favorable conditions for startups in the next few years.
How Y Combinator Started
21 hours ago
- Y Combinator was founded on March 11, 2005, by Paul Graham, Jessica Livingston, Robert Morris, and Trevor Blackwell with an initial fund of $200,000.
- The idea emerged from a discussion about flaws in the venture capital business, leading to a focus on smaller, more numerous investments in hackers and young founders.
- Originally named Cambridge Seed, it was quickly renamed to Y Combinator to allow for national scope beyond a single location.
- Initially conceived as a standardized seed funding source, addressing the haphazard nature of early-stage investments.
- The synchronous batch model, funding startups together in cycles, was discovered by accident through a summer program for undergraduates and later became core to Y Combinator's approach.
- The first batch of founders exceeded expectations, leading to the 'Y Combinator effect' where outsiders realized the startups' potential.
- The second batch was held in Silicon Valley, specifically Mountain View, chosen for its density of startup talent and favorable conditions.
- The summer program structure and length proved ideal, remaining largely unchanged since the first batch.
- The founders initially viewed the investment as an educational expense and charitable donation, but the startups turned out surprisingly successful.
- The decision to move to California was a last-minute choice driven by the desire to be at the center of startup activity and avoid competition.
Startup Investing Trends
21 hours ago
- Y Combinator has funded 564 startups; total valuation of those with valuations is about $11.7 billion, with top 10 accounting for $8.6 billion.
- Batch size was reduced from 84 to 53 to fix an n² algorithm scaling issue, now resolved with new sharding techniques.
- Two major forces driving change: startups are becoming cheaper to start, and starting a startup is becoming a more normal career path.
- Founders will increasingly have the upper hand over investors, leading to less dilution and more control for founders, but potentially more good startups for investors.
- The number of big hits (traditionally 15 per year) could increase significantly as more talented founders start companies, possibly reaching 50 or 100.
- Top venture capital firms will benefit from more high-quality startups, while weaker firms may pay higher prices for leftovers.
- Angel investors have new opportunities: quick decisions (e.g., $100k within 24 hours) can attract the best deals, and founders value speed over prolonged negotiations.
- Idea clashes may become more common as the number of startups grows, increasing competition.
- Series A rounds are problematic: VCs often force companies to take more money than needed to maintain a large ownership percentage, creating tension with founders.
- There is an opportunity for VCs to break ranks by offering series A rounds based on the company's needs and letting the equity percentage vary with market conditions.
- Founders' complaints (e.g., slow investors, excessive dilution) signal unmet demand; investors should do what founders want.
Billionaires Build
21 hours ago
- Y Combinator (YC) looks for founders who understand their users and can build what they want, rather than exploit people.
- A successful startup must have a 'larval market'—a small but growable market of initial users who urgently need the product.
- The best YC interview preparation is to deeply understand your users and teach the partners about them, not to pitch or control the conversation.
- Founders should be honest about risks, competitors, and gaps in knowledge; partners value thoughtfulness and authenticity over flawless ideas.
- The defining quality of billionaire founders is genuine interest in their project, not exploitation, which correlates with long-term success.

startup funding

How to Fund a Startup

A New Venture Animal

The Future of Startup Funding

The New Funding Landscape

How Y Combinator Started

Startup Investing Trends

Billionaires Build