Y Combinator welcomes the “cheap money” party punchbowl

Much has been written about Paul Graham and the recent Startup Fund $150K deal.  Some people think that it will be the end of the VC, some the end of Angels but most of this is just Jim Cramer saying Buy/Sell at the same time. because they are trying to predict the future of a market which is near impossible  Few people are talking about how it will affect the founders in the fund now and the companies being started today.

Obviously everybody who got in passed a pretty high bar or at least had a great connection to the YC team.  They will all get the usual classes, dinners, mailing list and access to extra resources since they have Golden Tickets but the extra money may do interesting things.

Pros

  • No longer focused on raising money on/before Demo Day  since it used to be make or break
  • More cash to hire a few people full or part time.  I am guessing that a lot of designers are getting calls these days
  • They can spend some money on fast user testing and iterate quickly if done right
  • Opportunity to limit dilution if they can get traction and raise a big round

Cons

  • Raises the bar for product launch.  Can’t have rough edges
  • Might not be able to get a critical mass of investors ready to do a deal at the same time
  • Have to explain how they maximized the cash and compared to YC peers
  • Pressure to raise the biggest round possible so we will see less “sensible seed or A rounds” and more blockbusters
  • and more busts since people will be less likely to be pizza profitable by Demo Day

I wonder how many of this class actually pass on Demo Day because they are going to stay in Stealth Mode for longer.  My guess is that these YC companies will look more like VC backed companies than Angel companies and will behave that way with higher burn rates, bigger goals but time will tell on the returns.  I can’t wait for the first YC alumni evening with new ($150K) and old (ramen) school groups.  The conversations about starting a company/funding would be like comparing SAT score pre-post adjustment.

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About svmoneyball

A lifelong student of silicon valley. I also tend to play a lot of Ultimate Frisbee.
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