We wanted to increase the number of startups we funded, but we didn't feel we could do that in a recession. We probably had enough money to last out the recession at the current rate, but we noticed that thinking this way was starting to make us conservative, which is the last thing you want in the seed funding business.
I don't think this deal would increase the likelihood of Sequoia investing in a given YC startup. They make up their own minds about who to invest in. But it should increase the absolute number they fund, because the number we fund will increase.
- $2M more to invest in startups (more money can't hurt and they clearly enjoy what they do)
- Sequoia investing in YC makes YC that much more trustworthy in the eyes of a lot of potential investees and potential acquirers of their startups. Also YC's reach in terms of potential acquirers and potential round 2 investors probably increases.
- It gets YC startups almost all the advantages of having Sequoia as an investor without the dilution of a large Sequoia investment (eg: opens a lot of doors for the YC startups to get their products in the marketplace.)
* In return for $2M, Sequoia gets:
- YC acting as a filter / very high quality pipeline for them
- Early access to YC deals (though not exclusive)
- Most likely, great returns on the $2M itself in the long term.
It gets YC startups almost all the advantages of having Sequoia as an investor without the dilution of a large Sequoia investment (eg: opens a lot of doors for the YC startups to get their products in the marketplace.)
I want to emphasize that this one isn't true. We're not claiming any such advantage. Sequoia won't be a direct investor in these startups.
Great returns because the market is down now and will go up in the next 4 years. If you think about this in relation to the stock market it makes perfect sense. People are investing now because they think the bad times are over (even if they aren't, it is still not a bad time to start investing in something that will take 3 or 4 years to mature like a startup). So both YC and Sequoia win because the valuation of the startup whether it is public or not will be greater in just a matter of years. More small risk, much greater potential return.
I also worry that it will hurt YC companies raising angel/VC money after YC. If these angels and Sequoia pass, won't other investors think that something is wrong with the company?
I guess they don't have enough cash in the bank to keep investing half a million dollars twice a year with no mostly returns for 7+ years (typical time for a start-up to become valuable).
Let's see, if I remember well they invested about 80 000$ in reddit (there was a second investment from YC if I'm not mistaken). So from this, they maybe took 10-15%.
Reddit sold for about 12 million dollars, so that would mean about 1.2-1.8 million: 2-3 years of yc investment.
Of course those numbers are pure speculation and it wouldn't suprise me if I'm completely mistaken...
It won't be any extra work. We already pay a lot of attention to all the investors in this deal, because they are the biggest investors in YC startups. In fact, that's how they were chosen.
