WhoBuilt

The Secret That Silicon Valley's Top Investors All Share

Aug 23, 2023· 12 min· 55K views·Watch on YouTube

Speakers

Y Combinator’s Dalton and Michael discuss why leading investors often back YC companies despite sometimes advising founders against the program.

Investors back YC companies

Dalton and Michael point to investment counts as evidence that prominent firms invest in YC companies. They cite 234 investments by a16z, 139 by Sequoia, and 104 by Founders Fund.

YC helps investors find and prepare companies

Dalton says VCs often pass because a startup is too early and lacks enough evidence to stand out. YC screens thousands of applications, helps selected startups stay funded, and advises them on sales, pitching, and pivots, giving later-stage investors more signal.

Why VCs may not want to be first

Michael compares YC to a supplier that selects and prepares ingredients for restaurants. The speakers say VCs may prefer to meet founders first, but limited deal capacity, conflict concerns, and lack of early data make it difficult to invest in every promising startup at the earliest stage.

Seed funds face different incentives

The speakers say seed funds often seek substantial ownership in a startup’s first round, their main chance to invest before later rounds dilute their stake. They note that startups after Demo Day may command valuations of $15–25 million, compared with $5–10 million for companies found earlier.

Judge advice by whether it comes with an offer

Dalton advises founders to consider whether someone giving fundraising advice is actually offering to invest. A concrete offer deserves serious consideration, while advice to delay or avoid other investors may reflect the adviser’s business incentives. He suggests comparing investors’ actions with their public comments.

Takeaways

  • When evaluating fundraising advice, ask whether the adviser is offering capital.
  • Understand how an investor’s fund size, stage, and ownership goals shape their recommendations.
  • YC can provide funding, advice, and a signal that helps later-stage investors assess a startup.
  • Compare investors’ actual investment behavior with what they say publicly.
  • Consider the valuation and ownership tradeoffs of raising before or after an accelerator.

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