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Businesses The Almighty Buck Technology

Y Combinator, the X Factor of Tech (economist.com) 54

universe520 writes: Since 2005 YC has taken on batches of promising founders, and this month will celebrate the funding of its 1,000th startup. Though about half of its startups have failed, which is typical of early-stage investing, it has had a head-turning record of success. In addition to Airbnb, YC has had a hand in Dropbox, a cloud-storage firm, and Stripe, a payments company. Eight of its firms have become what Valley folk call 'unicorns', valued at $1 billion or more. Combined, the companies it has invested in are worth around $65 billion (based on their most recent funding round), although YC's share is only a small fraction of that total—perhaps $1 billion-$2 billion. It is because of this record that YC has become a juggernaut in Silicon Valley.
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Y Combinator, the X Factor of Tech

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  • Evaluation bubble (Score:5, Insightful)

    by Anonymous Coward on Friday November 06, 2015 @06:45AM (#50875687)

    Is Airbnb really worth 25 billion? Really??? Dropbox at 10 billion?? And that's just somewhat successful YC stuff; Twitter, a company that is only good at losing investor money, is somehow valued at 19 billion.

    The real story here is the silly amount of "value" in companies that produce no tangible products. When this bubble pops, it's going to be really messy.

    • by tomhath ( 637240 )
      Valuation is nothing more than a multiple of how much cash the venture capitalists have sunk in the company. Put up $100K and the company is instantly "worth" a million dollars. So yea, what you said...
      • by Lakitu ( 136170 )

        True for some startups, but twitter's market cap is $19B. It's a publicly listed company with 676,300,000 shares outstanding which are being bought and sold for $28.17 each.

        $28.17 x 676,300,000 = $19,051,371,000

        Until people want to start literally giving away twitter shares, it's *actually* worth a fuckton of money.

        • True for some startups, but twitter's market cap is $19B. It's a publicly listed company with 676,300,000 shares outstanding which are being bought and sold for $28.17 each.

          $28.17 x 676,300,000 = $19,051,371,000

          Until people want to start literally giving away twitter shares, it's *actually* worth a fuckton of money.

          Yes, but the point is that the shares aren't really worth $28.17 as twitter is making and has always made losses. People are assuming that it will eventually make a profit, but there is no evidence for this.

          You should value companies based on their future profits/cashflows. Anything else is just witchcraft. And there is nothing special about tech companies that exempts them from financial reality.

          • by tomhath ( 637240 )

            It's a publicly listed company with 676,300,000 shares outstanding which are being bought and sold

            How many of those shares are actually being traded? Typically in an IPO the company issues millions of shares but only makes a few available for trading (perhaps 1% of the total), then hypes itself to try and drive up demand for the relatively few shares available. If twitter really did dump almost 700M shares on the market it's unlikely they could sell them.

            • by Lakitu ( 136170 )

              http://quotes.wsj.com/TWTR [wsj.com]

              volume of 8,107,527 today as I write this, meaning 8 million have exchanged hands just today.

              That's what makes it public - what an IPO does - is that the shares are all theoretically publicly available. There's no extra secret stock going on here. It's not an extrapolated value because an angel investor dropped $10 million into a startup. It's the public stock price, which people are openly paying millions of times daily, multiplied by the number of public shares which people own a

          • True for some startups, but twitter's market cap is $19B. It's a publicly listed company with 676,300,000 shares outstanding which are being bought and sold for $28.17 each.

            $28.17 x 676,300,000 = $19,051,371,000

            Until people want to start literally giving away twitter shares, it's *actually* worth a fuckton of money.

            ...

            You should value companies based on their future profits/cashflows. Anything else is just witchcraft. And there is nothing special about tech companies that exempts them from financial reality.

            Yes, you should value companies that way, but no, other ways of valuing a company aren't whichcraft. Once you have a highly liquid public market willing to buy your shares, obviously it's okay to value a company (at least in the short-term) based on what people are willing to pay for it. If they're willing to pay *more* than the expected value of future profits, of course, then you should usually sell, but it's not witchcraft.

            • by tomhath ( 637240 )

              Let me make sure I understand what you're saying.

              I incorporate, issue 1000 shares, put one share up for sale and buy it for $10,000. You are saying my company has a value of $10,000,000? Because that's essentially how dotcom IPOs work.

              • Let me make sure I understand what you're saying.

                I incorporate, issue 1000 shares, put one share up for sale and buy it for $10,000. You are saying my company has a value of $10,000,000? Because that's essentially how dotcom IPOs work.

                No, *you* are saying your company has a value of $10M, because that's what you paid for the one share. Or your buyer is. They are making a bet that your future profits will justify that or that someone will be willing to pay more for the company in the future. If it's just you, obviously you can be creating a fake expectation in the hope of sending a valuation signal. If I can sell a company for $10M and the present value of its future profit is $1M, of course I'm going to sell it unless I have some ext

    • by Anonymous Coward

      Yes, those values are accurate, due to hyperinflation. 20 years ago these companies would be worth 25 million and 10 million respectively. I'm willing to bet your salary didn't increase by a similar multiple. That's the real problem.

  • by Errol backfiring ( 1280012 ) on Friday November 06, 2015 @07:08AM (#50875733) Journal
    I hear the 90s calling. They want their dot-com bubble back.
  • by IamTheRealMike ( 537420 ) on Friday November 06, 2015 @07:29AM (#50875763)

    I thought I read somewhere that none of Dropbox, Stripe or Airbnb actually make a profit? Is that really a success story if so?

    • Re: (Score:2, Insightful)

      by Anonymous Coward

      1. Build a non-tangible online company.
      2. Trick investors about a profitable future. If not possible, GOTO 6
      3. Everyone knows about your product and uses it.
      4. Success!
      5. GOTO 2

      6. Company has failed, never made any money.

      • But they told me in my Coding for Everyone class that we shouldn't use goto, so could you please refactor and post this algorithm in Python for my studies? I think it can be very useful, do you have a github?

    • Re:Profit? (Score:5, Insightful)

      by eulernet ( 1132389 ) on Friday November 06, 2015 @08:51AM (#50875969)

      The success story is their ability to present something that has no value as something revolutionary and valuable.

      Everything is in the pitch.

    • The success is that they've duped people into believing that their worthy eleventy billion dollars.

    • Add Twitter to that list as well - and of course Uber. It's the same as the dot-bomb mantra: get big, grow revenue, worry about profit at a later date. Sure, you lose money on each transaction but you make it up in volume! Or something...

      In 1999, Lycos was the 3=4th most visited website in the world (behind AOL, Yahoo, and Microsoft). A year later, at 5th place, it was bought by Terra Networks for $12.5 billion (about $17.5 billion today). Four years later it was sold for about 2% of that value, and mo

      • Who gives a shit about how the company ended up? It sold for $12.5 billion. That's what matters.

        • Yep, at the peak of the bubble it sold for $12.5 billion. When the bubble burst, the real value of the company became apparent - 2% of that original sum. Same thing with the "unicorns" today who have no profit (and in the case of Twitter, no plan to get there). As soon as there's a bump in the VC funding market (like a bubble popping or deflating) those unicorns - so praised for being worth billions - will end up scattered about for a few millions at best.
  • The end is near (Score:3, Interesting)

    by Drunkulus ( 920976 ) on Friday November 06, 2015 @03:21PM (#50879111)
    The only reason there's so much venture capital is that interest rates are near zero and investors are willing to gamble on a better return. Once the Fed returns rates to historically normal levels, money for these dumbass startups will disappear. Same with insane real estate prices. A monthly payment on a million dollar mortgage at 3% interest is a bit over 4 grand, but at historically average rates of 8 to 10% that monthly payment will more than double.

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