0/ With 320 companies in the latest batch, it’s time YC seriously considers a YC ETF.
Why?
- The whole batch would get funded < 1 week
- Founders can personally de-risk and share in upside
- 1M+ new “outsiders” could get some skin in the game
Here’s how I would do it:
Why?
- The whole batch would get funded < 1 week
- Founders can personally de-risk and share in upside
- 1M+ new “outsiders” could get some skin in the game
Here’s how I would do it:
1/ First, let’s level set. What’s an ETF?
ETF = a collection of securities in a single vehicle.
Suppose you wanted to buy shares of all companies in the S&P 500.
Pre-ETF, you’d buy each individual stock.
An ETF let's you buy 1 stock (SPY) to get exposure to all 500.
ETF = a collection of securities in a single vehicle.
Suppose you wanted to buy shares of all companies in the S&P 500.
Pre-ETF, you’d buy each individual stock.
An ETF let's you buy 1 stock (SPY) to get exposure to all 500.
2/ Let’s take a look at the latest YC Batch:
- Companies: 320
- Avg. Funds Raised at Demo Day: ~1-2M
Meaning, the total funds raised across the batch are ~$300-600M
Since Demo Day on Tuesday, 50,000 "investor intros" have been made according to YC's tracker (!)
- Companies: 320
- Avg. Funds Raised at Demo Day: ~1-2M
Meaning, the total funds raised across the batch are ~$300-600M
Since Demo Day on Tuesday, 50,000 "investor intros" have been made according to YC's tracker (!)
3/ What if instead of 50,000 one-off investor intros, you could buy the whole batch with one click?
- Funds Required: $300-600M
- Avg Check Size: $5,000
- Investors Needed: 60k-120k
For reference, last week @shl raised $5M from 7k+ people in 1 day with a max check size of $1k
- Funds Required: $300-600M
- Avg Check Size: $5,000
- Investors Needed: 60k-120k
For reference, last week @shl raised $5M from 7k+ people in 1 day with a max check size of $1k
4/ Mechanically here's how I'd set it up:
- YC charges a 20% carry
- Carry is shared back with all Founders in the batch
- Founders have to put at least 75% of their fundraise in this ETF (e.g. if you want to raise $2M, at least $1.5M automatically goes into this vehicle)
- YC charges a 20% carry
- Carry is shared back with all Founders in the batch
- Founders have to put at least 75% of their fundraise in this ETF (e.g. if you want to raise $2M, at least $1.5M automatically goes into this vehicle)
5/ Assume a Batch produces a "3x net of fees" return (~ top quartile VC fund).
- Total Invested: $500M
- Total Gross Return: $1.75B
- Carry: 20%
- Total Net Return: $1.5B
- Carry Value: $250M
Investors WIN: 17% IRR (2x the S&P)
Founders WIN: $500k each (assume 500 in batch)
- Total Invested: $500M
- Total Gross Return: $1.75B
- Carry: 20%
- Total Net Return: $1.5B
- Carry Value: $250M
Investors WIN: 17% IRR (2x the S&P)
Founders WIN: $500k each (assume 500 in batch)
6/ A YC ETF would supercharge the whole ecosystem:
⬆️founders - less risk to get started
⬆️startups - more $ gets poured back into next set of companies
⬆️value add - more customer, talent, partner, etc. connections
⬆️education - broadens mindset of "what is possible"
⬆️founders - less risk to get started
⬆️startups - more $ gets poured back into next set of companies
⬆️value add - more customer, talent, partner, etc. connections
⬆️education - broadens mindset of "what is possible"
7/ YC has a big incentive to do this.
With the ETF, YC ⬆️its value prop to a potentially insurmountable level:
✅All existing value
+ Round done in <1 week
+ Share in upside with batch
All that good juju (⬆️founders, startup, value add, education) is attributed back to them
With the ETF, YC ⬆️its value prop to a potentially insurmountable level:
✅All existing value
+ Round done in <1 week
+ Share in upside with batch
All that good juju (⬆️founders, startup, value add, education) is attributed back to them
8/ But it’s risky!!
Relative to what?
YC is less than a decade old and already has 125+ companies valued above $150M.
Meanwhile the average tenure of a company in the S&P 500 is dropping precipitously.
I'd rather own a basket of YC (disruptors) than the S&P (disrupted).
Relative to what?
YC is less than a decade old and already has 125+ companies valued above $150M.
Meanwhile the average tenure of a company in the S&P 500 is dropping precipitously.
I'd rather own a basket of YC (disruptors) than the S&P (disrupted).
9/ So what’s the pushback / why doesn’t this work?
Likely 3 reasons:
- Regulatory: Is this legal / what are the parameters?
- Coordination: What if I want to opt out as a Founder?
- Relationship: How does this affect the Seed landscape?
I think you can overcome all 3.
Likely 3 reasons:
- Regulatory: Is this legal / what are the parameters?
- Coordination: What if I want to opt out as a Founder?
- Relationship: How does this affect the Seed landscape?
I think you can overcome all 3.
10/ REGULATORY
This is fast evolving in the right direction.
In 2016, the SEC passed Reg CF - allowing companies to raise $1.07M from non-accredited investors.
Last week, they expanded the cap - companies can now raise $5M PER YEAR from non-accredited investors.
This is fast evolving in the right direction.
In 2016, the SEC passed Reg CF - allowing companies to raise $1.07M from non-accredited investors.
Last week, they expanded the cap - companies can now raise $5M PER YEAR from non-accredited investors.
11/ COORDINATION
300 companies in the batch creates a complicated web - round sizes, valuations, etc. all change dynamically.
YC would have to provide enough flexibility to fill out the round outside of this construct.
E.g. 75% may get toggled down to 50% to accommodate.
300 companies in the batch creates a complicated web - round sizes, valuations, etc. all change dynamically.
YC would have to provide enough flexibility to fill out the round outside of this construct.
E.g. 75% may get toggled down to 50% to accommodate.
12/ RELATIONSHIPS
Considering a ton of "supply" just got cut, institutional investors won’'t be thrilled…
So? This instrument would create 1M+ superfans around the world and push on the inevitable path we’re headed down:
Individuals > institutions in the future.
Considering a ton of "supply" just got cut, institutional investors won’'t be thrilled…
So? This instrument would create 1M+ superfans around the world and push on the inevitable path we’re headed down:
Individuals > institutions in the future.
13/ A historical YC ETF would hold: Stripe, Airbnb, Coinbase, Doordash, Dropbox, Instacart, Cruise….and hundreds more amazing companies.
The crazy part?
YC has invested in a total of ~2800 companies over the last 15 years.
50% of that (~1400) has come in the last 3 years🤯
The crazy part?
YC has invested in a total of ~2800 companies over the last 15 years.
50% of that (~1400) has come in the last 3 years🤯
14/ The train has left the station.
New structures (e.g. rolling funds, crowdfunding platforms, etc.) are broadening access and distributing the gains.
YC playing in this space would have a major impact.
I'd love to see it and I have a feeling a bunch of others would too.
New structures (e.g. rolling funds, crowdfunding platforms, etc.) are broadening access and distributing the gains.
YC playing in this space would have a major impact.
I'd love to see it and I have a feeling a bunch of others would too.
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