https://every.to/napkin-math/is-yc-the-monopoly-it-thinks-it-is [every-logo] Subscribe Search [?] * About * Founders' Letter * Publications * Collections * * Contact Us * Login [small_EVER] Napkin Math Is YC the Monopoly It Thinks It Is? The Pricing Power Flex by Evan Armstrong February 10, 2022 17 [Napkin_MAt] Everyone loves to hate the champ. The king must be dethroned, the leader replaced. In Silicon Valley there is one institution that has resided at the top of the early-stage funding game for the last 10 years: Y Combinator. Their portfolio boasts over $400B in value, with 160+ companies valued at $150M+. What is even more impressive (at least to the strategy writer who runs this publication) is that they are the venture firm with the strongest network effects. A typical venture firm may compete on their ability to deploy capital quickly or on the clout of their partners. Y Combinator is different. By operating on an accelerator model, they make it such that the more companies that they fund, the stronger their network becomes. Each additional company means another potential customer and another expert that incoming CEOs can learn from. YC has leaned hard into that power, with an ever escalating number of startups running through their program. [optimized_] They seem to be untouchable. They are so confident in their power that they have recently instituted new funding terms that crowd out seed investors (their partners of yesteryear). Previously, Y Combinator offered $125K for 7% of the company. Now, their new terms are still $125K for 7% and then another $375K at the next round of funding. This means that they'll push out helpful angel investors and frustrate seed funds with ownership targets. You don't have to trust me on this one for the Napkin Math--take a look at the NM done by a seed stage investor on Twitter: [YjrQcUOY_n]Sheel Mohnot@pitdesi Replying to @jmelaskyriazi @jmelaskyriazi let's say the average YC round gets done at $12M today. Let's say I want 15% ownership, that's $1.8m. Want helpful angels for $500k, that's another 4%, and YC already took 7%. That's 26% dilution; now YC is taking another 3+%. January 10th 2022, 1:28pm EST 3 Retweets73 Likes Y Combinator would likely argue that seed stage funds can still be included! But for seed funds who have larger ownership targets, this new deal is a bitter pill. To me, this seems like the clear move of a monopolist, a king, who can take what they want because they know they are indispensable. The new funding terms alone would be an interesting story for Napkin Math, but what makes this truly fascinating is that they are making this move at the most competitive point in their history. There are numerous well-funded competitors (who also have network effects), all while the market for seed startups is, counter to popular narrative, shrinking in volume. So the question is, is Y Combinator a despot blinded by hubris on the brink of losing its throne? Or is the company truly as powerful as it appears? --------------------------------------------------------------------- If you would like to unlock the rest of the article, which includes profiles of 6 accelerators (including their AUM, funding, and strategy), the 4 avenues of attack that YC is under, and whether I think YC is doomed, please subscribe below. Your support enables me to act as an independent researcher in the space. As a special treat, if you subscribe using the button below, your first two weeks are free. Subscribe Learn more This post is for paying subscribers Subscribe - Or, login. Read this next: [newsprint_] [small_EVER] Napkin Math Substack Rhymes With Medium Substack can't decide if it's a CMS or a media brand. Neither could Medium. Their indecision will likely lead to similar outcomes. 146 Sep 26, 2020 by Adam Keesling [newsprint_] [small_EVER] Napkin Math Revenue: It's Simple, Until It Isn't Finally, a clear explanation of bookings, billings and revenue 123 Feb 5, 2021 by Evan Armstrong [newsprint_] [small_EVER] Napkin Math How AB 5 Will Break Uber's Business The difference between a contractor and an employee, what Uber's existing business looks like and how AB5 will impact their financials. 90 Aug 20, 2020 by Adam Keesling [thumbnail_] [small_EVER] Divinations Intangible Returns How strict prioritization processes cause malaise, and why you should take gut instinct more seriously in your planning process. 20 Sep 29, 2020 by Nathan Baschez [small_EVER] Divinations Your actual competition A guide to Porter's "Five Forces" framework--through the lens of Spotify 36 Jan 16, 2020 by Nathan Baschez Contact Us * Search * Terms (c)2022 Every Media, Inc