Key insights

• ⚡ Top investors secretly love investing in YC companies despite publicly expressing skepticism.
• ✨ Venture capitalists invest in Y Combinator companies as a result of a strong signal of potential success and confidence in their early-stage status.
• 🌟 Y Combinator offers more than just funding, including advice, networking, and support for pivoting, VCs can be likened to high-end restaurants that rely on purveyors for ingredients, similar to how they rely on YC for pre-selected startups.
• 💼 Venture capitalists aim to be the first to invest in a company, require data to invest at later stages, and prefer non-competitive conversations with founders.
• 📈 Investors value YC companies for their advanced stage and technical expertise, but may hesitate due to dilution of ownership and cautiousness about higher valuations after demo day.
• 💡 Seed funds are cautious about investing in YC companies after demo day and founders should consider actual investment offers seriously and learn from successful companies.

Q&A

• Why are seed funds cautious about investing in YC companies, and what advice is given to founders regarding investment offers?

  Seed funds are cautious about investing in YC companies due to higher valuations after demo day. Founders are advised to understand the dynamics of investors' businesses, consider actual investment offers seriously, and look at what successful companies do rather than what investors say.

• Why do venture capitalists have reservations about investing in YC companies, and what is the role of seed funds in this context?

  Venture capitalists may have reservations about investing in YC companies due to dilution of ownership, the preference for non-competitive conversations with founders, and concerns about conflicts with their investments. Seed funds aim to be the first checks in a company's early stage and have a more limited investment opportunity compared to traditional VC funds.

• What additional services does Y Combinator provide beyond funding, and how do venture capitalists view their relationship with YC?

  Y Combinator provides more than just funding, including advice, networking, and support for pivoting. Venture capitalists rely on YC for pre-selected startups, similar to how high-end restaurants rely on purveyors for ingredients. VCs want to be the first check for startups, but face challenges due to the risk of disintermediation.

• What factors attract venture capitalists to invest in Y Combinator (YC) companies?

  Venture capitalists are attracted to Y Combinator companies because they serve as a filter, narrowing down a large number of applications to a select few, making it easier for VCs to identify promising opportunities. Additionally, the YC stamp is a strong signal of potential success, and ensuring companies are financed are crucial factors that attract venture capitalists to invest in YC companies.

• Why do top investors secretly love investing in YC companies despite publicly expressing skepticism?

  Top investors invest in YC companies frequently because they provide a filter for promising startups, signify confidence in early-stage businesses, and ensure companies have necessary financing. This discrepancy between public skepticism and actual investment behavior may stem from the strategic advantages that YC companies offer to investors.

• 00:00 Top investors secretly love investing in YC companies despite publicly expressing skepticism.
• 02:00 Venture capitalists invest in Y Combinator (YC) companies because they provide a filter for promising startups, signal confidence in early-stage businesses, and ensure companies have necessary financing.
• 03:51 Y Combinator provides helpful services beyond just funding, like advice, networking, and support for pivoting. The role of VCs is compared to high-end restaurants that source ingredients from purveyors, similar to how VCs often rely on YC for pre-selected startups. VCs want to be the first check for startups, but it's difficult due to the potential for disintermediation when startups engage with others first.
• 05:47 Venture capitalists prefer non-competitive conversations with founders, aim to build brand equity, and require data to invest at later stages. YC encourages speaking to multiple investors, which VCs don't love.
• 07:36 Investors are interested in YC companies because they are more advanced and technical, but YC companies may not be the first choice for investors due to the dilution of ownership. Seed funds aim to be the first checks and have a more limited opportunity for investment compared to traditional VC funds.
• 09:23 Seed funds are cautious about investing in YC companies due to higher valuations after demo day. Founders should understand the dynamics of investors' businesses and consider actual investment offers seriously. Look at what successful companies do rather than what investors say.