I had a couple issues with this article. In the first para, Yi-Wyn writes, "[the Zenters] wanted their online version of PowerPoint to get bought by Google." Wow, I thought. That's news. I mean sure, everyone probably wouldn't mind being bought by Google, but the Zenters apparently were so bold as to say it in an interview. But if you follow the link, you see what he is referencing is a guess that he made: "Crosby and Robby Walker must surely be hoping they'll go big and get bought out by Google." Lame.
The headline is also a let down. I wanted to know "how a six-month-old startup got bought by Google." How did they meet Google? Was it the YC connection? Was Google at Demo Day? Who approached who?
One of the YC dinner speakers was a Googler - that's how it got started. Later on we approached him, gave a demo, and that is how the ball got rolling.
I also don't know for sure but I assume the YC partners helped talk us up to all the speakers - which couldn't have hurt.
And while we didn't not want our product to be bought by Google, it certainly wasn't the goal we set out with. We wanted to create a compelling product and make sure every week at YC dinners somebody asked "how did you do that?".
"If people get the impression that you want to get bought, you won't."
"If 98% of the time success means getting bought, why not be open about it? If 98% of the time you're doing product development on spec for some big company, why not think of that as your task?" -- http://www.paulgraham.com/ideas.html
Maybe you should be open amongst your team but coy with outsiders?
Everything you want in life you have to play hard to get otherwise you wont get it or at least will get a rubbish valuation if you do, that's just obvious.
"Stick to your knitting," says Paul Graham, a founding partner of Y Combinator, the startup factory that funded Zenter. "The way to get acquired really fast is to not focus on it. If people get the impression that you want to get bought, you won't."
What the hell other impression would people get from someone who applies to YC and then goes to Demo Day?
Actually the startups we've funded have a whole range of ambitions. Some would sell early if they could; others are bent on world domination (like Loopt).
I don't know why everyone seems to think we encourage founders to sell early. Like all venture investors, we make more money if founders don't sell early, and instead keep trying to grow the company. We can afford more risk than founders can. The difference between us and most other venture investors is that we don't forbid founders to sell early, if they really want to. But surely you can see that it would be more in our interest if they all tried to be the next Google?
That's not a whole range of ambitions. It's either "Get bought" or Facebook/Google.
"During the acquisition talks, ... The one refrain we heard quite often was from Paul, who reminded us in nearly every conversation: "Deals fall through!"
Seems like you were shopping Reddit.com vigorously. Let's do a naive calculation:
Profit:
6% - at least $250k - able to fund at least 5-6 more YCs
10% - at least $450k - able to fund at least 12 more YCs
Assuming half companies died, you still can fun tons more.
Now, if you look at the companies you funded, probably only 1 company out of 5 that can stand as long as Loopt. Others are just developing "feature". "Feature" companies should be flipped ASAP otherwise they're not going to stay long. Logically, it's true that you'll make more money if the companies don't sell early, but the odd says otherwise, you have to sell most of your companies if YC wants to sustain itself.
YC has a good business model I'd say. Plus you are elevating your value in public (think of conference, talks, book agreements and such) and building your network with all the bigs in Sillicon Valley (companies and VC).
We didn't shop reddit. Conde Nast found them. We didn't even know anyone at Conde Nast till they bought reddit.
Nor would we intentionally fund a startup that had no prospect of making money as an independent company. It's crazy to count on getting bought, because acquirers are so unpredictable.
You actually thought all the startups you funded could make money as independent companies, at the time you funded them?
I thought your model was a kind of a "throw it at the wall and see what sticks" approach. Then triage the promising ones, with the explicit understanding that a lot of the startups would lack prospects.
Google was a feature on Yahoo's site. They would have even sold their "feature company" were anyone willing to pay enough for the value they knew they had created.
This is the altruistic part of YC that will be very hard for the YC clones to copy well. Most investors will get greedy and push their investments to boom or bust.
By trying to be the next Google, the company may significantly lower its probability of getting any money at all out of the deal. So it's an expected value issue -- which expectation is higher? Is it really so obvious that the larger sales price the company would get outweighs the hit in payout probability?
> I don't know why everyone seems to think we encourage founders to sell early
I didn't say "sell early". I'm talking about getting bought. I've read about how other YC-backed startups got early acquisition offers but didn't take them -- because they were too low.
Selling early really has nothing to do with it except as a correlation with offers that are usually going to be lowballing. The operative distinction is selling cheaply.
Hmm. I sorta see your point, but I think it's a little more nuanced than that. There's a continuum. I'm guessing he means the bulk of your time should be spent building a good product as opposed to aggressively courting acquirers. If your main focus is on your product then a Demo Day here and there is just good business.
My impression is that everyone wants to get bought. Even Google tried to get bought first.
It's quite possible PG was misquoted -- news reports do that all the time. I'm not going to try to guess what he "really" meant in this article when his own website essays say something different.
Getting bought is the #1 exit strategy. Even Viaweb got bought. Hardly anyone is going public these days, so that means investors want you to get bought.
"Bought? Who, us? No way!" isn't going to fool anyone.
"Younger would-be founders are often surprised that investors expect them either to sell the company or go public. The reason is that investors need to get their capital back. They'll only consider companies that have an exit strategy-- meaning companies that could get bought or go public." -- http://www.paulgraham.com/startupfunding.html
No, what investors want is for you to go public. Next best would be the sort of huge acquisition where the price is increased by the threat of an IPO. Third best is a medium-scale (e.g. Viaweb) acquisition. Getting bought early is the least attractive option to investors except going out of business.
Exactly which of the YC companies can realistically go public? And who's going to sink that kind of money into them?
You said success 98% of the time means getting bought, which means you want them to get bought, and invest on that basis. They are acquisition targets.
Nobody's going public these days, even the gigantic sites. I don't buy that investors "want" you to go public except in a "wishing for a pony" sense. If they aren't actively planning for an IPO, they're betting on a buyout, and investing on that basis, so that's what they want.
Well, there have been two funded by Sequoia (Loopt and another still unannounced), and I doubt Sequoia would touch a startup unless in their opinion it had the potential to go public.
I would say off the top of my head that perhaps 5 startups of the 38 we funded prior to this round have a chance of going public one day.
The fact that being bought is the most common liquidity event certainly does not mean I want that to happen. If a baseball coach tells his players that the most common type of hit is a base hit, that doesn't mean he would not prefer them to hit home runs as often as possible.
Except you don't get points for merely getting on base -- it's not "success". And if the bases are loaded, a safe double is better than a home run with bases empty.
As for Sequoia, they funded YouTube. If they had thought it could go public, why would they sell to Google? I assume because getting bought by an established company with a very strong stock status is preferable to rolling the dice -- IPOs can go straight downhill.
I think it's pretty obvious that they never planned on an IPO, but instead on a bidding war between Google, Yahoo, and Microsoft (and maybe others).
There's a big difference between "maybe we'll sell eventually" and "we're looking to flip this thing right now". It's important to avoid _having_ to sell.
"Flip" means to get rid of it. To the contrary, founders may well be in a hurry to scale UP, which you certainly can do when acquired by the right company, like Google (as you know).
Flip implies a very quick sell to turn a fast profit. Building to flip and building something up that you personally acknowledge to be valuable to other companies is very different.
Yes, startup founders may acknowledge to themselves that an acquisition is their goal for an exit. But that acknowledgment is at the start. In the groundwork. You don't focus on trying to sell throughout -- you just try on making something people will want to use.
"If 98% of the time success means getting bought, why not be open about it? If 98% of the time you're doing product development on spec for some big company, why not think of that as your task?" -- http://www.paulgraham.com/ideas.html
Edit: I quoted that when I checked my threads, before I saw you excerpted the same thing as a top-level post elsewhere.
I don't know how if you've existed for only a few months and are in acquisition talks you aren't going to give the impression that you want to get bought.
not true. everybody has a price at which they´d sell. if you are approached for acquisition talks, why would you decline? it´s almost always worth your time to just talk, even if you aren´t really interested in selling -- you never know how things work out.
Yes true. You won't waste the time in acquisition talks if you're not interested in selling. Yes, everyone has a price, exactly, which is why the whole notion of pretending you don't want to be bought is meaningless BS. You just don't want to be bought cheaply.
If you're in talks, you're TRYING to sell, the only question is the price.
The headline is also a let down. I wanted to know "how a six-month-old startup got bought by Google." How did they meet Google? Was it the YC connection? Was Google at Demo Day? Who approached who?