Tim Chang on the Y Combinator “party-round” seed craze
Just sorting through some of my notes. Had not much time to read in the last few weeks, now mostly deleting. But stumbled upon a Facebook comment by Tim on a post on Y Combinator seed rounds.
nicely written post on the whole YC “party-round” seed craze. I’ll chime in with my $0.02:
1) the seed bubble makes total sense to me, and if I were a young 1st time entrepreneur today, I ‘d do the same: it’s a free option to “audition” and build a portfolio of your work in the hopes that a) it happens to explode and go viral; b) attract an early acqui-hire as a mega signing bonus at Facebook, Twitter, Google, etc.
2) most big exit social/B2C plays have never had a viable profitable & standalone business model (Hotmail, Youtube, Bebo, Instagram, etc.) — but they did manage to grow exponentially, retain an engaged audience and hold on to their attention span. This is what acquirers are really buying: captive community, upon which the buyer can leverage existing business models that are working (ad, commerce, etc.).
3) while incubators love to tout the democratization of easy starting capital (“everyone of you deserves to get funded!”), most folks don’t readily acknowledge that the mortality rate is in the 70%+ range — which has always been the case for early stage startups. Seed-stage startups are in most danger of hitting the “tweener” trap: product built, some signs of traction, but not enough to attract pre-emptive VC follow-on. Angels/seed-funds not designed for bridge rounds.
Net-net, I’m no longer looking at YC deals or “party-round” seed deals - but more than happy to revisit for follow-ons when there’s A) growth, or B) the come-to-Jesus seed recap :) Also spending more time with serial entrepreneurs with big vision who skip the incubator stage altogether…
